Neufeld v. I.R.S.

• Decision Date: 09 March 1981
• Docket Number: No. 80-1131,80-1131
• Citation: 646 F.2d 661
• Parties: , 81-1 USTC P 9250 John L. NEUFELD, Appellant, v. INTERNAL REVENUE SERVICE.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 661

646 F.2d 661

207 U.S.App.D.C. 326, 81-1 USTC P 9250

John L. NEUFELD, Appellant, v. INTERNAL REVENUE SERVICE.

No. 80-1131.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 13, 1980.

Decided March 9, 1981.

David C. Vladeck, Washington, D. C., with whom Katherine A. Meyer, and Alan B. Morrison, Washington, D. C., on brief, for appellant.

Richard W. Perkins, Atty., Dept. of Justice, Washington, D. C., with whom M. Carr Ferguson, Asst. Atty. Gen., Charles F. C. Ruff, U. S. Atty., Michael L. Paup, and Stephen Gray, Attys., Dept. of Justice, Washington, D. C., were on brief, for appellee. Ernest J. Brown, Atty., Dept. of Justice, Washington, D. C., also entered an appearance for appellee.

Before McGOWAN, Chief Judge, and GINSBURG, Circuit Judge, and GREEN JOYCE HENS, ^* United States District Judge for the District of Columbia.

Opinion for the Court filed by Chief Judge McGOWAN.

McGOWAN, Chief Judge:

Plaintiff-appellant, an assistant professor of Economics at the University of North Carolina Greensboro, sought access through this suit under the Freedom of Information Act (FOIA), 5 U.S.C. § 552 (Supp. III 1979), to certain memoranda, logs, forms, and correspondence which related to contacts between high-ranking federal officials and the Internal Revenue Service (IRS or Service) regarding the tax matters of third parties. ¹ The District Court, per Judge John L. Smith, Jr., held that the IRS must disclose all logs, routing slips, and correspondence regarding contacts between some federal officials (particularly members of Congress) and the Service, but that actual third-party correspondence to those federal officials is exempt from disclosure under Exemption 3 of the FOIA, 5 U.S.C. § 552(b)(3) (Supp. III 1979). Judge Smith also held that 22 internal memoranda discussing a proposed IRS plan publicly to disclose such contacts could be withheld pursuant to Exemption 5 of the FOIA, 5 U.S.C. § 552(b)(5) (Supp. III 1979).

With respect to the 22 internal memoranda, we affirm the District Court's determination that Exemption 5 permits nondisclosure for the reasons stated in Common Cause v. IRS, 646 F.2d 656 No. 80-1097 (D.C.Cir.), issued this day. With respect to the taxpayer letters, however, we found some ambiguity in the District Court's interpretation of the proper definition of "return information" under 26 U.S.C. § 6103(b)(2) (Supp. II 1978). Thus, we remand the case to the District Court for reconsideration of the taxpayer letters in the light of the construction of the statute which we believe to be correct.

I.

In May, 1976, then-Commissioner of Internal Revenue Donald Alexander announced that the Service planned to institute procedures publicly to disclose details about contacts between high-ranking federal officials and the IRS. Sometime before December, 1977, the IRS decided not to adopt such procedures. A press account quoted an IRS spokesman as citing an Internal Revenue Code provision ² requiring that tax returns and return information be kept confidential as one of the Service's major reasons for abandoning the plan. ³

The plaintiff, John Neufeld, sought access to IRS records concerning congressional contacts with the IRS regarding third-party tax matters, and to documents discussing the proposed disclosure plan. By letter dated December 22, 1977, plaintiff requested these documents from the IRS, specifically disclaiming any interest in information that would directly or indirectly identify individual taxpayers. (N.J.A. 4-5).

When the IRS refused to disclose many of the requested documents, plaintiff instituted this lawsuit to compel disclosure under the FOIA. Plaintiff also filed a motion to require the IRS to prepare an index of the withheld documents, justifying denial of access as required by Vaughn v. Rosen, 484 F.2d 820, 826-28 (D.C.Cir.1973), cert. denied, 415 U.S. 977, 94 S.Ct. 1564, 39 L.Ed.2d 873 (1974).

The IRS responded, describing 23 internal memoranda written in connection with the proposed disclosure plan. ⁴ The Service claimed that the documents were withheld under Exemption 5 because all fell within the governmental privilege which protects predecisional deliberations within an agency. The IRS further stated that all the documents but two ⁵ were protected by the attorney-client privilege. ⁶

The plaintiff also asked for access to correspondence relating to contacts between members of Congress and the Service regarding the pending tax matters of third parties. After some negotiations, the parties agreed to limit the scope of this request to IRS records of contacts initiated by members of Congress and certain actual correspondence. These records consisted of three types of documents: (a) sets of correspondence, generally including a taxpayer's letter to his representative, a routing slip or cover letter from the representative directing the constituent's letter to the IRS, and a copy of the IRS's response to the taxpayer; ⁷ (b) "Third Party Correspondence Review Information" forms, developed by the IRS after this litigation began, which assign a case number to each inquiry, describe the correspondence, and indicate whether the correspondence has been edited (N.J.A. 33); (c) "Correspondence Control" forms, which list the dates of all correspondence, and provide a short description of the underlying matter. (N.J.A. 34). ⁸

By stipulation, counsel for plaintiff and the Service further limited the documents at issue to (1) the internal memoranda; (2) the correspondence control forms maintained by the National Office of the IRS pertaining to correspondence received from members of Congress between February 1, 1978, and June 1, 1979; and (3) the 23 packages of correspondence submitted for in camera review with the names and addresses of the taxpayers deleted.

The parties filed cross-motions for summary judgment. Judge Smith granted plaintiff's motion in part, holding that all letters or routing slips from members of Congress to the IRS, all of the IRS's responses, and all correspondence control cards must be disclosed. Neufeld v. IRS, Civ. No. 78-0525 (D.D.C. Sept. 28, 1979) (Opinion) (N.J.A. 49). The court ordered the IRS to delete all "return information" from these documents, as defined in 26 U.S.C. § 6103(b)(2) (Supp. II 1978), to protect the taxpayers' privacy. But the court denied plaintiff access to the letters written by taxpayers to members of Congress, finding that "return information" was "regularly dispersed" throughout such correspondence. Because the deletion of such exempt information would leave only "essentially meaningless words and phrases," the court also ruled that the letters were exempt in their entirety under Exemption 3.

The IRS appealed and Neufeld cross-appealed. By joint stipulation, the IRS dismissed its appeal. Thus, the scope of this appeal is limited to review of the District Court's treatment of 22 internal memoranda ⁹ and of the 23 sets of taxpayer correspondence to members of Congress regarding third-party tax matters.

II.

For the reasons stated in our opinion in Common Cause, issued this day, we affirm the District Court's ruling that all 22 memoranda are exempt from disclosure under Exemption 5. See Common Cause v. IRS, supra.

The District Court's treatment of the taxpayer letters presents two further issues for our consideration: (1) whether the court used the proper definition of "return information" in determining that the letters contained exempt information; and (2) whether the exempt information was so inextricably intertwined with non-exempt information as to warrant withholding the documents in their entirety. Because we are not sure what definition of "return information" was actually employed, we shall discuss the proper reading of the statute and remand for reconsideration in light thereof. Remand obviates a decision on the second issue at this time.

The District Court defined its task with respect to the taxpayer letters as determining "whether the burden of separating non-exempt information justifies non-disclosure of the entire correspondence or whether the disclosure of segregated non-exempt material would indirectly reveal exempt information." (Opinion at 3; N.J.A. 51). After in camera inspection of the correspondence, the court found that

because return information is regularly dispersed throughout the taxpayers' letters the burden of separation, both in time and cost measured against the essentially meaningless words and phrases which would remain, as well as the significant risk that the remaining information might indirectly reveal a taxpayer's identity, justifies non-disclosure of the taxpayers' letters and accompanying documents.

Opinion at 3; N.J.A. 51.

In determining what information in the letters was exempt, the District Court referred to Exemption 3 of the FOIA, which authorizes the non-disclosure of items "specifically exempted from disclosure by statute , provided that such statute (A) requires that the matters be withheld from the public in such a manner as to leave no discretion on the issue, or (B) establishes particular criteria for withholding or refers to particular types of matters to be withheld." 5 U.S.C. § 552(b)(3) (Supp. III 1979). Section 6103 of the Internal Revenue Code provides that return information shall be confidential:

(2) Return Information. The term "return information" means

(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, 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...