Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-00-05344/USCOURTS-caDC-00-05344-0/pdf.json

Parties Involved:
Internal Revenue Service
Appellee
Landmark Legal Foundation
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 12, 2001 Decided October 12, 2001

No. 00-5344

Landmark Legal Foundation,

Appellant

v.

Internal Revenue Service,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 97cv01474)

Richard P. Hutchison argued the cause for appellant.

With him on the briefs was Mark R. Levin.

Thomas J. Sawyer, Attorney, U.S. Department of Justice,

argued the cause for appellee. With him on the brief were

Jonathan S. Cohen, Attorney, and Kenneth L. Wainstein,

U.S. Attorney.

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Before: Tatel and Garland, Circuit Judges, and Williams,

Senior Circuit Judge.*

Opinion for the Court filed by Senior Judge Williams.

Williams, Senior Circuit Judge: Early in 1997 there was

public controversy over claims that the Internal Revenue

Service had selectively audited conservative non-profit organizations in response to requests from outside parties. Seeking

to investigate these allegations, Landmark Legal Foundation

filed a request under the Freedom of Information Act seeking

the following records:

[C]opies of any and all documentation (including, but not

limited to, paper correspondence, telephonic inquiries

and/or electronic communications) evincing requests

since January 1, 1992[,] by individuals and/or entities

external to the [IRS] for audits or investigations of

501(c)(3) tax-exempt organizations. Please include the

names of the individuals and/or entities requesting the

audits or investigations and the names of the 501(c)(3)

tax-exempt organizations for which audits or investigations were requested. We wish to make clear that we

are not asking the IRS to provide information revealing

whether, in fact, any of these entities are actually being

audited.

The request went on to seek documents that would reveal

mere inquiries about the tax status of exempt organizations.

In the course of the usual back and forth between requester and agency, the IRS released several hundreds of pages

of documents but also withheld thousands. On court order, it

produced a Vaughn index, see Vaughn v. Rosen, 484 F.2d 820

(D.C. Cir. 1973), dividing the papers into 20 categories and

invoking in support of non-disclosure Exemptions 3 and 6, 5

U.S.C. ss 552(b)(3) & (6). On the basis of Exemption 3, the

district court granted the IRS's motion for summary judgment on all but four categories, as to which it found the IRS

affidavits insufficient. See Landmark Legal Foundation v.

__________

* Senior Circuit Judge Williams was in regular active service at

the time of oral argument.

Internal Revenue Service, 87 F. Supp. 2d 21, 26-27, 29

(D.D.C. 2000). It rejected the Service's invocation of Exemption 6. Id. at 27-28. Finally, it denied most of Landmark's

requests for discovery. Id. at 29-30. Landmark filed an

appeal, which we dismissed for want of a final order, Landmark Legal Foundation v. Internal Revenue Service, No.

00-5147 (D.C. Cir. June 29, 2000), and then abandoned its

requests for the four categories as to which the court had not

granted summary judgment. The district court accordingly

entered a final judgment on all claims. Reviewing de novo,

see DeGraff v. District of Columbia, 120 F.3d 298, 301 (D.C.

Cir. 1997), we agree that Exemption 3 is applicable to the

disputed documents and we reject Landmark's other claims of

error. We need not reach the IRS's contention that the

district court erred in rejecting the Exemption 6 defense.

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* * *

Exemption 3 provides that documents need not be released

if they are "specifically exempted from disclosure by statute...." 5 U.S.C. s 552(b)(3). The exemption statute invoked by the IRS is 26 U.S.C. s 6103, which provides that

"return information shall be confidential." Id. s 6103(a); see

also Church of Scientology of California v. IRS, 792 F.2d 146

(D.C. Cir. 1986) (holding that s 6103 is an Exemption 3

statute). Section 6103 then defines "return information" as

including:

... 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 thereof) of any person under this title for any

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tax, penalty, interest, fine, forfeiture, or other imposition,

or offense.

26 U.S.C. s 6103(b)(2)(A) (emphasis added). This definition

of "return information" has, in the words of some commentators, "evolved to include virtually any information collected by

the Internal Revenue Service regarding a person's tax liability." Allan Karnes & Roger Lirely, Striking Back at the IRS:

Using Internal Revenue Code Provisions to Redress Unauthorized Disclosures of Tax Returns or Return Information,

23 Seton Hall L. Rev. 924, 933 (1993).

Landmark's original FOIA request may be broken down

into three parts: (1) the identities of tax-exempt organizations; (2) the identities of third parties who requested audits

or investigations of those organizations; and (3) any other

material or information included in those third-party requests.

We first note a constructional ambiguity that we will not

resolve. Section 6103(b)(2)(A) starts with a long list of specific items (starting with "a taxpayer's identity"), and then

refers to "other data," followed by a modifying clause--

"received by ... the Secretary with respect to a return or

with respect to the determination of the existence, or possible

existence, of liability...." 26 U.S.C. s 6103(b)(2)(A). The

modifying clause may apply to all the preceding items, or

only to "other data." Under the latter reading, Congress

would be understood to have thought that the specifically

identified information, if in the hands of the IRS at all, should

be categorically sheltered from disclosure. Because we must

construe the modifying clause for purposes of the third-party

identities and the contents of their communications, and

under the view we take it would clearly embrace the taxpayer

identities, we need not resolve whether taxpayer identities

would be covered if for some reason they did not satisfy the

modifying clause. See Ryan v. Bureau of Alcohol, Tobacco

and Firearms, 715 F.2d 644, 646 n.3 (D.C. Cir. 1983) (also

declining to resolve that question).

As noted, the statute specifically covers "a taxpayer's identity." Landmark does not claim that an entity's classification

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as tax-exempt excludes it from that category--a claim that

would surely be weak in light of the statute's additional

inclusion of "data ... furnished ... with respect to ... the

determination of the existence, or possible existence, of [tax]

liability ... of any person." See Breuhaus v. IRS, 609 F.2d

80, 83 (2d Cir. 1979) (holding that s 6103 applies to information relating to tax-exempt organizations).

The remaining two categories--the identities of third parties who requested audits or investigations and the contents

of their communications--are covered only if they constitute

"[1] data, [2] received by ... the Secretary with respect to a

return or with respect to the determination of the existence,

or possible existence, of liability...." 26 U.S.C.

s 6103(b)(2)(A) (bracketed enumeration added). (The IRS

does not claim that any of the contents at issue here might fit

any of the categories listed in s 6103 between "taxpayer's

identity" and the catch-all reference to "other data.") We

address first whether these materials meet the requirements

of the modifying clause, then whether they constitute "data."

We would owe deference to the IRS's interpretation of

s 6103 under Chevron U.S.A. Inc. v. National Resources

Defense Council, Inc., 467 U.S. 837 (1984), if the Service had

reached the interpretation asserted here in a notice-andcomment rulemaking, a formal agency adjudication, or in

some other procedure meeting the prerequisites for Chevron

deference stated in United States v. Mead, 121 S. Ct. 2164,

2172-75 (2001). But the Service makes no claim that the

interpretation it developed in litigation here arose in any such

procedure. Accordingly, we can give its views no more than

the weight derived from their "power to persuade." See id.

at 2172 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140

(1944)).

First, were the third-party identities and the contents of

their communications "received by ... the Secretary with

respect to a return or with respect to the determination of the

existence, or possible existence, of liability"? In Lehrfeld v.

Richardson, 132 F.3d 1463 (D.C. Cir. 1998), we found that

this language did not resolve "the precise question" whether

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it covered data received by the IRS in its initial investigation

of a party's application for tax-exempt status. Id. at 1467.

Under the standards then applied by this court for Chevron

deference, however, we found the IRS's conclusion that the

language did cover such data reasonable. Id.

Chevron being inapplicable here in light of Mead, we must

decide for ourselves the best reading of the modifying clause

(pretermitting the issue of whether the IRS may later adopt a

different--but nonetheless "reasonable"--interpretation).

We conclude that indeed the statutory phrase--"the existence, or possible existence, of liability"--naturally encompasses the issue of tax-exemption vel non.

But Landmark goes on to question whether these materials

were "received by ... the Secretary with respect to a return

or with respect to" any issue. In many cases we know little

more than that the communications arrived at the IRS, with

no indication that it used them in any way or subjected them

to anything more than minimal processing. But s 6103

seems deliberately sweeping in this respect, reaching data

"received by, recorded by, prepared by, furnished to, or

collected by" the Secretary. It appears to take no interest in

the Secretary's actual use of the material. To reach Landmark's reading we would have to excise the words "received

by" and "furnished to," and to disregard the extremely general character of the connecting phrase--"with respect to."

The second issue is whether the identities of the third

parties and the contents of their communications are "data."

Dictionary definitions, a common start, are rather broad.

Webster's Third New International Dictionary 577 (1981)

("datum" [the singular] means "detailed information of any

kind"); Oxford English Dictionary (2d ed. 1989) ("facts ...

or information"). And in Tax Analysts v. IRS, 117 F.3d 607

(D.C. Cir. 1997), where we tried to distinguish between

"factual" and "legal" matters, we observed that "[e]ach of the

specific items listed in the beginning of s 6103(b)(2)(A),"

including the "taxpayer's identity," are "factual in nature."

Id. at 613-14 (emphasis added). Moreover, the catch-all

phrase at the end is "other data," suggesting that Congress

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regarded all the preceding items, including the taxpayer's

identity, as data. A third-party complainer's identity seems

no less so. Presumably a statement of a "taxpayer's identity"

communicates the factual proposition that someone's name is

in the IRS files in connection with that person's payment or

non-payment of taxes. Similarly, revelation of any thirdparty complainer "identity" expresses the factual proposition

that the person identified has communicated with the IRS

about the status of a taxpayer or potential taxpayer.

The IRS has indulged in what seems to us an inconsistency

on this point, as it released to Landmark letters written by

representatives and senators (with their names not redacted),

typically enclosing a constituent's letter urging that the IRS

investigate a tax-exempt organization, or in some cases actually urging the same at the behest of a constituent. When we

asked government counsel at oral argument to reconcile these

releases with the IRS position here, he was quite tongue-tied.

As Skidmore deference looks in part to an agency's consistency, see 323 U.S. at 140 (consistency over time); FEC v.

Democratic Senatorial Campaign Committee, 454 U.S. 27, 37

(1981) (treating consistency under Skidmore as embracing

logical consistency), this must count against the Service's

position. Despite that debit, we think that for the reasons

given above the term "data" is correctly understood to cover

the identity of third parties who urge the IRS to withdraw or

reexamine an entity's tax-exempt status.

It remains to consider whether the contents of the third

parties' communications were "data." To judge from the

letters of congressmen and IRS responses appearing in the

Vaughn index, they characteristically assert obviously factual

propositions. For example, an IRS letter responding to a

senator notes that the senator had forwarded a letter from a

constituent complaining that a tax-exempt church had been

the "cosponsor of an advertisement 'posing a number of moral

questions regarding the candidacy of Bill Clinton.' " Joint

Appendix ("J.A.") 84-85. And a representative's letter urges

that the IRS "investigate" a constituent's allegations that an

organization had "contracted services with a non-profit entity

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he [the constituent] feels has instituted discriminatory policies

which violate the civil rights of minorities." J.A. 91.

Of course part (or conceivably all) of some communications

may be entirely exhortational. But even such material would

be "unique to a particular taxpayer," the factor we used in

Tax Analysts to help distinguish between non-disclosable

facts and disclosable legal conclusions. See 117 F.3d at 614.

Conceivably a court could order redaction of the identities of

taxpayers and third parties, and of all assertions of empirical

propositions, leaving only the non-cognitive portions to be

released. Thus Landmark would receive pieces of paper

reading, for example, "I, _______, think that _______ should

be audited because _______ [redacted factual proposition

thought by the author to be relevant to the entity's exempt

status] and because it is a pestilential organization [or similar

meaningless pejorative]." But nothing in Landmark's briefs

suggests that it meant to request any such a nonsensical

document.

Our reading of s 6103(b)(2)(A) finds some support in

s 6104, which carves out a narrow exception to s 6103 by

providing that any tax-exempt organization's application for

tax-exempt status and any "paper[s] submitted in support of

such application" shall be "open to public inspection."

s 6104(a)(1)(A). The presence of this exception suggests that

Congress viewed s 6103(b)(2)(A)'s non-disclosure provision as

broad enough to encompass any comparable papers, such as

ones like those at issue here, which were submitted in opposition to claims of tax-exempt status. Cf. Lehrfeld, 132 F.3d at

1466 (accepting as permissible under Chevron the IRS's

conclusion that s 6104(a)(1)(A) was "limited to submissions

made by the applicant" itself).

Landmark lays great stress on Tax Analysts, but that case

held simply that s 6103(b)(2)(A) did not cover certain communications by which the national office of the IRS's General

Counsel gave field offices legal advice on specific factual

situations. 117 F.3d at 616. The case rested primarily on

the distinction between facts, which are "data," and legal

analysis, which we held was not. We had no occasion to

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consider whether propositions that were neither factual nor

legal qualified as "data." Nor need we here, as we find no

request for completely non-cognitive statements. Certainly

the taxpayer-specific character of the entirety of these communications points under Tax Analysts toward their classification as "data." 117 F.3d at 614. Moreover, we note that

insofar as Tax Analysts might be thought to have narrowed

the concept of "data," it was explicitly driven by the force of

26 U.S.C. s 6110. 117 F.3d at 616. That section requires

disclosure of "Technical Advice Memoranda," legal analyses

that we said were almost indistinguishable (for these purposes) from the "Field Service Advice Memoranda" that Tax

Analysts held were not "data" for purposes of

s 6103(b)(2)(A). Id.

In closing we note Landmark's argument that the statute

protects only "return information," and thus can cover only

information that relates to an actual tax return. But this

rather wistful point disregards the actual statutory definition,

which plainly reaches far beyond what the phrase "return

information" would normally conjure up.

Thus we agree with the district court that the materials in

dispute are exempt from FOIA disclosure under Exemption

3.

Landmark makes a number of additional claims. First, it

contends that the Vaughn index was inadequately detailed.

Given the index's purpose of enabling the court to rule

without full disclosure of the documents themselves, Dellums

v. Powell, 642 F.2d 1351, 1360 (D.C. Cir. 1980), we think it

specific enough. See generally PHE, Inc. v. Department of

Justice, 983 F.2d 248 (D.C. Cir. 1993).

One of Landmark's complaints about the Vaughn index is

novel--that the index essentially parrots the language of

s 6103 innumerable times. So it does. But a Vaughn index

is not a work of literature; agencies are not graded on the

richness or evocativeness of their vocabularies. The index

offers individualized descriptions of the documents themselves

and then, typically, asserts the application of s 6103(b)(2)(A)

in language that tracks that of the statute itself. It is not the

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agency's fault that thousands of documents belonged in the

same category, thus leading to exhaustive repetition.

Finally, Landmark complains about the district court's

orders limiting its discovery. Such orders are to be overturned only if they were "clearly unreasonable, arbitrary, or

fanciful." Hull v. Eaton Corp., 825 F.2d 448, 452 (D.C. Cir.

1987) (internal quotation marks omitted) (quoting Northrop

Corp. v. McDonnell Douglas Corp., 751 F.2d 395, 399 (D.C.

Cir. 1984)). None of the court's rulings here remotely fits

that description.

The judgment of the district court is

Affirmed.

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