Willamette Industries, Inc. v. U.S., 81-3560

• Decision Date: 07 October 1982
• Docket Number: No. 81-3560,81-3560
• Citation: 689 F.2d 865
• Parties: 82-2 USTC P 9625 WILLAMETTE INDUSTRIES, INC., Plaintiff-Appellee, v. UNITED STATES of America, Roscoe Egger, Commissioner of Internal Revenue, Ralph B. Short, Arturo A. Jacobs, Robert M. Cutts, and Robert M. McKeever, District of Internal Revenue Service, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 865

689 F.2d 865

82-2 USTC P 9625

WILLAMETTE INDUSTRIES, INC., Plaintiff-Appellee, v. UNITED STATES of America, Roscoe Egger, Commissioner of Internal Revenue, Ralph B. Short, Arturo A. Jacobs, Robert M. Cutts, and Robert M. McKeever, District of Internal Revenue Service, Defendants-Appellants.

No. 81-3560.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 5, 1982.

Decided Oct. 7, 1982.

James Miller, Atty., Washington, D.C., for defendants-appellants.

Philip N. Jones, Duffy, Georgeson, Kekel & Benner, Portland, Or., for plaintiff-appellee.

Appeal from the United States District Court for the District of Oregon.

Before KILKENNY, SNEED, and SKOPIL, Circuit Judges.

SKOPIL, Circuit Judge:

The IRS appeals from a district court order requiring it to comply with a taxpayer's Freedom of Information Act ("FOIA") request for data from third party taxpayers' files regarding timber sales and valuation, with the taxpayers' names and total volume of timber deleted. We affirm.

I.

Appellee, Willamette Industries, a timber producer and manufacturer of wood and forest products, made a FOIA request for disclosure of documents kept by the Internal Revenue Service ("IRS"), which would show how the IRS arrives at fair market values for timber in making tax assessments for the timber harvested by appellee each year. Willamette requested administrative manuals and instructions regarding timber valuation.

Willamette also requested two types of documents, from five different geographic areas for the years 1970-1976. The first was engineering and valuation reports (EVRs), which are prepared by foresters during a disputed audit of an individual taxpayer, and reflect the valuation of the timber owned by that specific taxpayer.

The second type of documents are called private timber sales data, and are compiled during the audit of a taxpayer. Unlike the EVRs, which list valuations of timber owned by the audited taxpayer, the private timber sales data are compilations of comparable sales by other taxpayers, and are used by the auditors as references to determine the market value of the audited taxpayer's timber. These compilations are gleaned from data supplied by consultants as well as from forms filed by taxpayers who have sold timber during the taxable year. Interestingly, the IRS does not compile a centralized table of timber valuations, either from its own valuations or from comparable sales. Both the EVRs and the private timber sales data are kept only in individual audit files. Thus there is no available information about how the IRS has actually valued specific types of timber in different locations.

The IRS released only the administrative manuals, and Willamette filed suit to compel disclosure of the EVRs and private timber sales data. The IRS moved for summary judgment. The district court ordered the government to conduct a search of representative files, and to provide the general information regarding the number of files within the scope of the request, the number of files already searched, the time already taken conducting the search, and the time needed to complete the search. The government was also ordered to provide a description of all the material in the files including which parts, if any, are non-exempt, and to offer justification for continuing to withhold all information. The court also requested affidavits from IRS officers setting forth other relevant information.

After the IRS filed the requested information and affidavits, the district court calculated that the documents requested totaled 453,934 pages contained in 1,343 files. The court denied the IRS' motion for summary judgment.

Willamette filed a motion for summary judgment. Willamette reduced its original request for EVRs to the two areas of western Oregon and northern Louisiana, and only for the tax years ending in 1974, 1975 and 1976; and limited the request for private sales data to the same geographic areas for the period from June 30, 1973 to June 30, 1976. There was no recalculation of the number of pages covered by the limited request, though the number of years requested had been cut in half, and the geographic areas had been reduced from five to two.

A hearing was held on December 2, 1980. On May 28, 1981 the district court filed its opinion in favor of Willamette, holding that the documents were not exempt under FOIA exemption 3 and that the EVRs were final opinions required to be disclosed under 5 U.S.C. § 552(a)(2)(A). 530 F.Supp. 904. Judgment was entered on July 27, 1981, ordering the IRS to release the EVRs with the taxpayers' names and total volume of each tract deleted, and to disclose the private sales data with the names of the taxpayers, the purchasers of the timber, and the total volume of timber deleted. The IRS appeals.

II.

The issues on appeal are:

1. Whether the district court's finding that the requested documents can be edited to avoid indirect identification of taxpayers is clearly erroneous, and thus the documents would be exempt from disclosure under FOIA exemption 3; and

2. Whether the district court erred in holding that the requested documents were "data" which is not exempted from disclosure by the Haskell Amendment, 26 U.S.C. § 6103(b)(2).

III.

The district court's findings of fact regarding danger of indirect identification and segregability can be overturned on appeal only if they are clearly erroneous. Fed.R.Civ.P. 52(a); United States v. Missouri River Breaks Hunt Club, 641 F.2d 689, 694 (9th Cir. 1981). The burden of proof is on the IRS to sustain its claim that the requested documents are exempt from disclosure under the FOIA. 5 U.S.C. § 552(a)(4)(B).

IV.

The Freedom of Information Act, 5 U.S.C. § 552, provides for federal agencies to disclose documents unless they fall within a specific statutory exemption. Exemption 3 of the FOIA, 5 U.S.C. § 552(b)(3), permits the withholding of matters that are "specifically exempted from disclosure by statute," if the statute meets certain specified criteria.

Section 6103 of the Internal Revenue Code of 1954, 26 U.S.C. § 6103, has been held to qualify as an exemption 3 statute. See, e.g., Long v. United States Internal Revenue Service, 596 F.2d 362, 365-66 (9th Cir. 1979), cert. denied, 446 U.S. 917, 100 S.Ct. 1851, 64 L.Ed.2d 271 (1980); Chamberlain v. Kurtz, 589 F.2d 827, 838-39 n.33 (5th Cir. 1979), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). Section 6103 provides detailed rules prohibiting disclosure of tax "returns" and "return information". The 1976 amendment to section 6103 (the "Haskell Amendment") provides that the term "return information" "does not include data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer." 26 U.S.C. § 6103(b)(2).

This court has construed the Haskell amendment to mean that data that does not identify a particular taxpayer is not "return information" and thus is subject to disclosure under the FOIA. Long v. Internal Revenue Service, 596 F.2d at 368; see also Neufeld v. Internal Revenue Service, 646 F.2d 661, 665 (D.C.Cir.1981).

The FOIA provides that "(a)ny reasonably segregable portion of a record shall be provided to any person requesting such record after deletion of the portions which are exempt under this subsection." 5 U.S.C. § 552(b). The focus of the FOIA is information, not documents, and the agency cannot justify withholding an entire document simply by showing that it contains some exempt material. "Non-exempt portions of a document must be disclosed unless they are inextricably intertwined with exempt portions" such that the excision of exempt information would impose significant costs on the agency and produce an edited document with little informational value. Mead Data Central, Inc. v. U.S. Department of Air Force, 566 F.2d 242, 260-61 (D.C.Cir.1977); Neufeld v. Internal Revenue Service, 646 F.2d at 666; 5 U.S.C. § 552(d).

The district court found that the requested documents could be edited and disclosed without danger of identifying the taxpayers to which the documents apply, that the government had failed to show that the documents would be meaningless after the deletions, and further found that the IRS' editing burden would not be excessive.

A review of the record reflects that the district court's findings are not clearly erroneous. The burden of proof is on the agency to show that the documents are exempt from its duty to disclose. Ollestad v. Kelley, 573 F.2d 1109, 1110 (9th Cir. 1978); 5 U.S.C. § 552(a)(4)(B). The IRS' expert testified that in most cases the engineering and valuation reports (EVRs) would not identify individual taxpayers if the total volume of timber in each tract listed was deleted. Though the expert testified that in certain circumstances a knowledgeable person in the industry might be able to identify the individual taxpayer by the location of certain tracts, no specific evidence was given as to how often this danger of indirect identification might exist. The IRS's argument that "it is simply impossible to know what information might indirectly identify one of those specific taxpayers" is too speculative and not supported by facts.

The IRS contests the district court's finding that there is no danger of indirect identification as to the second group of documents, the compilations of timber sales data. The district court ordered the release of this data after deletion of the names of the taxpayers and the purchasers and the volumes of sale. The IRS argues that even with the volumes of sale deleted, a reader of the edited form could calculate the volumes as the forms often list the location of the tract of land, the volume of timber sold,...