Crow v. Internal Revenue Serv.
| Decision Date | 20 May 2022 |
| Docket Number | 1:20-cv-00518-DCN |
| Parties | STANLEY D. CROW, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant. |
| Court | U.S. District Court — District of Idaho |
Pending before the Court is Plaintiff Stanley D. Crow's Motion for Summary Judgment (Dkt. 17) and Defendant Internal Revenue Services' (“IRS”) Motion for Summary Judgment (Dkt. 18). On March 29, 2022, the Court held oral argument and took the motions under advisement. Having considered the matters, the Court GRANTS the IRS's Motion for Summary Judgment and DENIES Crow's Motion for Summary Judgment.
This case is another chapter in the IRS's seven-year-long examination of Stanley D. Crow and his company, S. Crow Collateral Corporation's (“SCCC”), business activities to determine whether he has been promoting abusive tax shelters and should be subject to penalties under 26 U.S.C. §§ 6700, 6707, and 6708. Dkt. 18-1, at 1-2. Other aspects of that examination have already come before this Court. See United States v. Vaught, No. 1:18-cv-00452-DCN, 2021 WL 3639414 (D. Idaho Aug. 16, 2021). As part of this investigation, the IRS has sought information from third parties about Crow's participation in various financial transactions. Dkt. 18-1, at 1.
On June 22, 2020, Crow sent a request under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552, to the IRS seeking access to “[a] complete copy of the Case Activity Record since February 22, 2019, with respect to the examination of Stanley D. Crow under 26 U.S.C. §§ 6700, 6707, and 6708.” Dkt. 17-1, at 2. The IRS sent Crow a heavily redacted version of the Case Activity Report on August 19, 2020. The Report was 22 pages long. One page was completely redacted, and the other twenty-one pages were partially redacted. A variety of statutory exemptions to disclosure under FOIA were offered as the legal basis for the redactions, including Exemptions 3, 5, 6, 7(A), 7(C), and 7(E) of 5 U.S.C. § 552(b).
Crow then filed an administrative appeal of the IRS's FOIA response, and that appeal was denied. Dkt. 17-2, at 2-3. Crow then filed the instant case, alleging a violation of FOIA. The IRS subsequently produced a less redacted version of the Case Activity Record. However, this did not satisfy Crow and this case continued.
In due course, the parties filed the instant motions for summary judgment. The IRS's Motion contained supporting declarations that included its reasons for the exemptions. After receiving the IRS's rationale for the exemptions, Crow now challenges only one category of redactions-“Exemption 3 in conjunction with 26 U.S.C. § 6103(a).” Dkt. 20 at 2.
The IRS states that all the entries protected under Exemption 3 “identify third-party taxpayers and their liabilities or their possible liabilities under the Internal Revenue Code.”
Dkt. 18-3, at 5. Crow does not dispute this.[1] Dkt. 20, at 7-9. Both parties refer to this information as return information, as defined by 26 U.S.C. § 6103. Dkt. 18-1, at 5; Dkt. 20, at 7.
Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The Court's role at summary judgment is not “to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Zetwick v. Cty. of Yolo, 850 F.3d 436, 441 (9th Cir. 2017) (citation omitted). In considering a motion for summary judgment, the Court must “view[ ] the facts in the non-moving party's favor.” Id. To defeat a motion for summary judgment, the respondent need only present evidence upon which “a reasonable juror drawing all inferences in favor of the respondent could return a verdict in [his or her] favor.” Id. (citation omitted). Accordingly, the Court must enter summary judgment if a party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The respondent cannot simply rely on an unsworn affidavit or the pleadings to defeat a motion for summary judgment; rather the respondent must set forth the “specific facts, ” supported by evidence, with “reasonable particularity” that precludes summary judgment. Far Out Prods., Inc. v. Oskar, 247 F.3d 986, 997 (9th Cir. 2001). FOIA cases are typically resolved at the motion for summary judgment stage. Brayton v. Office of the U.S. Trade Representative, 641 F.3d 521, 527 (D.C. Cir. 2011).
The standard applicable to motions for summary judgment do not generally change if the parties file cross motions. See, e.g., Cady v. Hartford Life & Accidental Ins., 930 F.Supp.2d 1216, 1223 (D. Idaho 2013). However, the Court must evaluate each party's motion on its own merits. Fair Housing Council of Riverside Cty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001).
The arguments of both parties in this case “call out like a carnival barker, beckoning the Court to explore a wide range of interesting . . . legal issues.” In re Tesla Motors, Inc. Stockholder Litigation, 2022 WL 1237185, at *2 (Del. Ch. Apr. 27, 2022). While “in answer to the barker's call, it is tempting to venture into each tent and confront the legal enigmas that await there, ” there is no need to do so. Id. The linchpin of this lawsuit is whether this is a case pertaining to tax administration. As will be outlined, this lawsuit does not pertain to tax administration, and consequently Crow's allegations crumbles. The IRS properly redacted the information under Exemption 3.
The IRS has withheld portions of the Case Activity Record under Exemption 3 of FOIA, 5 U.S.C. § 552(b)(3), claiming that those portions are confidential under 26 U.S.C. § 6103. Exemption 3 allows agencies to withhold documents when responding to a FOIA request if the documents are “specifically exempted from disclosure by statute . . . if that statute (A) (i) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue; or (ii) establishes particular criteria for withholding or refers to particular types of matters to be withheld . . .” 5 U.S.C. § 552(b)(3).
The Ninth Circuit uses a two-step inquiry to decide whether information was properly withheld under Exemption 3. A court must first analyze “whether the statute identified by the agency is a statute of exemption within the meaning of Exemption 3.” Hamdan v. U.S. Dep't of Just., 797 F.3d 759, 776 (9th Cir. 2015) (citing CIA v. Sims, 471 U.S. 159, 179 (1985)). Second, a court must then determine “whether the withheld records satisfy the criteria of the exemption statute.” Id.
“Exemption 3 differs from other FOIA exemptions in that its applicability depends less on the detailed factual contents of specific documents; the sole issue for decision is the existence of a relevant statute and the inclusion of withheld material within the statute's coverage.” Gerstein v. CIA, 2008 WL 4415080, at *7 (N.D. Cal. Sept. 26, 2008) (quoting Fitzgibbon v. CIA, 911 F.2d 755, 761-62 (D.C. Cir. 1990)). See also Hayden v. NSA, 608 F.2d 1381, 1390 (D.C. Cir. 1979) (). Notably, any material that falls within the criteria of a qualifying statute under Exemption 3 is automatically withheld “regardless of how unwise or self-protective the statute might be.” Keenan v. IRS, 1995 WL 638758, at *2 (C.D. Cal. Aug. 18, 1995).
Both the IRS and Crow agree that 26 U.S.C. § 6103 is a “qualifying statute” under the first step of the Exemption 3 analysis. Dkt. 20, at 9. Therefore, the Court turns to the question of whether the IRS met the criteria in 26 U.S.C. § 6103.[2]
The IRS claims that the information can be properly withheld under both § 6103(a) and § 6103(e)(7). Crow, on the other hand, claims that the information can be properly released under § 6103(h)(4), particularly subparts (B) and (C). The government has the burden of justifying withholding under any of FOIA's exemptions. Hamdan, 797 F.3d at 772.
Crow's argument relies on § 6103(h)(4), which states “A return or return information may be disclosed in a Federal or State judicial or administrative proceeding pertaining to tax administration” (emphasis added). Crow's multi-step argument that the information should be released under § 6103(h)(4) fails for the simple reason that this is not a judicial or administrative proceeding pertaining to tax administration.
The plain language of the statutory exemptions in § 6103(h)(4) requires that the disclosure occur in a “judicial or administrative proceeding pertaining to tax administration.” The tests in § 6103(h)(4)(B) and (C) that Crow rely on double down on this requirement, stating that they are for exemptions “directly related to the resolution of an issue in the proceeding” or “which directly affects the resolution of an issue in the proceeding.” Simply put, there is no tax issue in the present case. Tax administration is defined as:
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