Chamberlain v. Kurtz, No. 76-2336

CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)
Writing for the CourtBefore JONES, AINSWORTH and HILL; AINSWORTH
Citation589 F.2d 827
Decision Date14 February 1979
Docket NumberNo. 76-2336
Parties79-1 USTC P 9211 Bart B. CHAMBERLAIN, Jr., etc., Plaintiff-Appellee-Cross Appellant, v. Jerome KURTZ, Commissioner of Internal Revenue, et al., Defendants- Appellants-Cross Appellees.

Page 827

589 F.2d 827
79-1 USTC P 9211
Bart B. CHAMBERLAIN, Jr., etc., Plaintiff-Appellee-Cross Appellant,
v.
Jerome KURTZ, Commissioner of Internal Revenue, et al.,
Defendants- Appellants-Cross Appellees.
No. 76-2336.
United States Court of Appeals,
Fifth Circuit.
Feb. 14, 1979.

Page 830

Charles S. White-Spunner, U. S. Atty., Mobile, Ala., Myron C. Baum, Acting Asst. Atty. Gen., Gilbert E. Andrews, Act. Chief, App. Sect., Robert E. Noel, John M. Cunningham, Donald J. Gavin, Robert A. Bernstein, James E. Crowe, Jr., Attys., Tax Div., Dept. of Justice, Washington, D. C., for defendants-appellants-cross appellees.

Lester M. Bridgeman, Louis T. Urbanczyk, Washington, D. C., Cooper C. Thurber, G. Sage Lyons, Mobile, Ala., for plaintiff-appellee-cross appellant.

Appeals from the United States District Court for the Southern District of Alabama.

Before JONES, AINSWORTH and HILL, Circuit Judges.

AINSWORTH, Circuit Judge:

This appeal presents novel and important questions under the Freedom of Information Act (FOIA) 1 in connection with a taxpayer's suit for the production and disclosure of certain Internal Revenue Service (IRS) information and documents. The IRS contends that under statutory provisions of the FOIA and under section 6103 of the Internal Revenue Code of 1954, as amended, 2 the documents at issue are exempt from disclosure. Bart W. Chamberlain brought this action under the FOIA to obtain from the IRS various documents compiled

Page 831

in the course of criminal and civil fraud investigations of Chamberlain's federal income tax returns for 1965 and 1966. The IRS resisted disclosure of most of the documents sought by plaintiff. On cross-motions for summary judgment the district court, after a review of detailed affidavits describing the documents and In camera inspection of the documents themselves, entered a comprehensive order directing that some documents be disclosed in their entirety, some be disclosed in part and withheld in part and some be withheld entirely. 3 The case comes before us on cross-appeals, the Government challenging the district court's order insofar as it mandates the disclosure of six specific documents and Chamberlain challenging the order to the extent that it permits any documents to be withheld in whole or in part. 4 After careful review of the documents concerned, we conclude that the six documents whose disposition the Government appeals may properly be withheld under an exemption to the FOIA; with regard to the documents whose disposition Chamberlain appeals, we affirm. 5 The district court's order is, therefore, affirmed in part and reversed in part.

The Facts:

The present litigation began with events that took place principally in 1965 and 1966. Chamberlain was then the sole general partner of Citronelle-Mobile Gathering System Company, Ltd. (Citmoco), an Alabama partnership located in Mobile. During 1965 and 1966 Chamberlain authorized Citmoco to pay Public Relations Counsel, Inc., a public relations firm, approximately $17,000 for services performed for a candidate for the United States Senate. These political contributions were entered on Citmoco's books in the account for "Legal and Accounting" expenses and were later improperly reported as business expenses on Citmoco's 1966 tax return.

There were several other disputes between Chamberlain and the IRS. A conflict regarding the tax years of 1956 through 1961 was finally ended by settlement in 1971. In 1965 the IRS Audit Division appointed Revenue Agent D. K. Taylor to undertake an investigation of Chamberlain's tax returns beginning with the 1962 tax year. This investigation eventually encompassed the years 1962 through 1968 and the dispute over income taxes due for those years remains unresolved. It was in the context of this broader inquiry that Agent Taylor investigated the treatment as business expenses of the political contributions made in 1965 and 1966.

The suspicion of possible fraud led Taylor to refer the matter to the IRS Intelligence Division in March 1970 for consideration of criminal prosecution. Special Agent A. A. Burch, to whom the case was assigned, concluded his investigation in July 1970 with a recommendation against prosecution and the Intelligence Division withdrew from the case. The civil fraud investigation, however, was unaffected by this withdrawal.

In September 1970, Agent Taylor discovered that due to administrative error, he and the Audit Division had inadvertently allowed the statute of limitations for Chamberlain's 1966 tax year to run on July 15,

Page 832

1970. This caused considerable consternation within the agency since the claimed deficiencies in Chamberlain's 1966 taxes totalled approximately $127,000 and the IRS had already expended considerable time and effort in this regard. A finding of fraud with respect to any part of the 1966 tax return, however, would toll the statute of limitations and permit the assessment of the entire deficiency at any time. 6

The case was officially referred to the Intelligence Division for the second time in late January 1971 and assigned to Special Agent George A. Bauwens. At the time of this second referral the IRS had undertaken a national investigation of improper deductions of political contributions and Agent Bauwens was associated with the Alabama branch of that investigation known as the "Alabama Project." Although Agent Bauwens' report, submitted August 24, 1971 after a thorough investigation, recommended that Chamberlain be prosecuted for criminal fraud, 7 the Regional Counsel's office ultimately decided against pursuing criminal action.

Meanwhile, the audit of Chamberlain's tax returns and the investigation of possible civil fraud involving the years 1965 and 1966 continued. In September 1972 the IRS notified Chamberlain of a total proposed tax liability of approximately $1.86 million, including $1.7 million in deficiencies for the years 1962 to 1968 and civil fraud penalties of about $158,000 for 1965 and 1966. 8 Chamberlain has challenged the proposed deficiencies and fraud penalties and the case is currently pending in the Appellate Division of the Southwest Region of the IRS.

In February 1973 Chamberlain filed an extensive written request with the IRS seeking the disclosure of approximately 400 documents that he claimed were essential to the adequate preparation of his defense to the deficiency and fraud claims. His request included various provisions of the Internal Revenue Manual outlining the IRS' internal operating procedures, as well as investigative files compiled in the course of the tax audit and fraud inquiry. Chamberlain initiated the instant litigation in July 1973 after the IRS declined to disclose most of the requested documents, claiming that they were protected by various exemptions of the FOIA and by the Internal Revenue Code.

There ensued almost three years of sparring during which the IRS released many of the documents sought while Chamberlain eliminated others from contention by narrowing the scope of his request. By March 1976 there remained in dispute only about 91 documents plus various provisions of the Internal Revenue Manual. 9 After a review of detailed affidavits submitted by the IRS describing the concerned documents and an In camera inspection of the documents themselves, the district court, pursuant to cross-motions for summary judgment, entered on March 31, 1976 the order which is now before us on appeal. The court's order directed the IRS to disclose all or part of approximately 53 documents and permitted the withholding of approximately 38 documents plus various provisions of the Internal Revenue Manual in their entirety. 10 With respect to each document, the order indicated not only the disposition of the document but also the statutory exemptions claimed by the IRS and, for those found exempt, the exemptions the court deemed applicable. Most of the documents ordered withheld by the court fell within Exemptions 5, 6 or 7 of the FOIA; 11 Exemption 3

Page 833

of the Act 12 was found applicable to those documents or parts of documents dealing with third party taxpayers.

Following the entry of the district court's order, Chamberlain moved the court to amend its judgment to award attorneys' fees under the provisions of 5 U.S.C. § 552(a)(4)(E) 13 and to make supplemental findings of fact to the effect that the second criminal fraud investigation by the Intelligence Division "was commenced and carried out with the intent of concealing, and avoiding the effects of, the fact that the revenue agent who routinely audited Plaintiff's tax returns for the years 1965 and 1966 had inadvertently allowed the civil statute of limitations to expire for the year 1966." With regard to this latter assertion, plaintiff contended that if the second fraud investigation were instituted solely to escape the consequences of Agent Taylor's negligence, the investigation would somehow be "phony" or a "sham" and that, therefore, the documents and information collected in this probe would not be protected under the exemptions to the FOIA. On August 18, 1976 the district court entered an order and amended findings of fact and conclusions of law 14 denying plaintiff's request for attorneys' fees and concluding that the investigation was not initiated or carried out with the intent of concealing or avoiding the consequences of the running of the statute of limitations for 1966.

After the district court entered its orders herein, Congress substantially amended both the FOIA and the Internal Revenue Code in ways that directly affect this litigation. The Government in the Sunshine Act, enacted September 13, 1976, significantly narrowed the scope of Exemption 3 of the FOIA, 15 while the Tax Reform Act of 1976, 16 enacted October 4, 1976, completely revised section 6103 of the Internal Revenue Code and created a comprehensive scheme for regulating the release of tax returns and information collected to determine

...

To continue reading

Request your trial
102 practice notes
  • Johnson v. Sawyer, No. 91-2763
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • October 14, 1993
    ...the alternative ground of negligence. 22 Industrial Foundation, 540 S.W.2d at 685. 23 26 U.S.C. Sec. 6103(a). 24 See Chamberlain v. Kurtz, 589 F.2d 827, 835 (5th Cir.1979) ("New section 6103 of the Internal Revenue Code was enacted primarily to regulate and restrict access to tax return inf......
  • Delhomme Industries, Inc. v. Houston Beechcraft, Inc., No. 80-3335
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • March 11, 1982
    ...court are unnecessary, and because ending the litigation on them would further judicial economy and efficiency. Chamberlain v. Kurtz, 589 F.2d 827, 840 (5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979); Blaney v. Florida Nat'l Bank, 357 F.2d 27, 28 (5th Cir. We note......
  • Tax Analysts v. I.R.S., Nos. 96-5152
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 8, 1997
    ...F.2d 80, 83 (2d Cir.1979) (an IRS letter to a member of Congress explaining a determination of tax liability); and Chamberlain v. Kurtz, 589 F.2d 827, 840-41 (5th Cir.1979) ("intra-agency communications regarding [a taxpayer's] tax liability, memoranda of conferences on that subject, [and] ......
  • American Friends Service Committee v. Webster, Nos. 81-1735
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • September 30, 1983
    ...A primary purpose of the measure was to limit and control access to such information by government entities. See Chamberlain v. Kurtz, 589 F.2d 827, 835 (5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). Page 71 Section 6103 is a formidable law restricting the use o......
  • Request a trial to view additional results
102 cases
  • Johnson v. Sawyer, No. 91-2763
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • October 14, 1993
    ...the alternative ground of negligence. 22 Industrial Foundation, 540 S.W.2d at 685. 23 26 U.S.C. Sec. 6103(a). 24 See Chamberlain v. Kurtz, 589 F.2d 827, 835 (5th Cir.1979) ("New section 6103 of the Internal Revenue Code was enacted primarily to regulate and restrict access to tax return inf......
  • Delhomme Industries, Inc. v. Houston Beechcraft, Inc., No. 80-3335
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • March 11, 1982
    ...court are unnecessary, and because ending the litigation on them would further judicial economy and efficiency. Chamberlain v. Kurtz, 589 F.2d 827, 840 (5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979); Blaney v. Florida Nat'l Bank, 357 F.2d 27, 28 (5th Cir. We note......
  • Tax Analysts v. I.R.S., Nos. 96-5152
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • July 8, 1997
    ...F.2d 80, 83 (2d Cir.1979) (an IRS letter to a member of Congress explaining a determination of tax liability); and Chamberlain v. Kurtz, 589 F.2d 827, 840-41 (5th Cir.1979) ("intra-agency communications regarding [a taxpayer's] tax liability, memoranda of conferences on that subject, [and] ......
  • American Friends Service Committee v. Webster, Nos. 81-1735
    • United States
    • United States Courts of Appeals. United States Court of Appeals (District of Columbia)
    • September 30, 1983
    ...A primary purpose of the measure was to limit and control access to such information by government entities. See Chamberlain v. Kurtz, 589 F.2d 827, 835 (5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). Page 71 Section 6103 is a formidable law restricting the use o......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT