United States District Court, District of Columbia
March 16, 1999
TAX ANALYSTS, PLAINTIFF,
INTERNAL REVENUE SERVICE, DEFENDANT.
The opinion of the court was delivered by: Hogan, District Judge.
Pending before the Court are Plaintiffs and Defendant's
Cross-Motions for Summary Judgment. The issue before the Court is
whether the plaintiff, Tax Analysts ("TA"), is entitled to enjoin
the Internal Revenue Service ("IRS" or "Defendant") from
withholding documents requested under the Freedom of Information
Act (FOIA). Upon consideration of the parties' pleadings and
statements at oral argument, the Court will grant Defendant's
Motion for Summary Judgment and deny Plaintiffs Motion for
TA is a nonprofit corporation organized under the laws of the
District of Columbia. TA's primary activities include publishing
a variety of tax publications and disseminating tax information
to the general public.*fn1 In pursuing these objectives, TA
argues for the public availability of documents and materials
relating to the administration of the tax laws by all United
States agencies. On November 10, 1993, pursuant to FOIA, TA
requested from the IRS copies of all "closing agreements" *fn2
relating to organizations exempt from federal income tax executed
on or after December 31, 1992.
After the IRS failed to respond to TA's initial request, TA
filed an administrative appeal based upon the constructive denial
of its claim. The IRS denied TA's appeal, claiming that
disclosure of the closing agreements was prohibited by 26 U.S.C. § 6103
(a). TA then brought this FOIA claim before this
Court, seeking an injunction to compel the IRS to produce for
inspection and copying all of the previously requested closing
agreements. Both TA and the IRS have moved for summary judgment
pursuant to Fed.R.Civ.P. 56(c).
Summary judgment is appropriate only if there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law. See Fed.R.Civ.P. 56; Celotex Corp.
v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). In considering a motion for summary judgment, the
"evidence of the non-movant is to be believed, and all
justifiable inferences are to be drawn in his favor." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986). There is a genuine issue of material fact
only if there is such evidence that a reasonable jury could
return a verdict for the nonmoving
party; a fact is material only if it might affect the outcome of
the suit under applicable law. See id. at 248, 106 S.Ct. 2505.
Tax returns and return information are generally not subject
to public disclosure. See I.R.C. § 6103(a). In the case of
tax-exempt organizations, however, Congress has provided a limited
exception to § 6103's confidentiality rule. See I.R.C. §
6104(a)(1)(A). Section 6104(a)(1)(A) provides:
If an organization described in section
501(c) or (d) is exempt from taxation
under section 501(a) for any taxable
year, the application filed by the organization
with respect to which the Secretary made his
determination that such organization was entitled to exemption
under section 501(a), together with any
paper submitted in support of such application,
and any other letter or document issued by the IRS with
respect to such application shall be open to public
Id. (emphasis added). The Treasury regulation interpreting §
6104(a)(1)(A) takes the words "any papers submitted in support
of such application" to mean "any statement or document . . .
that is submitted by an organization in support of its
application." See 26 C.F.R. § 301.6104 (a)-1(e). Thus, as
the D.C. Circuit noted in Lehrfeld v. Richardson, papers
submitted by "anyone other than the applicant itself in support
of its application for tax-exempt status need not be disclosed."
132 F.3d 1463, 1464 (D.C.Cir. 1998).
Plaintiffs claim arises under the FOIA, 5 U.S.C. § 552,
which provides a rule of general disclosure by government
agencies upon request. Mandatory disclosure enables the public
to gain access to government information so that it can review
the government's performance of its statutory duties, thereby
promoting government honesty. See EPA v. Mink, 410 U.S. 73, 79-80,
93 S.Ct. 827, 35 L.Ed.2d 119 (1973). Accordingly, district
courts have the authority to enjoin an agency from withholding
agency records and to order the production of agency records
where the agency improperly withholds them*fn3 See United States
Dep't of Justice v. Tax Analysts, 492 U.S. 136, 141, 109 S.Ct.
2841, 106 L.Ed.2d 112 (1989). However, an agency may withhold
agency records which fall under one of the nine enumerated
exemptions to the FOIA. See 5 U.S.C. § 552 (b). The
government has the burden to justify its withholding of documents
pursuant to one or more of these exemptions. See Katz v. National
Archives & Records Admin., 862 F. Supp. 476, 478 (D.D.C. 1994).
In this case, Defendant, a government agency, invoked the FOIA
exception set forth in 5 U.S.C. § 552 (b)(3). Section
552(b)(3) states that an agency need not disclose records
specifically exempted from disclosure by statute, provided that
such statute (1) requires withholding information from the public
in "such a manner as to leave no discretion on the issue," or (2)
establishes particular criteria for withholding or refers to
particular types of matters to be withheld. See 5 U.S.C. § 552
(b)(3). Defendant asserts that I.R.C. § 6103(a), which
governs confidentiality and disclosure of returns and return
information, bars Plaintiffs FOIA claim. Thus, two matters are
before the Court. First, whether the closing agreements contain
return information under § 6103. If they contain return
information, then § 6103 generally bars their disclosure.*fn4 Second,
whether the closing agreements requested by Plaintiff are
"issued" by the IRS "with respect to (an) application [for
tax-exempt status]." See 26 U.S.C. § 6104 (a)(1)(A). If
§ 6104 applies, the documents are exempt from § 6103's
non-disclosure rule and must be disclosed under FOIA.
Section 6103 broadly defines "return information" to encompass:
"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,
over-assessments 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 of any person under this title for
any tax, penalty, interest, fine, forfeiture,
or other imposition, or offense.
I.R.C. § 6103(b)(2)(A). A closing agreement is "an agreement
in writing with any person relating to the liability of such
person . . . in respect of any internal revenue tax for a taxable
period." I.R.S. § 7121. Thus, as closing agreements contain
"determination[s] of the existence . . . of liability," the
agreements constitute "return information" within the meaning of
§ 6103(b)(2)(A), See id. § 6103(b)(2)(A).*fn5
TA asserts that the closing agreements are nevertheless subject
to public disclosure under § 6104 because they were "issued"
by the IRS "with respect to" the organizations' applications for
exempt status. See id. § 6104. Treasury Regulation §
301.6104(a)-1(b) provides that, for purposes of I.R.C. §
6104, the term "issued" is to be interpreted in accordance with
the rules set forth in T.Reg. § 301.6110-2(h). Section
301.6110-2(h) states in pertinent part: "Issuance of a written
determination occurs . . . upon the mailing of the ruling or
determination letter to the person whom it pertains. Issuance of
a technical advice memorandum occurs upon the adoption of the
technical advice memorandum by the district director." T.Reg.
Plaintiff contends that, under the above definition of "issue,"
the closing agreements were issued either when they were mailed
back to the exempt organization or adopted by the IRS. The IRS,
however, argues that in order for a document to be issued by the
IRS, the document has to be created unilaterally by the Service.
Consequently, the IRS asserts that because a closing agreement is
a bilateral agreement signed by both the service and the
taxpayer, such an agreement is not issued by the IRS.
The Court finds that the IRS's interpretation of the term
"issued" is correct.*fn6 Pursuant to § 7121, a closing
agreement is normally initiated by the taxpayer who drafts a
proposal for the IRS to approve. See § 301.7121-1(a), (d)(1).
The IRS is not issuing a document so much as it is reacting to a
proposal. Thus, pursuant to the statutory language of the
Internal Revenue Code, closing agreements are not "issued" by the
IRS and consequently are not subject to public disclosure
TA also advances a public policy argument for why the closing
agreements should be subjected to disclosure. TA asserts that in
exchange for vast public assistance, exempt organizations are
required to disclose information pertinent to their exemption
application process. This contention appears consistent with the
IRS's own Internal Revenue Manual ("IRM"), which states:
The intent of Congress in allowing for
the public inspection of information governed
by I.R.C. § 6104(a), (b), and (e) was to enable the
public to scrutinize the activities of tax-exempt organizations
and trusts. Congress intended that these organizations
and trusts be subject to a certain degree of public
accountability in view of their privileged
tax status and because the public has a
right to know for what purposes their
contributions are being or will be used.
IRM — Administration, Disclosure of Official Information
Return Handbook, Chapter 910(7).
Although the Court finds merit in TA's policy argument, the
facts in the instant case foreclose the possibility of
disclosure. Because the closing agreements appear to be products
of negotiation rather than factors in granting tax-exempt status,
the scope of the agreements are not broad enough to mandate
disclosure under § 6104. While this result appears contrary
to the broad public policy encouraging disclosure, it is for
Congress, not the courts, to modify the IRS disclosure rules.
Thus, because no issues of material fact are in dispute and
resolving all issues in a light most favorable to Plaintiff,
judgment must be granted to the IRS as a matter of law.
Both Plaintiff and Defendant have filed Motions for Summary
Judgment concerning Plaintiffs desired access to documents from
the IRS under the Freedom of Information Act. Because the closing
agreements do not fall under the limited umbrella of § 6104,
Defendant's Motion for Summary Judgment must be GRANTED and
Plaintiffs Motion for Summary judgment must be DENIED. An Order
consistent with this Memorandum Opinion will issue this same day.