Landmark Legal Foundation v. Internal Revenue Serv.

• Decision Date: 12 October 2001
• Docket Number: No. 00-5344,00-5344
• Citation: 267 F.3d 1132
• Parties: (D.C. Cir. 2001) Landmark Legal Foundation, Appellant v. Internal Revenue Service, Appellee
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1132

267 F.3d 1132 (D.C. Cir. 2001)

Landmark Legal Foundation, Appellant v. Internal Revenue Service, Appellee

No. 00-5344

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 12, 2001

Decided October 12, 2001

Appeal from the United States District Court for the District of Columbia (No. 97cv01474)

Richard P. Hutchison argued the cause for appellant. With him on the briefs was Mark R. Levin.

Thomas J. Sawyer, Attorney, U.S. Department of Justice, argued the cause for appellee. With him on the brief were Jonathan S. Cohen, Attorney, and Kenneth L. Wainstein, U.S. Attorney.

Before: Tatel and Garland, Circuit Judges, and Williams, Senior Circuit Judge.^*

Opinion for the Court filed by Senior Judge Williams.

Williams, Senior Circuit Judge:

Early in 1997 there was public controversy over claims that the Internal Revenue Service had selectively audited conservative non-profit organizations in response to requests from outside parties. Seeking to investigate these allegations, Landmark Legal Foundation filed a request under the Freedom of Information Act seeking the following records:

[C]opies of any and all documentation (including, but not limited to, paper correspondence, telephonic inquiries and/or electronic communications) evincing requests since January 1, 1992[,] by individuals and/or entities external to the [IRS] for audits or investigations of 501(c)(3) tax-exempt organizations. Please include the names of the individuals and/or entities requesting the audits or investigations and the names of the 501(c)(3) tax-exempt organizations for which audits or investigations were requested. We wish to make clear that we are not asking the IRS to provide information revealing whether, in fact, any of these entities are actually being audited.

The request went on to seek documents that would reveal mere inquiries about the tax status of exempt organizations.

In the course of the usual back and forth between requester and agency, the IRS released several hundreds of pages of documents but also withheld thousands. On court order, it produced a Vaughn index, see Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973), dividing the papers into 20 categories and invoking in support of non-disclosure Exemptions 3 and 6, 5 U.S.C. §§ 552(b)(3) & (6). On the basis of Exemption 3, the district court granted the IRS's motion for summary judgment on all but four categories, as to which it found the IRS affidavits insufficient. See Landmark Legal Foundation v. Internal Revenue Service, 87 F. Supp. 2d 21, 26-27, 29 (D.D.C. 2000). It rejected the Service's invocation of Exemption 6. Id. at 27-28. Finally, it denied most of Landmark's requests for discovery. Id. at 29-30. Landmark filed an appeal, which we dismissed for want of a final order, Landmark Legal Foundation v. Internal Revenue Service, No. 00-5147 (D.C. Cir. June 29, 2000), and then abandoned its requests for the four categories as to which the court had not granted summary judgment. The district court accordingly entered a final judgment on all claims. Reviewing de novo, see DeGraff v. District of Columbia, 120 F.3d 298, 301 (D.C. Cir. 1997), we agree that Exemption 3 is applicable to the disputed documents and we reject Landmark's other claims of error. We need not reach the IRS's contention that the district court erred in rejecting the Exemption 6 defense.

* * *

Exemption 3 provides that documents need not be released if they are "specifically exempted from disclosure by statute...." 5 U.S.C. § 552(b)(3). The exemption statute invoked by the IRS is 26 U.S.C. § 6103, which provides that "return information shall be confidential." Id. § 6103(a); see also Church of Scientology of California v. IRS, 792 F.2d 146 (D.C. Cir. 1986) (holding that § 6103 is an Exemption 3 statute). Section 6103 then defines "return information" as including:

... 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, overassessments, 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. § 6103(b)(2)(A) (emphasis added). This definition of "return information" has, in the words of some commentators, "evolved to include virtually any information collected by the Internal Revenue Service regarding a person's tax liability." Allan Karnes & Roger Lirely, Striking Back at the IRS: Using Internal Revenue Code Provisions to Redress Unauthorized Disclosures of Tax Returns or Return Information, 23 Seton Hall L. Rev. 924, 933 (1993).

Landmark's original FOIA request may be broken down into three parts: (1) the identities of tax-exempt organizations; (2) the identities of third parties who requested audits or investigations of those organizations; and (3) any other material or information included in those third-party requests.

We first note a constructional ambiguity that we will not resolve. Section 6103(b)(2)(A) starts with a long list of specific items (starting with "a taxpayer's identity"), and then refers to "other data," followed by a modifying clause-"received by ... the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability...." 26 U.S.C. § 6103(b)(2)(A). The modifying clause may apply to all the preceding items, or only to "other data." Under the latter reading, Congress would be understood to have thought that the specifically identified information, if in the hands of the IRS at all, should be categorically sheltered from disclosure. Because we must construe the modifying clause for purposes of the third-party identities and the contents of their communications, and under the view we take it would clearly embrace the taxpayer identities, we need not resolve whether taxpayer identities would be covered if for some reason they did not satisfy the modifying clause. See Ryan v. Bureau of Alcohol, Tobacco and Firearms, 715 F.2d 644, 646 n.3 (D.C. Cir. 1983) (also declining to resolve that question).

As noted, the statute specifically covers "a taxpayer's identity." Landmark does not claim that an entity's classification as tax-exempt excludes it from that category--a claim that would surely be weak in light of the statute's additional inclusion of "data ... furnished ... with respect to ... the determination of the existence, or possible existence, of liability ... of any person." See Breuhaus v. IRS, 609 F.2d 80, 83 (2d Cir. 1979) (holding that § 6103 applies to information relating to tax-exempt organizations).

The remaining two categories--the identities of third parties who requested audits or investigations and the contents of their communications--are covered only if they constitute "[1] data, [2] received by ... the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability...." 26 U.S.C. § 6103(b)(2)(A) (bracketed enumeration added). (The IRS does not claim that any of the contents at issue here might fit any of the categories listed in § 6103 between "taxpayer's identity" and the catch-all reference to "other data.") We address first whether these materials meet the requirements of the modifying clause, then whether they constitute "data."

We would owe deference to the IRS's interpretation of § 6103 under Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), if the Service had reached the interpretation asserted here in a notice-andcomment rulemaking a formal agency adjudication, or in some other procedure meeting the prerequisites for Chevron deference stated in United States v. Mead, 121 S. Ct. 2164, 2172-75 (2001). But the Service makes no claim that the interpretation it developed in litigation here arose in any such procedure. Accordingly, we can give its views no more than the weight derived from their "power to persuade." See id. at 2172 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).

First, were the third-party identities and the contents of their communications "received by ... the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability"? In Lehrfeld v. Richardson, 132 F.3d 1463 (D.C. Cir. 1998), we found that this language did not resolve "the precise question" whether it covered data received by the IRS in its initial investigation of a party's application for tax-exempt status. Id. at 1467. Under the standards then applied by this court for Chevron deference, however, we found the IRS's conclusion that the language did cover such data reasonable. Id.

Chevron being inapplicable here in light of Mead, we must decide for ourselves the best reading of the modifying clause (pretermitting the issue of whether the IRS may later adopt a different--but nonetheless "reasonable"--interpretation). We conclude that indeed the statutory phrase--"the existence, or possible existence, of liability"--naturally encompasses the issue of tax-exemption vel non.

But Landmark goes on to question whether these materials were "received by ... the Secretary with respect to a return or with respect to" any issue. In many cases we know little more than that the communications arrived at the IRS, with no indication that it used them in any way or subjected them to anything more than minimal processing. But § 6103 seems deliberately sweeping in this respect, reaching data "received by, recorded by, prepared by, furnished to,...