Tax Analysis v. I.R.S.

• Citation: 97 F.Supp.2d 13
• Decision Date: 31 March 2000
• Docket Number: Civil Action No. 96-2285 (CKK).
• Parties: TAX ANALYSIS, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.
• Court: U.S. District Court — District of Columbia

97 F.Supp.2d 13

TAX ANALYSIS, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.

Civil Action No. 96-2285 (CKK).

United States District Court, District of Columbia.

March 31, 2000.

David A. Hubbert, J. Brian Ferrel, David M. Katinsky, Jason S. Zarin, U.S.

Department of Justice, Tax Division, Washington, DC, for plaintiff.

William A. Dobrovir, Warrenton, VA, for defendant.

MEMORANDUM OPINION

(Cross-Motions for Summary Judgment)

KOLLAR-KOTELLY, District Judge.

This case is before the Court on cross-motions for summary judgment filed by Plaintiff, Tax Analysts, and Defendant, the Internal Revenue Service.¹ When Plaintiff first filed this Freedom of Information Act ("FOIA") suit, it was seeking full disclosure of six categories of documents produced by the IRS's Office of Chief Counsel: Legal Memoranda ("LMs"), Litigation Guideline Memoranda ("LGMs"), Tax Litigation Bulletins ("TLBs"), Technical Assistances ("TAs"), Field Service Advice Monthly Reports ("FSA Reports"), and Pending Issue Reports ("PIRs"). This case has since been narrowed by the parties via stipulations and/or concessions as to certain issues. Congress further narrowed the case by enacting the Internal Revenue Service Reform and Restructuring Act of 1998 ("IRSRRA"), Pub.L. 105-206, 112 Stat. 685, 772 (codified as I.R.C. § 6110 (West Supp.1999)), which deprives the Court of jurisdiction over Plaintiff's claims to the extent that they pertain to TLBs, TAs "to the field," and post-1985 LGMs. As a result of these developments, the summary judgment record is quite complex.

Nevertheless, the Court finds that some of the Plaintiff's claims are amenable to summary disposition. For the reasons stated below, the Court shall grant IRS's motion for summary judgment and deny Plaintiff's motions for summary judgment as to those categories of documents that were unaffected by the motion to dismiss: LMs, PIRs and FSA Reports. Both parties' motions shall be denied as moot with respect to TLBs, post-1985 LGMs, and TAs to the field, all three of which were dismissed from the case in the context of the IRS's IRSRRA motion to dismiss. This leaves two remaining categories of documents: pre-1986 LGMS and TAs other than TAs to the field. As for the pre-1986 LGMs, the motions for summary judgment were filed at a time when neither party could have anticipated that the Court would be forced to narrow its ruling along these lines. On the present record, the Court must deny without prejudice this portion of the motions for summary judgment with the expectation that the parties will renew their motions in light of the changed landscape of this litigation. Finally, the portion of the motions pertaining to TAs will be granted in part, denied in part, and remanded to the IRS for an enhanced Vaughn index that will enable the Court to fully evaluate the claimed exemptions.

DISCUSSION

As a general rule, an agency must respond to a FOIA request for information concerning its records and make those records available to the requester, unless the records fit into one of several exceptions. See 5 U.S.C. § 553(a)(3) and (b).² "Summary judgment is available to the defendant in a FOIA case when the agency proves that it has fully discharged its obligations under the FOIA, after the underlying facts and the inferences to be drawn from them are construed in the light most favorable to the FOIA requester." Moore v. Aspin, 916 F.Supp. 32, 35 (D.C.Cir.1996) (citing Weisberg v. U.S. Department of Justice, 705 F.2d 1344, 1350 (D.C.Cir. 1983)). The agency bears the burden of demonstrating the validity of any exemption that it asserts. See 5 U.S.C. § 552(a)(4)(B); Beck v. Department of Justice, 997 F.2d 1489, 1491 (D.C.Cir.1993) ("[c]onsistent with the purpose of the Act, the burden is on the agency to justify withholding requested documents").³

I. Documents Unaffected by the Motion to Dismiss: LMs, FSA Reports, and PIRs

A. Legal Memoranda ("LMs")

The IRS contends that LMs are shielded from disclosure by the executive or governmental deliberative process privilege, which is one of three privileges incorporated by FOIA's Exemption 5. See 5 U.S.C. § 552(b)(5) (providing that FOIA does not apply to matters that "would not be available by law to a party other than an agency in litigation with the agency"); Coastal States Gas Corp. v. Dep't of Energy, 617 F.2d 854, 862 (D.C.Cir.1980) (recognizing that Exemption 5 protects materials otherwise protected by attorney-client privilege, the work product doctrine, or the executive deliberative process privilege). The deliberative process privilege protects only those "government `materials which are both predecisional and deliberative.'" Tax Analysts v. Internal Revenue Svc., 117 F.3d 607, 616 (D.C.Cir.1997) (quoting Wolfe v. Department of Health & Human Svcs., 839 F.2d 768, 774 (D.C.Cir. 1988)). As a general rule, a document is predecisional if it was "generated before the adoption of agency policy" and deliberative if it "reflects the give-and-take of the consultative process." Coastal States, 617 F.2d at 866; Tax Analysts, 117 F.3d at 616 (same). Thus, the IRS must establish that the withheld LMs "contain `the ideas and theories which go into the making of the law' and not `the law itself.'" Arthur Andersen & Co. v. Internal Revenue Svc., 679 F.2d 254, 258 (D.C.Cir.1982) (quoting Sterling Drug, Inc. v. FTC, 450 F.2d 698, 708 (D.C.Cir.1971)). "[A]n agency will not be permitted to develop a body of `secret law,' used by it in the discharge of its regulatory duties and in its dealings with the public, but hidden behind a veil of privilege ...." Coastal States, 617 F.2d at 867. Accordingly, this "exemption is to be applied `as narrowly as consistent with efficient Government operation.'" Id., 617 F.2d at 868 (quoting S. Rep. 89-813 at 9 (1965)).

In order to evaluate the IRS's deliberative process claim, "an understanding of the function the documents serve within the agency is crucial." Id., 617 F.2d at 858 (citing NLRB v. Sears Roebuck & Co., 421 U.S. 132, 95 S.Ct. 1504, 44 L.Ed.2d 29 (1975)). LMs are prepared by so-called "docket attorneys" in the Office of Chief Counsel to assist in the preparation and review of proposed revenue rulings. IRS's Stmt. of Material Facts ¶ 4 ("IRS SMF").⁴ Revenue rulings are official interpretations of the Internal Revenue Code and other tax materials. Id. ¶ 5. Before a proposed revenue ruling is published and achieves the status of precedent, id. ¶ 17, it must pass through a multi-faceted review process that is not complete until the Office of the Assistant Secretary (Tax Policy) at the Department of Treasury grants its final approval. Id. ¶¶ 12-16. As a proposed revenue ruling works its way through this process, it is accompanied by a "publication package." Id. ¶¶ 11, 14. Sometimes, but not always, the publication package includes a LM. Id. ¶ 7. According to the Chief Counsel Publications handbook, LMs may include a restatement of the proposed revenue ruling's issue and holding; justification, arguments, and lines of research that are not reflected fully in the proposed revenue ruling; and the principal arguments for reaching a contrary position. Id. ¶ 6. The LM serves as briefing material for the reviewers, providing a comprehensive summary of the drafter's legal research as well as the drafter's evaluation of the proposed ruling's strengths and weaknesses. Id. ¶ 20. At various points in the approval process the publication package may be returned to the drafter for revisions. Id. ¶ 21. Once approved by Treasury, revenue rulings are published in the Internal Revenue Bulletin for the information and guidance of taxpayers. Id. ¶ 5. There is no formal process, however, whereby the LM is conformed to reflect the final published revenue ruling. Id. ¶ 21.

After a proposed revenue ruling is definitively approved or rejected, the publication package is archived and can be retrieved by reference to the number of the proposed revenue ruling. Id. ¶ 24-25. The accompanying LM, if any, is archived with the rest of the publication package, but there is no indexing or retrieval system by which one can identify those files that contain an LM. Id. ¶ 27. IRS attorneys sometimes keep copies of LMs for their own reference, and may retrieve the revenue ruling file if they wish to probe the history behind a certain revenue ruling. Id. ¶ 27-30. Attorneys may exchange LMs informally, but they are not distributed through official channels. Id.

Applying this Circuit's law to these undisputed facts, the Court finds that the deliberative process privilege protects from disclosure those portions of LMs that do not reflect the official position of the Office of Chief Counsel. In this regard, the Court finds that LMs function like the Background Information Notes ("BINs") at issue in Arthur Andersen, 679 F.2d 254, 258 (D.C.Cir.1982). Like LMs, BINs are part of a proposed revenue ruling's publication package. After conducting an in camera review of the contested draft revenue rulings and their accompanying BINs, the D.C. Circuit noted that "the flow of the documents was from subordinate to superior. Because approval was required at each higher level, all the participants up to the Commissioner were without authority to make a final determination." Arthur Andersen, 679 F.2d at 259; see also Pies v. Internal Revenue Service, 668 F.2d 1350, 1353 (D.C.Cir.1981) (protecting draft proposed regulations and a draft transmittal memorandum that were "never subjected to final review, never approved by the officials having authority to do so, and never approved within the Legislation and Regulations Division"). Because the drafters lack ultimate authority, their views are necessarily pre-decisional.⁵ Similarly, LMs are directed upward from docket attorneys to reviewers and, ultimately, to the Office of the Assistant Secretary (Tax Policy) at the Department of Treasury. Although LMs are sometimes returned to their drafters for revisions, they are not...