Hawkes v. I.R.S.

• Decision Date: 23 December 1974
• Docket Number: No. 74-1190,74-1190
• Citation: 507 F.2d 481
• Parties: 75-1 USTC P 9129 A. Kenneth HAWKES, Plaintiff-Appellee, v. INTERNAL REVENUE SERVICE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 481

507 F.2d 481

75-1 USTC P 9129

A. Kenneth HAWKES, Plaintiff-Appellee, v. INTERNAL REVENUE SERVICE, Defendant-Appellant.

No. 74-1190.

United States Court of Appeals, Sixth Circuit.

Dec. 23, 1974.

Thomas F. Turley, Jr., U.S. Atty., Memphis, Tenn., Scott P. Crampton, Meyer Rothwacks, Bennet N. Hollander, Jane Edmisten, App. Section, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellant.

B.C. Clifton, Memphis, Tenn., for plaintiff-appellee.

Before WEICK, CELEBREZZE and MILLER, Circuit Judges.

CELEBREZZE, Circuit Judge.

This appeal involves the validity of an order requiring the Internal Revenue Service to disclose various documents, including portions of the 1970 Internal Revenue Manual and Supplement and the Return Classifier's Handbook.

This is the second time the case has been before this Court. On September 25, 1972, we reversed the District Court's dismissal of Appellee's complaint, which had been brought under the Freedom of Information Act, 5 U.S.C. 552 (1967). After a full discussion of the legislative purpose behind the Act, we remanded for an in camera examination of the requested documents in light of our opinion. Hawkes v. Internal Revenue Service, 467 F.2d 787 (6th Cir. 1972).

After remand but before further proceedings in the District Court, Appellant I.R.S. furnished Appellee with a substantial part of the requested materials. Following an in camera inspection of the disputed documents, the District Court held that 'the disclosure of none of these materials would have the sole effect of enabling law violators to escape detection.' Hawkes v. Internal Revenue Service, Civil No. C-70-409 (W.D.Tenn., filed Nov. 5, 1973). The District Court expressed 'some doubt' whether materials 'having to do with the selection of returns for audit' should be disclosed, but concluded that 'even here in view of the complication of the directions and the checks and balances contained therein, we do not believe that knowledge of this would be of any substantial aid to a fraudulent taxpayer in avoiding detection.' Accordingly, the District Court ordered all the requested materials made available to Appellee, but it sealed the documents pending the outcome of this appeal.

After briefs were filed on appeal, the I.R.S. disclosed further substantial portions of the requested materials. The Service maintains at this time that approximately 70 paragraphs 'are considered critical' and should not be disclosed. In general, these paragraphs concern the selection of returns for audit, based on specific amounts claimed under various categories. Their disclosure, the I.R.S. maintains, would substantially impede its enforcement program. The question before us is whether the District Court erred in ordering disclosure of the 70 disputed paragraphs. The remaining passages have already been provided to Appellee, and their disclosure is not before us for review.

In deciding whether the District Court properly followed our directions on remand, we consider whether it properly interpreted our mandate, whether it fully carried out required procedures, and whether its factual findings were clearly erroneous. ¹

Appellant argues that the District Court erroneously interpreted our mandate by adopting a much narrower view of what materials may be withheld than warranted by our opinion on remand. It argues that the District Court's standard, 'that all materials be supplied . . . unless the sole effect of disclosure would be to enable law violators to escape detection,' ignores the broader sweep in favor of secrecy which Appellant says we gave to the Act. Specifically, the I.R.S. points to our statement that there is a bar to the 'disclosure of information which, if known to the public, would significantly impede the (law) enforcement process.' 467 F.2d at 795. The I.R.S. urges that the 'sole effect' criterion is stricter than the 'significantly impede' criterion and that the latter view should prevail.

We find no conflict between the District Court's interpretation of the Act and ours. Indeed, the 'sole effect' language was taken directly from our opinion:

The exception for law enforcement materials contained in (a)(2)(C) is, as suggested above, a very narrow one and is to be applied only where the sole effect of disclosure would be to enable law violators to escape detection.

. . . Doubts as to the meaning of this subsection should be resolved in favor of disclosure. 467 F.2d at 795-796.

Furthermore, the District Court applied the 'significantly impede' criterion in considering whether to order disclosure of the materials involving the selection of returns for audit. It stated that it did not believe that disclosure 'would be of any substantial aid to a fraudulent taxpayer in avoiding detection,' If disclosure would be of no substantial aid to law violators, necessarily it would not 'significantly impede' the enforcement process. We conclude that the District Court properly interpreted our mandate.

Although the I.R.S. faults the District Court's frank expression of doubt as to whether the materials involving selection of returns for audit should be disclosed and its 'confession' that the bureaucratic jargon in the materials made them 'very difficult to understand,' there is no indication that the District Court failed to scrutinize the materials with care. We find that the District Court fully complied with the procedures we mandated.

The basic issue, thus, is whether the District Court's conclusion was clearly erroneous that disclosure of the disputed 70 paragraphs would not have the 'sole effect of enabling law violators to escape detection' and would not substantially aid a fraudulent taxpayer. ² The 'clearly erroneous' standard applies even though the only evidence is documentary, i.e., the materials sought and affidavits of two I.R.S. officials. Schnadig Corp. v. Gaines Mfg. Co., Inc., 494 F.2d 383, 388 (6th Cir. 1974); H.K. Porter Co. v. Goodyear Tire & Rubber Co., 437 F.2d 244, 246 (6th Cir. 1971). In order for us to reverse the District Court, we must be 'left with the definite and firm conviction that a mistake has been committed.' United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948), quoted in Parmer v. National Cash Register Co., 503 F.2d 275 (6th Cir. 1974).

We have reviewed each of the remaining disputed paragraphs, in order to decide whether it is clear that their disclosure would significantly impede enforcement of the revenue laws or would have the sole effect of enabling violators to escape detection. We have concluded that the District Court's conclusion was not clearly erroneous as to any of the paragraphs.

Generally, the disputed materials constitute guidelines which I.R.S. agents are to follow in determining which tax returns should be audited and which items on a return deserve special scrutiny. ³ For example, one paragraph which has been made public, 6.051 of the Return Classifier's Handbook, states, 'exhibit E . . . lists the average ratio of officers' salaries to gross income in various types of businesses.' The I.R.S. seeks continued secrecy of Exhibit E, presumably on the ground that knowledge of the table's specific ratios would encourage corporations not to report salaries in excess of the averages, with the hope of avoiding an audit concerning the reasonableness of their deductions for officers' salaries. The already disclosed portion of 6.051 states, however, 'the Table is not to be used as an inflexible measure of the reasonableness of compensation, but rather as a guide for testing the reasonabliness of the deduction. What constitutes reasonable compensation depends upon the facts in each case.'

We agree with the District Court that disclosure of the ratios specified in Exhibit E would not significantly hamper enforcement activities. In fact, this information falls within a category discussed in our remand opinion:

Information which merely enables an individual to conform his actions to an agency's...