Grasso v. I.R.S.

• Decision Date: 04 March 1986
• Docket Number: No. 85-5266,85-5266
• Citation: 785 F.2d 70
• Parties: -922, 54 USLW 2516, 86-1 USTC P 9263 Paul GRASSO v. INTERNAL REVENUE SERVICE, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 70

785 F.2d 70

57 A.F.T.R.2d 86-922, 54 USLW 2516, 86-1

USTC P 9263

Paul GRASSO v. INTERNAL REVENUE SERVICE, Appellant.

No. 85-5266.

United States Court of Appeals, Third Circuit.

Argued Jan. 7, 1986.

Decided March 4, 1986.

W. Hunt Dumont, U.S. Atty., Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Richard W. Perkins, Gayle P. Miller (argued), Tax Div., Dept. of Justice, Washington, D.C., for appellant.

Before ADAMS, SLOVITER and MANSMANN, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

I. Facts and Procedural History

The Internal Revenue Service (IRS) appeals an order of the district court permitting disclosure to Paul Grasso, plaintiff-appellee, under the Freedom of Information Act of portions of a Memorandum of Interview with Grasso prepared by agents of the Internal Revenue Service in the course of an investigation of his civil and criminal tax liability. ¹

No material facts are in dispute. Grasso was interviewed by two Internal Revenue Service (IRS) agents in January 1984. In March 1984, Grasso made a request under the Freedom of Information Act (FOIA), 5 U.S.C. Sec. 552, for a report or memorandum of the interview. The IRS responded by giving Grasso a four-page memorandum of the interview from which significant portions had been deleted. In a letter accompanying this document, the IRS stated that "[c]ertain information ... has been excised in accordance with the exemption cited in 5 U.S.C. 552(b)(7)(A) and (b)(3)" of FOIA. App. at 8a.

Grasso appealed the decision to excise portions of the memorandum to the Commissioner of Internal Revenue. The IRS acknowledged the appeal, but failed to take any action on it within the statutory time period for such response. See 5 U.S.C. Sec. 552(a)(6)(A)(ii). Thereafter, Grasso filed this action, alleging that the IRS' withholding of the memorandum of the interview with Grasso was unlawful, and unsupported by any exemption of FOIA. In its answer, the IRS asserted that FOIA was inapplicable and that section 6103 of the Internal Revenue Code of 1954, as amended, governed the disclosure or nondisclosure of the document. In the alternative, the IRS alleged that the document was exempt from disclosure pursuant to FOIA sections in 5 U.S.C. Secs. 552(b)(3), (b)(7)(A) and (b)(7)(C). ²

The parties filed cross-motions for summary judgment. After oral argument, and an in camera inspection of the document by the district court, the district court ordered the IRS to produce the requested document within 60 days. The court rejected the IRS' assertion that federal tax administration would be seriously impaired if the IRS "turn[ed] back to the person who gave you information the same information that person gave you." App. at 51a. The court stated that the document, albeit not a verbatim statement, contains no evaluation by the interviewing agent and that "[e]ach of the excised items purports to reflect what Grasso said." App. at 55a. The court also noted that Grasso would get the statement if he was prosecuted. The court delayed imposition of its order for sixty days to enable the IRS to complete its investigation of Grasso, and denied Grasso attorney's fees. The IRS appealed, and the district court then stayed its order pending appeal.

II. Applicability of FOIA

As the Supreme Court has pointed out, FOIA is a "broadly conceived" statute designed "to permit access to official information long shielded unnecessarily from public view." EPA v. Mink, 410 U.S. 73, 80, 93 S.Ct. 827, 832, 35 L.Ed.2d 119 (1973). It requires that government agencies make available official information "for public inspection". Id. at 79, 93 S.Ct. at 832. However, because "Congress realized that legitimate governmental and private interests could be harmed by release of certain types of information," it included nine exemptions to FOIA's disclosure requirements. FBI v. Abramson, 456 U.S. 615, 621, 102 S.Ct. 2054, 2059, 75 L.Ed.2d 376 (1982). See 5 U.S.C. Sec. 552(b). Of these, two are relevant here.

Exemption 7(A) exempts from disclosure

investigatory records compiled for law enforcement purposes, but only to the extent that the production of such records would (A) interfere with enforcement proceedings.

5 U.S.C. Sec. 552(b)(7)(A). Exemption 3(B) allows an agency to refuse to disclose matters that are

specifically exempted from disclosure by statute ... provided that such statute ... (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld.

5 U.S.C. Sec. 552(b)(3)(B).

The IRS argues that the document sought by Grasso falls within Exemptions 7(A) or 3(B). It also claims, in the alternative, that FOIA is inapplicable because it was superseded by section 6103 of the Internal Revenue Code, which bars disclosure of "returns and return information".

We consider first the government's contention that section 6103 of the Internal Revenue Code supersedes the Freedom of Information Act. This issue has divided the circuits. This court has not yet ruled on the question. The district court did not decide the issue, although it noted that the IRS had relied on FOIA in denying Grasso the complete document, and had not initially contended that the standard for production was governed by section 6103 rather than FOIA.

The provision that the government contends is exclusively applicable, section 6103(e)(7), provides:

(e) Disclosure to persons having material interest....

(7) Return Information

Return information with respect to any taxpayer may be open to inspection by or disclosure to any person authorized by this subsection to inspect any return of such taxpayer if the Secretary determines that such disclosure would not seriously impair Federal tax administration.

26 U.S.C. Sec. 6103(e)(7). The statute defines "return information" to include:

(A) a taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over-assessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense.

26 U.S.C. Sec. 6103(b)(2)(A) (emphasis added). The memorandum recording information furnished by the taxpayer to the IRS with respect to his own tax liability is return information. See Linsteadt v. IRS, 729 F.2d 998, 1000 (5th Cir.1984).

The principal consequence of finding that section 6103, rather than FOIA, is the applicable provision covering disclosure is the greater deference under section 6103 accorded an IRS decision not to disclose information. Under FOIA, a court reviewing an agency decision not to disclose must conduct a de novo review and the agency must bear the burden to justify nondisclosure under one of the statutory exemptions. See 5 U.S.C. Sec. 552(a)(4)(B). If section 6103 preempts FOIA, then the provisions of the Administrative Procedure Act govern, and court review is limited to determining if the agency decision not to disclose was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. Sec. 706(2)(A). FOIA also specifies procedures that are not required by the Internal Revenue Code, such as the requirement that the agency respond within 10 days to the request for information and within 20 days to appeals from a denial of disclosure, see 5 U.S.C. Sec. 552(a)(6)(A)(i) & (ii), and a provision for expedited judicial consideration of FOIA suits, see 5 U.S.C. Sec. 552(a)(4)(D). FOIA also requires the agency to provide disclosable material when it can be segregated from nondisclosable material. See 5 U.S.C. Sec. 552(b).

The government argues that under the basic principle of statutory construction that specific statutes take precedence over general ones, section 6103 dealing specifically with disclosure of return information takes precedence over the more generally applicable FOIA. This was the argument accepted by the court in Zale Corp. v. IRS, 481 F.Supp. 486 (D.D.C.1979).

In Zale, the court viewed section 6103 as providing a "comprehensive scheme for releasing information to discrete, identified requesting parties." Id. at 489. The Zale court described section 6103 as representing a "legislative proclamation of a rule of confidentiality with limited statutory exemptions," a policy that the court considered incompatible with the policy of FOIA, which allows disclosure without a showing of need. Id.

The Seventh Circuit and several district courts have since adopted the approach of Zale. See King v. IRS, 688 F.2d 488, 495 (7th Cir.1982); Green v. IRS, 556 F.Supp. 79, 82-83 (N.D.Ind.1982), aff'd, 734 F.2d 18 (7th Cir.1984); Watson v. IRS, 538 F.Supp. 817, 818 (S.D.Tex.1982). Cf. White v. IRS, 707 F.2d 897, 900 (6th Cir.1983) (court "disposed to affirm" on the basis of Zale and King ). ³

On the other hand, three courts of appeal have concluded that section 6103 does not supersede FOIA. See Long v. United States IRS, 742 F.2d 1173, 1178 (9th Cir.1984); Linsteadt v. IRS, 729 F.2d 998, 1001-03 (5th Cir.1984); Currie v. IRS, 704 F.2d 523, 526-28 (11th Cir.1983); Chamberlain v. Kurtz, 589 F.2d 827, 835-40 (5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). Cf. Barney v. IRS, 618 F.2d 1268, 1274 n. 15 (8th Cir.1980) ("inclined to agree" with Chamberlain ). One of the other district judges in the same district as Zale was unpersuaded by Zale and reached a contrary conclusion in Britt v. IRS, 547 F.Supp. 808 (D.D.C.1982).

In its decision in Long, the Ninth Circuit noted that nothing in the language of section...