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March 31, 2000


The opinion of the court was delivered by: Kollar-kotelly, District Judge.

MEMORANDUM OPINION (Cross-Motions for Summary Judgment)

This case is before the Court on crossmotions for summary judgment filed by Plaintiff, Tax Analysts, and Defendant, the Internal Revenue Service.*fn1 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 Plaintiffs 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 Plaintiffs claims are amenable to summary disposition. For the reasons stated below, the Court shall grant IRS's motion for summary judgment and deny Plaintiffs 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.


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 attorneyclient 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").*fn4 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.*fn5 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 officially approved, nor do they emanate from the Office of Chief Counsel with any appearance of authority. Instead, the Court finds that LMs "reflect the agency `give-and-take' leading up to a decision that is characteristic of the deliberative process." Id. at 257; see also Coastal States, 617 F.2d at 868 (emphasizing that documents are predecisional is they are produced in the process of formulating policy).

Contrary to Plaintiffs characterization, the Court finds that LMs are distinguishable from the General Counsel Memoranda ("GCMs") at issue in Taxation with Representation Fund v. Internal Revenue Service, 646 F.2d 666 (D.C.Cir. 1981) ("TWRF") and the Field Service Advices ("FSAS") at issue in Tax Analysts v. Internal Revenue Service, 117 F.3d 607 (D.C.Cir. 1997).*fn6 Whereas GCMs and FSAs are used to promote uniformity in IRS policy, see, e.g., Tax Analysts, 117 F.3d at 617, LMs are tools for formulating policy. Unlike GCMs, which are "revised to reflect the final position of the Assistant Commissioner (Technical)"; "widely distributed throughout the agency," and "constantly updated to reflect the current status of an issue within the Office of Chief Counsel," TWRF, 646 F.2d at 681-82, LMs are not updated, officially reconciled, or widely distributed. Furthermore, LMs do not necessarily reflect the official position of the Office Chief Counsel on a given issue. This treatment stands in sharp contrast to the procedures utilized with GCMs, which "are retained by the Office, of Chief Counsel, and extensively cross-indexed and digested, as well as `updated,' much like the service provided by Shepard's." Id. at 682. Whereas LMs flow "upward" from staffers to reviewers, FSAs flow "outward" from the Office of Chief Counsel to personnel in the field. See Tax Analysts, 117 F.3d at 617. The FSA case is also distinguishable because LMs are not used to guide personnel in the field or elsewhere. Admittedly, IRS attorneys sometimes retain LMs for future reference, but such use does not automatically convert LMs to "agency law." See Pies, 668 F.2d at 1353-54 (noting that use as a research tool, without more, does not convert unfinalized or unapproved materials into agency working law).

In keeping with these general principles, the IRS has redacted portions of LMs that reflect the opinions and analysis of the author and did not ultimately form the basis of the final revenue ruling. Because the Court finds that this approach to segregability is consistent with the D.C. Circuit's mandate that the deliberative process privilege be applied as narrowly as possible, the Court shall grant IRS's motion for summary judgment as to LMs.

B. Pending Issue Reports ("PIRs") and Field Service Advice Monthly Reports ("FSA Reports")

FSA Reports are generated monthly by the Office of Assistant Chief Counsel (Field Service) to track the status of responses to requests for Field Service Advice. IRS SMF ¶ 143. Each FSA Report has three parts: (1) a cover memorandum, (2) the main body, and (3) a cumulative listing of FSA assignments for the fiscal year. Id. ¶ 144. The cover memorandum typically lists, by case name, the FSAs that were issued that month. Id. ¶ 145. Typically, the case name is the name of the taxpayer to whom the FSA relates. Id. ¶ 146. The main body contains additional information about each FSA, including the date assigned, the number of days that have passed since the request was received, the case's name and control number, the names of the attorneys assigned to the task, the name of the requesting office, a progress report on the FSA, and an issue statement that briefly states the facts and legal issue that will be the subject of the FSA. Id. ¶¶ 146-47. The cumulative listing summarizes the status of all FSA requests assigned and/or completed in the fiscal year. Id. ¶ 148. The Office of Chief Counsel uses FSA Reports as an "inventory control report" to manage its workload. Id. ¶ 150. In this regard, FSA Reports help the Office of Chief Counsel monitor the progress of FSAs, coordinate with the various components of the office, and to alert recipients to emerging issues. Id.

PIRs perform a similar function by tracking the assignment of Technical Advice Memoranda, Private Letter Rulings, congressional correspondence, technical assistance, revenue ruling projects, and other kinds of work performed by Office of the Associate Chief Counsel (Domestic). Id. ¶ 164. Prior to July, 1996, when the IRS installed a computer case-tracking system, PIRs were prepared monthly by the technical divisions within the Office of Associate Chief Counsel (Domestic). Id. ¶¶ 160-61. Each PIR is a list of cases, featuring six fields of information for each case: uniform issue list ("UIL") number,*fn7 case name (usually the name of the taxpayer), case number, issue, date opened, and the Branch assigned to the case. Id. ¶¶ 162-63.

In light of the D.C. Circuit's decision in Tax Analysts, which held in relevant part that FSAs are not protected by the deliberative process privilege, see 117 F.3d at 616-18, the only exemption presently at issue with respect to FSA Reports and PIRs is Exemption 3, 5 U.S.C. § 552(b)(3). See IRS's Mem. in Support of Mot. for Summ. J. at 38. In conjunction with I.R.C. § 6103, Exemption 3 prevents agencies from revealing "any return" or, "return information." See Tax Analysts, 117 F.3d at 611. Return information includes the following facts:

[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 (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, or other imposition, or offense.

I.R.C. § 6103(b)(2)(A). Section 6103(b) specifically excludes from this definition, however, "data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer." Id.; see also Tax Analysts, 117 F.3d at 611. In Tax Analysts, the D.C. Circuit rejected the IRS's Exemption 3 argument because the "[l]egal analyses contained in FSAs are not `return information' under § 6103. . . ." Tax Analysts, 117 F.3d at 616.

IRS has divided the FSA Reports into two categories: those that pertain to docketed cases, and those that pertain to cases not docketed in any court. IRS SMF ¶ 155. For those cases that have not been docketed, the IRS is withholding only the taxpayer's name and the name of the requesting office as return information. Id. ¶ 155; IRS's Mem. in Support of Mot. for Summ. J. at 38. For the docketed cases, the IRS is not withholding taxpayer names, which are part of the public record, see William E. Schrambling Accountancy Corp. v. United States, 937 F.2d 1485, 1488-89 (9th Cir. 1991) (public record exception to § 6103), but it is withholding the issue statements corresponding to these identified taxpayers because they constitute return information and may or may not have become part of the public record. The IRS contends that it is too burdensome for the IRS to determine whether the issue identified in the FSA Report is part of the public record. IRS SMF ¶ 156. The IRS has adopted the same approach for PIRs: release of return information that can be readily identified as part of a public record, and redaction of return information that is either (1) not part of the public record or (2) cannot be readily identified as part of the public record. Id. ¶ 175.

The Court agrees with the IRS that the FSA Reports and PIRs have been properly redacted to protect return information. Furthermore, the IRS has substantiated its claim that it is too burdensome for the IRS to determine whether the issue statements in docketed cases have become part of the public record. See Def.'s Mot. for Summ. J. Ex. 4 (Butler Decl.). Because the IRS has redacted these documents in accordance with the ...

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