Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-05241/USCOURTS-caDC-96-05241-0/pdf.json

Parties Involved:
Internal Revenue Service
Appellant
Tax Analysts
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 15, 1997 Decided July 8, 1997 

No. 96-5152

TAX ANALYSTS,

APPELLEE

v.

INTERNAL REVENUE SERVICE,

APPELLANT

Consolidated with

No. 96-5241

Appeals from the United States District Court 

for the District of Columbia 

(94cv00923)

Jonathan S. Cohen, Attorney, U.S. Department of Justice, 

argued the cause for appellant. With him on the briefs were 

Loretta C. Argrett, Assistant Attorney General, Murray S. 

Horwitz, Attorney, and Eric H. Holder, Jr., U.S. Attorney.

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William A. Dobrovir argued the cause and filed the brief 

for appellee.

Before: RANDOLPH and ROGERS, Circuit Judges, and 

BUCKLEY, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge: Tax Analysts, a nonprofit District of Columbia corporation, brought an action under the 

Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, to 

compel the Internal Revenue Service to disclose certain documents known as "Field Service Advice Memoranda." The 

district court issued an order requiring disclosure after redaction. The IRS appeals on the grounds that the court misconstrued FOIA § 552(a)(2)(B), and that the records were protected by FOIA exemptions 3 and 5.

I

Field Service Advice Memoranda, known by their initials 

"FSAs," are issued by the Office of Chief Counsel for the 

IRS. The Office of Chief Counsel employs more than 1600 

attorneys and provides legal advice to the IRS, directs litigation in the Tax Court, and provides guidance and support for 

litigation in other courts. See INTERNAL REVENUE MANUAL

1171 (1993). Although the Chief Counsel is the chief legal 

officer for the IRS, id., the Office of Chief Counsel is not part 

of the IRS. The Chief Counsel is an Assistant General 

Counsel of the Treasury Department, appointed by the President with the advice and consent of the Senate. 31 U.S.C. 

§ 301(f)(2). For most purposes, the Chief Counsel is subject 

to the supervision of the General Counsel of the Treasury 

Department, not the Commissioner of Internal Revenue (although during the time period relevant to this case, the 

Commissioner delegated certain IRS functions, including handling agency appeals, to the Office of Chief Counsel, and the 

Commissioner retained authority over the Office of Chief 

Counsel with respect to those functions). INTERNAL REVENUE 

MANUAL 1112.62 (1990). According to the deposition testimoUSCA Case #96-5241 Document #283077 Filed: 07/08/1997 Page 2 of 28
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1 No FSAs are in the record, and the district court did not 

inspect any in camera. Sworn statements of the Assistant Chief 

Counsel (Field Service), an Associate Chief Counsel, and an attorney in the Office of the Assistant Chief Counsel (Disclosure Litigation) stated that FSAs are not widely distributed, and are not 

abstracted, or arranged in a manner to make them easily accessible. 

After briefing in this case had begun, the Justice Department 

attorneys representing the IRS learned that those statements were 

incorrect. In a commendable display of candor, they informed the 

court and Tax Analysts that until October 1993, the Office of Chief 

Counsel summarized some FSAs (including 166 of the FSAs at issue 

in this litigation) and distributed the summaries in the Tax Litigation Bulletin. This is a monthly publication circulated to attorneys 

handling tax litigation in the IRS's national office and in district and 

regional counsel offices. In the Appendix to this opinion, we 

include a sample FSA summary that appeared in the Tax Litigation Bulletin.

ny of senior officials in the Office of Chief Counsel, that office 

understands itself as independent from the IRS.

Attorneys in the national office of the Office of Chief 

Counsel prepare FSAs in response to requests from field 

personnel of either the Office of Chief Counsel or the IRS, 

such as field attorneys, revenue agents, and appeals officers. 

Field personnel request an FSA for legal guidance, usually 

with reference to the situation of a specific taxpayer. Each 

FSA includes a statement of issues, a conclusions section, a 

statement of facts, and a legal analysis section. CHIEF 

COUNSEL DIRECTIVES MANUAL (35)(19)44 (1992).1 The staff 

preparing an FSA are instructed that the conclusions section 

should recommend a position on each issue and state "any 

limitations or conditions to which a conclusion may be subject." Id. The style of the analysis section "should be 

exploratory and descriptive so that the strengths and weaknesses of a case are presented and developed candidly, directing attention to the authorities against the conclusions arrived 

at as well as those which support them." Id.

The government agrees that among the primary purposes 

of FSAs is ensuring that field personnel apply the law 

correctly and uniformly. The IRS tells us that FSAs are not 

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2 Although the government appeals the award of attorney's 

fees, it concedes that the award must stand if we otherwise affirm 

the district court. 

3 Tax Analysts also claims that the memoranda are "instructions to staff that affect a member of the public," 5 U.S.C. 

§ 552(a)(2)(C). The district court did not reach this argument. 

formally binding on IRS field personnel who request them. 

It is not clear whether they bind requesters within the Office 

of Chief Counsel. In any case, the government concedes that 

FSAs are held in high regard and are generally followed.

Treasury Department regulations treat the Office of Chief 

Counsel as part of the IRS for purposes of FOIA requests. 

31 C.F.R. § 1.1. Accordingly, Tax Analysts directed its 

requests for FSAs to the IRS, not the Office of Chief Counsel. Although Tax Analysts originally asked for both formal 

written FSAs and written records of advice provided informally to field personnel by telephone, Tax Analysts has since 

limited its claims to the approximately 1300 formal written 

FSAs issued by the Office of Chief Counsel between January 

1, 1992, and December 14, 1993. The IRS failed to respond 

to Tax Analysts's initial requests within the statutory time 

period. Tax Analysts pursued unsuccessful administrative 

appeals and then filed suit in district court. The parties 

conducted extensive discovery, and both moved for summary 

judgment. The district court granted Tax Analysts's motion 

and later awarded it attorney's fees.2

II

A remedial question needs to be addressed before we 

proceed any further. Throughout this litigation, Tax Analysts claimed that FSAs fall under the FOIA section requiring "[e]ach agency ... [to] make available for public 

inspection and copying ... those statements of policy and 

interpretations which have been adopted by the agency and 

are not published in the Federal Register." 5 U.S.C. 

§ 552(a)(2)(B).3 This is the so-called "reading room" provision.

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4 Kennecott left open the question whether other sources of law 

might authorize additional remedial orders in FOIA cases. See 88 

F.3d at 1203. Cf. Renegotiation Bd. v. Bannercraft Clothing Co.,

415 U.S. 1, 17-20 (1974); Kenneth Culp Davis, The Information 

Act: A Preliminary Analysis, 34 U. CHI. L. REV. 761, 775-77 (1967). 

The district court's memorandum opinion agreed that FSAs 

fell within § 552(a)(2)(B). But rather than explicitly requiring the IRS to make these documents available in a reading 

room, the court's order directed the IRS to "release all 

requested" FSAs, except to the extent that certain statutory 

exemptions apply. The IRS takes this to mean that it is 

obligated only to produce the FSAs to Tax Analysts. Any 

broader relief, the IRS claims, would be beyond the court's 

authority in light of our opinion in Kennecott Utah Copper 

Corp. v. Department of the Interior, 88 F.3d 1191, 1202-03 

(D.C. Cir. 1996). FOIA's remedial provision, 5 U.S.C. 

§ 552(a)(4)(B), provides that "[o]n complaint, the district 

court ... has jurisdiction to enjoin the agency from withholding agency records and to order the production of any agency 

records improperly withheld from the complainant." Kennecott holds that § 552(a)(4)(B) does not empower district 

courts to order agencies to publish certain statements in the 

Federal Register, although FOIA requires agencies to do so, 

see 5 U.S.C. § 552(a)(1). The only remedy § 552(a)(4)(B) 

mentions is an order directing the agency to produce the 

records to the complaining party. See Kennecott, 88 F.3d at 

1203.4

Tax Analysts has offered nothing in opposition to the IRS's 

argument regarding the limited scope of the remedy and it 

has not cross-appealed from the district court's order. We 

will, therefore, treat the argument as conceded for the purposes of this case only. This considerably simplifies matters. 

With the case in this posture there is no need for us to decide 

whether FSAs are "statements of policy and interpretations 

which have been adopted by the agency" under 

§ 552(a)(2)(B). If § 552(a)(2)(B) did not require FSAs to be 

"made available for public inspection," another FOIA provision§ 552(a)(3)required them to be made available to Tax 

Analysts, unless the documents were exempt from disclosure. 

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Section 552(a)(3), which Tax Analysts invoked in its initial 

FOIA requests to the IRS, provides that: "Except with 

respect to records made available under paragraphs (1) and 

(2) of this subsection, each agency, upon any request for 

records which (A) reasonably describes such records and (B) 

is made in accordance with published rules ... shall make the 

records promptly available to any person." There is, we 

believe, no doubt that the requests here "reasonably describe[d]" the FSAs. "A request reasonably describes records if 'the agency is able to determine precisely what records 

are being requested.' " Kowalczyk v. Department of Justice,

73 F.3d 386, 388 (D.C. Cir. 1996) (quoting Yeager v. Drug 

Enforcement Admin., 678 F.2d 315, 326 (D.C. Cir. 1982)). 

The IRS has had no trouble identifying the FSAs Tax Analysts wanted. It told Tax Analysts precisely how many such 

documents existed, and it inspected the FSAs individually for 

privileged material and attorney work product.

III

FSAs constitute agency "records" within 5 U.S.C. 

§ 552(a)(3): the Office of Chief Counsel created the documents and retained control over them. See Department of 

Justice v. Tax Analysts, 492 U.S. 136, 144-45 (1989). And as 

we have just concluded, Tax Analysts "reasonably" described 

these records in its requests. With these conditions satisfied, 

the government could properly refuse to produce the FSAs 

only if one of FOIA's exemptions justified withholding them. 

In this suit to compel production, "the burden is on the 

agency to sustain its action." 5 U.S.C. § 552(a)(4)(B); see 

also Petroleum Info. Corp. v. Department of the Interior, 976 

F.2d 1429, 1433 (D.C. Cir. 1992).

The government invokes FOIA exemptions 3 and 5. FSAs 

fall under exemption 3, it says, because these are "matters" 

"specifically exempted from disclosure by statute," 5 U.S.C. 

§ 552(b)(3). FSAs also are allegedly protected by exemption 

5, which empowers an agency to withhold "inter-agency or 

intra-agency memorandums or letters which would not be 

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5 Another subsection, § 6103(e)(7), permits disclosure of return 

information to the taxpayer if this "would not seriously impair 

Federal tax administration," and § 6103(j)(4) prohibits persons who 

receive return information pursuant to § 6103(j) from revealing it 

"except in a form which cannot be associated with, or otherwise 

identify, directly or indirectly, a particular taxpayer." See also 26 

U.S.C. § 6108(c). 

available by law to a party other than an agency in litigation 

with the agency," 5 U.S.C. § 552(b)(5).

A. Exemption 3

The government rests its exemption 3 claim on 26 U.S.C. 

§ 6103. Amended in 1976 in the wake of Watergate and 

White House efforts to harass those on its "enemies list," 

§ 6103 now restricts government officers and employees from 

revealing "any return" or "return information." "Return 

information" is defined as:

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 

tax, penalty, interest, fine, or other imposition, or offense....

26 U.S.C. § 6103(b)(2)(A). This definitional provision continues by excluding from the category of return information 

"data in a form which cannot be associated with, or otherwise 

identify, directly or indirectly, a particular taxpayer."5

Passed as a floor amendment to § 6103(b)(2), the clause just 

quotedthe Haskell Amendmentbecame the subject of the 

Supreme Court's opinion in Church of Scientology of California v. IRS, 484 U.S. 9 (1987). The Court rejected two related 

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6 The others relate to classes of taxpayers rather than individuals. The IRS concedes that any return information in them may be 

redacted. 

arguments about the meaning of the Haskell Amendment

that it excluded from the definition of "return information" all 

data not identifying a particular taxpayer, and that the IRS 

had a duty under FOIA to delete portions of documents in 

order to bring them within this view of the Haskell Amendment. See id. at 14. To accept these arguments, the Court 

thought, would be to read out of the Amendment the qualifier 

"in a form." Id. at 15. The Court also believed that if the 

Amendment were construed to allow the release of all nonidentifying data, this would "undercut the legislation's primary 

purpose of limiting access to tax filings." Id. at 16.

That § 6103 is the sort of nondisclosure statute contemplated by FOIA exemption 3 is beyond dispute. To paraphrase 

exemption 3, § 6103 is a statute specifically exempting certain 

matters from disclosure to the general public and leaving the 

IRS with no discretion to reveal those matters publicly. Our 

decision in Church of Scientology of California v. IRS, 792 

F.2d 146, 150 (D.C. Cir. 1986), so holds. There is also no 

doubt that FSAs relating to individual taxpayers contain at 

least some "return information." Whether exemption 3 

shields not simply part of each FSA but the entire document 

is the point of dispute. Under FOIA, if part of a document 

may be withheld, the rest of the document still may have to 

be produced after redaction. In statutory terms, "any reasonably segregable portion of a record" must be produced 

after deletion of the exempt portion. 5 U.S.C. § 552(b). IRS 

regulations also require the agency to disclose "any reasonably segregable portion of a record" after deleting exempt 

matters, including § 6103 return information. 26 C.F.R. 

§ 601.701(b)(1)(iii), (b)(3). With respect to the FSAs pertaining to individual taxpayers, of which there are about 1192,6

the IRS maintains that there is nothing to redact. The 

argument is that these records are entirely "return information" and thus completely protected from disclosure. The 

district court disagreed. In the court's view, those portions 

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of the FSAs containing "discussion of tax law principles, legal 

analysis or legal conclusions" were not protected by § 6103.

The district court's reasoning in support of this conclusion 

does not survive close attention. The court treated Taxation 

With Representation Fund v. IRS, 646 F.2d 666 (D.C. Cir. 

1981) ("TWRF"), or at least a district court order in the case, 

as precedent for its interpretation of § 6103(b)(2). Our opinion in TWRF held that certain kinds of IRS documents were 

not protected from disclosure under exemption 5 of FOIA. 

The documents were of three types, two of which are relevant 

here. General Counsel Memoranda, or GCMs, consisted of 

legal advice rendered by the Office of Chief Counsel in 

response to requests from the Assistant Commissioner (Technical) in connection with proposed Private Letter Rulings, 

proposed Technical Advice Memoranda, and proposed Revenue Rulings. TWRF, 646 F.2d at 669. Technical Memoranda, or TMs, the second type of documents, were drafted by 

attorneys in the Chief Counsel's office in connection with 

proposed Treasury decisions or regulations. Id. at 671. 

With respect to § 6103, the district court in TWRF authorized the IRS to redact all return information from the GCMs 

and TMs before turning them over to the plaintiff. See id. at 

676. On appeal, the IRS apparently did not contest this 

order and our opinion did nothing more than mention it. Id.

To the district court here, TWRF supported these conclusions: (1) "in legally relevant aspects, FSAs are akin to 

GCMs and TMs"; and (2) since GCMs and TMs are not 

§ 6103(b)(2) "return information" in their entirety, then neither are FSAs. The second proposition, critical in the court's 

analysis, does not follow from TWRF. Our TWRF opinion 

decided nothing about § 6103. True enough, the TWRF

district court ordered the IRS to delete "return information" 

from the GCMs and TMs. But it never explained why, and it 

never specified what comprised return information. Nothing 

can be made of the IRS's determination not to appeal the 

redaction order. The government does not appeal every 

judicial order with which it disagrees. And it has no duty to 

do so. Its failure to appeal the TWRF order therefore cannot 

be seen as some sort of admission about § 6103's meaning. 

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An appeal would have been futile anyway, which may explain 

why one was not taken. While TWRF was making its way 

through this circuit, a now-repudiated interpretation of the 

Haskell Amendment prevailed. Return information, we then 

believed, meant "only information that directly or indirectly 

identifies a particular taxpayer"; redaction of such information, we thought, removed § 6103's protection against disclosure. See Neufeld v. IRS, 646 F.2d 661, 665 (D.C. Cir. 1981). 

We eventually overruled Neufeld in Church of Scientology of 

California v. IRS, 792 F.2d 153 (D.C. Cir. 1986) (en banc), 

aff'd, 484 U.S. 9 (1987). But when TWRF was before us, 

otherwise exempt documents could have been transformed 

into records beyond § 6103's protection by deleting identifying information, which is what the redaction order required.

We are therefore back to square one: Are the legal interpretations and analyses contained in the FSAs "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," 26 U.S.C. § 6103(b)(2)(A)? If these 

portions of the FSAs are within the catchall "other data," the 

Supreme Court's Scientology opinion makes it irrelevant 

whether the legal analyses and conclusions themselves identify any individual taxpayers. Church of Scientology, 484 U.S. 

at 18. The IRS might reformulate the FSAs to remove all 

identifying information, as it did in the Tax Litigation Bulletin until 1993, and thereby bring them within the Haskell 

Amendment. See Church of Scientology, 792 F.2d at 163; 

and note 1 supra. But neither § 6103 nor FOIA imposes a 

duty on the IRS to undertake any reformulation.

As to § 6103(b)(2)(A)'s catchall clause, we know that FSAs, 

and the legal analyses in them, are "prepared 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." But are legal interpretations of statutes, rules, reguUSCA Case #96-5241 Document #283077 Filed: 07/08/1997 Page 10 of 28
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7 Cases sustaining IRS claims of exemption under § 6103(b)(2) 

include Currie v. IRS, 704 F.2d 523, 531 (11th Cir. 1983) (return 

information encompasses memoranda "reflecting the direction and 

scope" of an IRS investigation); King v. IRS, 688 F.2d 488, 494 (7th 

Cir. 1982) ("IRS comment on the private tax situations of specific 

taxpayers"); Breuhaus v. IRS, 609 F.2d 80, 83 (2d Cir. 1979) (an 

IRS letter to a member of Congress explaining a determination of 

tax liability); and Chamberlain v. Kurtz, 589 F.2d 827, 840-41 (5th 

Cir. 1979) ("intra-agency communications regarding [a taxpayer's] 

tax liability, memoranda of conferences on that subject, [and] 

various 'sensitive case' reports"). 

lations, and judicial opinions, and the legal conclusions flowing 

from those interpretations "data"? Tax Analysts says no, 

"data" means only facts and it is only facts that § 6103 

protects, facts such as the taxpayer's identity, or income, or 

deductions, or the existence of an IRS audit or a criminal 

investigation. Cases from other circuits dealing with 

§ 6103(b)(2) do not help either side.7 Nor does the dictionary. Nor does legislative history. But principles of administrative law tilt in favor of the IRS's position.

The principles are the familiar ones, set down in Chevron 

U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 

U.S. 837 (1984), calling upon the courts to defer to an 

agency's permissible construction of an ambiguous statute the 

agency administers. The IRS and the Office of Chief Counsel are the gatekeepers of federal tax information. Through 

§ 6103, Congress charged these two agencies and their employees with the duty of protecting return information from 

disclosure to others within the federal government, and to the 

public at large. If the IRS adopts an interpretation of 

§ 6103, therefore, Chevron is triggered. That the interpretative issue arises in the context of FOIA does not render 

Chevron inapplicable. It is true that we will not defer to an 

agency's view of FOIA's meaning. See, e.g., FLRA v. Department of the Treasury, Fin. Management Serv., 884 F.2d 1446, 

1451 (D.C. Cir. 1989); Association of Retired R.R. Workers, 

Inc. v. U.S. R.R. Retirement Bd., 830 F.2d 331, 334 (D.C. Cir. 

1987). No one federal agency administers FOIA. The meaning of FOIA should be the same no matter which agency is 

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asked to produce its records. One agency's interpretation of 

FOIA is therefore no more deserving of judicial respect than 

the interpretation of any other agency. But the meaning of 

FOIA is not at stake here. This aspect of the case turns on 

how § 6103(b)(2) is to be construed. And on that score, the 

IRS stands on the same footing as other agencies administering statutes confined to their particular spheres.

Of course, Chevron deference assumes that the agency has 

adopted an interpretation of the statute and that the court 

knows what that interpretation is. In this case, we have the 

letters of the Assistant Chief Counsel denying Tax Analysts's 

FOIA administrative appeals partly on the ground that the 

FSAs constituted § 6103(b) "return information" "in their 

entirety." The letters are conclusory. They do not say how 

the Chief Counsel construes the term "data" in § 6103(b)(2), 

or why. The IRS's brief in this court is a bit more enlightening. It argues that "data" includes legal conclusions and 

analyses as well as facts, indeed includes everything "generated by the IRS with respect to the liability of a taxpayer." 

One might consider the interpretation of § 6103 reflected in 

the IRS's argument to be merely a litigating position. But 

that would not necessarily preclude our deferring to the 

agency's interpretation so long as it represented the IRS's 

"fair and considered judgment on the matter," Auer v. Robbins, 117 S. Ct. 905, 912 (1997).

We therefore move on to the first inquiry in the Chevron 

analysisnamely, "whether Congress has directly spoken to 

the precise question at issue," Chevron, 467 U.S. at 842. In 

the context of § 6103(b)(2)(A), does the term "data" refer 

only to facts, as Tax Analysts maintains, or is the meaning of 

the term unclear? Each of the specific items listed in the 

beginning of § 6103(b)(2)(A)the taxpayer's identity, income, 

payments, exemptions, liabilities, net worth and so forthare 

factual in nature. Ejusdem generis, the canon of statutory 

construction limiting "general terms which follow specific 

ones to matters similar to those specified," Gooch v. United 

States, 297 U.S. 124, 128 (1936); see also Cole v. Burns Int'l 

Sec. Servs., 105 F.3d 1465, 1471 (D.C. Cir. 1997), thus militates in favor of the interpretation Tax Analysts proposes. 

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But the line between facts and law is not always obvious; 

matters may be of the mixed-fact-and-law variety. See 

Thompson v. Keohane, 116 S. Ct. 457, 463-67 (1995). Should 

the statement "Taxpayer violated such and such section of the 

Code in reporting the $10,000 as a bad debt loss" be treated 

as one of fact or one of law? It is hard to believe Congress 

intended the IRS to pay attention to such quiddities in 

administering § 6103.

Still, there is something to the ejusdem generis point. 

Each of the specific items mentioned in the beginning of 

§ 6103(b)(2)(A) is not only factual but unique to the particular 

taxpayer. And each of the more general items in 

§ 6103(b)(2)(A)"any other data, received by, recorded by, 

prepared by, furnished to, or collected by the Secretary with 

respect to a return" or the liability "of any person"is of the 

same character, that is, unique to a particular taxpayer. The 

IRS has itself drawn this very distinction in propounding its 

view of what constitutes return information. FSAs relating 

to "groups or classes of taxpayers" rather than to a particular 

taxpayer, the IRS concedes, "do not constitute return information protected by Exemption 3." Yet legal analyses and 

conclusions also cannot be viewed as unique to a particular 

taxpayer, or as the IRS puts it, "taxpayer-specific." If the 

Office of Chief Counsel renders an interpretation of a certain 

section in the tax code, whether in an FSA or elsewhere, that 

interpretation should apply to all other taxpayers who are, in 

material respects, similarly situated. Treating like cases 

alike is, we have said, "the most basic principle of jurisprudence." LaShawn A. v. Barry, 87 F.3d 1389,1393 (D.C. Cir. 

1996) (en banc). We were there speaking of the judiciary, but 

the principle fully applies to those who administer the federal 

tax laws. The IRS itself recognizes that to fulfill its mission 

it must ensure "uniform interpretation and application of the 

tax laws." INTERNAL REVENUE MANUAL 1111.1 (1988). When 

Congress amended the tax code in 1976 to require the IRS to 

disclose Private Letter Rulings and Technical Advice Memoranda, of which more hereafter, it did so because "the secrecy 

surrounding" these written determinations "has generated 

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handed basis." S. REP. No. 94-938, pt. 1, at 305, reprinted in

1976 U.S.C.C.A.N. 3439, 3735; see also H.R. REP. No. 94-658, 

at 314, reprinted in 1976 U.S.C.C.A.N. 2897, 3210. Regulations, statutes, judicial rulings, and their interpretation and 

application, thus are decidedly not taxpayer-specific in any 

meaningful respect.

On other hand, we cannot say that the term "data" is 

incapable of bearing the meaning the IRS ascribes to it. For 

evidence that "data" might encompass not only facts but law, 

one need look no further than Supreme Court opinions. In 

Standard Oil Co. v. Johnson, 316 U.S. 481, 483 (1942), Justice 

Black, a legal craftsman of the first rank, referred to "regulations and practices under them" and "the relevant statutory 

and constitutional provisions" as "data." Justice Stewart 

wrote of "comprehensive data respecting the laws of the 

various States," Charles Dowd Box Co. v. Courtney, 368 U.S. 

502, 510 (1962). Justice Harlan, in his dissenting opinion in 

Miranda v. Arizona, 384 U.S. 436, 522 (1966), described the 

laws of foreign countries as "data." Justice Stone's opinion 

for the Court in West v. American Telephone & Telegraph 

Co., 311 U.S. 223, 237 (1940), directed federal courts in 

diversity cases to use "all the available data" to ascertain 

state law, including intermediate state appellate opinions, a 

statement repeated many times, see, e.g., Commissioner v. 

Estate of Bosch, 387 U.S. 456, 465 (1967); Hicks v. Feiock,

485 U.S. 624, 630 n.3 (1988). The legal rights of private 

parties are "data," according to Wallis v. Pan American 

Petroleum Corp., 384 U.S. 63, 70 n.7 (1966). And the Court 

has described Congress's review of "data compiled on the 

laws of the States as to the status of labor organizations as 

legal entities," United Ass'n of Journeymen & Apprentices of 

the Plumbing & Pipefitting Industry v. Local 334, United 

Ass'n of Journeymen & Apprentices of the Plumbing &

Pipefitting Industry, 452 U.S. 615, 624 n.9 (1981).

While "data" therefore might signify even legal discussions, 

we are hard pressed to find any reason derived from § 6103 

in favor of the IRS's interpretation. The IRS has offered 

none. It simply slaps § 6103 on the table and tells us that 

everything in an FSA, every line, every word, is immune from 

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disclosure. If the FSA recites material from census reports 

or statistics relating to an industry or quotes statutes or 

regulations, all of this would be "return information." Why 

§ 6103 should protect such non-taxpayer-specific information 

is a mystery the IRS has not offered to solve. This is not to 

suggest that the IRS has no reason for wanting to keep the 

FSAs secret. It has argued, in the context of another FOIA 

exemption, that revealing the law sections of these records 

would be disruptive to its enforcement efforts and might 

discourage those in the field from seeking national office 

advice. Whatever the merits of these IRS concerns, they 

have nothing to do with § 6103's core purpose of protecting 

taxpayer privacy. See Church of Scientology, 484 U.S. at 16.

Furthermore, in interpreting § 6103 and in evaluating 

whether the IRS interpretation of "data" would be a permissible one if the term were ambiguous in the context of 

§ 6103(b)(2)(A), we must look not only at that section but at 

related provisions in the statute. National R.R. Passenger 

Corp. v. Boston & Maine Corp., 503 U.S. 407, 417 (1992); 

Chemical Mfrs. Ass'n v. EPA, 919 F.2d 158, 162-63 (D.C. Cir. 

1990); Kennecott Utah Copper Corp. v. Department of the 

Interior, 88 F.3d 1191, 1213 (D.C. Cir. 1996). At the same 

time as Congress enacted the current version of § 6103, it 

enacted 26 U.S.C. § 6110. See Tax Reform Act of 1976, Pub. 

L. No. 95-455, §§ 1201, 1202, 90 Stat. 1520, 1660, 1667. That 

section requires the IRS to disclose "any written determination" after deleting identifying details and certain other information. 26 U.S.C. § 6110(a), (c). A "written determination" 

is "a ruling, determination letter, or technical advice memorandum." Id. § 6110(b)(1).

The regulations define "Technical Advice Memorandum" 

as:

a written statement issued by the National Office to, and 

adopted by, a district director in connection with the 

examination of a taxpayer's return or consideration of a 

taxpayer's claim for refund or credit. A technical advice 

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memorandum generally recites the relevant facts, sets 

forth the applicable law, and states a legal conclusion.

26 C.F.R. § 301.6110-2(f). An IRS Revenue Procedure explains in more detail what the agency considers to be a 

Technical Advice Memorandum:

"Technical advice" means advice or guidance in the 

form of a memorandum furnished by the national office 

[of the Office of Chief Counsel] upon the request of a 

district director or a chief, appeals office, submitted in 

accordance with the provisions of this revenue procedure, 

in response to any technical or procedural question that 

develops during any proceeding on the interpretation and 

proper application of tax law, tax treaties, regulations, 

revenue rulings, notices, or other precedents published 

by the national office to a specific set of facts. Such 

proceedings include: (1) the examination of a taxpayer's 

return; (2) the consideration of a taxpayer's claim for 

refund or credit; (3) any matter under examination or in 

appeals pertaining to tax-exempt bonds or mortgage 

credit certificates; and (4) any other matter involving a 

specific taxpayer under the jurisdiction of the chief, 

examination division, or the chief, appeals office....

Technical advice helps Internal Revenue Service personnel close cases and also helps establish and maintain 

consistent holdings throughout the Service.

Rev. Proc. 97-2, 1997-1 I.R.B. 64, 67; see also CHIEF COUNSEL 

DIRECTIVES MANUAL (39)713 (1992). A Technical Advice Memorandum includes a statement of issues, a statement of facts, 

a statement of law, a discussion of the rationale supporting 

the conclusions reached, and a statement of conclusions. 

Rev. Proc. 97-2, 1997-1 I.R.B. at 79; CHIEF COUNSEL DIRECTIVES MANUAL Ex. (39)700-3 (1993).

We see no difference, relevant to § 6103, between FSAs 

and Technical Advice Memoranda. Both are means by which 

the national office of the Office of Chief Counsel provides field 

offices with advice about the tax laws in response to questions 

regarding specific factual situations. FSAs and Technical 

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Advice Memoranda serve similar purposes and the outline 

they follow is basically the same. This is not to suggest that 

FSAs and Technical Advice Memoranda are identical. The 

Office of Chief Counsel's internal guidance points out the 

following distinctions: taxpayers are always permitted to 

participate in the technical advice process, while taxpayer 

participation in the FSA process is left to the discretion of 

field personnel; Technical Advice Memoranda, but not FSAs, 

are "final determinations" of the IRS's position; FSAs, unlike 

Technical Advice Memoranda, are not publicly released under 

FOIA or § 6110, are not widely distributed within the IRS or 

the Office of Chief Counsel, and are not disclosed to taxpayers. CHIEF COUNSEL DIRECTIVES MANUAL (35)274 (1996). Field 

personnel are instructed that "[t]he choice of whether to 

request Field Service Advice or Technical Advice depends on 

whether the advice is intended to establish the position of the 

Service in a specific case with respect to the issue presented." 

Id. None of these distinctions, however, has anything to do 

with the taxpayer privacy concerns underlying § 6103. With 

respect to the purposes of § 6103, Technical Advice Memoranda and FSAs amount to the same thing.

Congress did not mention FSAs in § 6110, but that is 

entirely understandable. FSAs did not exist in their present 

form until 1991, fifteen years after § 6110 became law. The 

provision nevertheless is significant. Only a Janus-faced 

Congress would, in § 6110, order the IRS to disclose the legal 

analysis portion of a Technical Advice Memorandum and 

then, in § 6103, order the IRS not to disclose the same 

portion of an FSA. The IRS's position, rather than bringing 

§ 6103(b)(2)(A) into harmony with the rest of the Internal 

Revenue Code, would create an anomaly within the Code's 

disclosure system.

While the IRS's interpretation of "data" in § 6103(b)(2)(A) 

may be linguistically possible, we therefore conclude that it is 

not a permissible construction of the statute in light of its 

structure and purposes. Legal analyses contained in FSAs 

are not "return information" under § 6103, and the IRS's 

exemption 3 claim fails.

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B. Exemption 5

Exemption 5 permits an agency to withhold materials 

normally privileged from discovery in civil litigation against 

the agency. NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 

148-49 (1975); EPA v. Mink, 410 U.S. 73, 85-86 (1973). To 

justify invoking exemption 5 with respect to the FSAs, the 

IRS cites three recognized evidentiary privileges: the "deliberative process" privilege, the attorney-client privilege, and 

the attorney work product doctrine. See, e.g., Burka v. 

Department of Health & Human Servs., 87 F.3d 508, 516 

(D.C. Cir. 1996); Pies v. IRS, 668 F.2d 1350, 1352 (D.C. Cir. 

1981).

1. Deliberative Process Privilege

The deliberative process privilege, a variant of executive 

privilege, shields only government "materials which are both 

predecisional and deliberative." Wolfe v. Department of 

Health & Human Servs., 839 F.2d 768, 774 (D.C. Cir. 1988) 

(en banc) (citing Mink, 410 U.S. at 88). The government has 

the burden of showing that the materials were "generated 

before the adoption of an agency policy" and "reflect[ ] the 

give-and-take of the consultative process." Coastal States 

Gas Corp. v. Department of Energy, 617 F.2d 854, 866 (D.C. 

Cir. 1980). Here, the district court found that FSAs were 

neither predecisional nor deliberative.

"A strong theme of our [deliberative process] opinions has 

been that an agency will not be permitted to develop a body 

of 'secret law'...." Coastal States, 617 F.2d at 867; see also

Davis, supra, 34 U. CHI. L. REV. at 797. FSAs, we believe, 

represent such a body of law. They contain the answers of 

the national office of the Office of Chief Counsel to legal 

questions submitted by IRS and Chief Counsel personnel in 

the field. As the IRS concedes, one of the main functions of 

FSAs is "the promotion of uniformity" throughout the country on significant questions of tax law. The legal conclusions 

the Office of Chief Counsel provides to field personnel constitute agency law, even if those conclusions are not formally 

binding. The legal memoranda ordered disclosed in Coastal 

States were not formally binding either, 617 F.2d at 859-60, a 

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8 Vietnam Veterans of Am. v. Department of the Navy, 876 

F.2d 164, 165 (D.C. Cir. 1989), stated that the "agency counsel 

opinions at issue [in Coastal States] operated as law because an 

auditor requesting an opinion was not empowered to disregard it." 

We do not believe the "empowered" part of this statement accurately depicts the situation in Coastal States. We there accepted the 

proposition that the auditors were free to reject the legal opinions, 

but added that as a practical matter the auditors "regularly and 

consistently" followed them. 617 F.2d at 859-60 & n.8; see also 

TWRF, 646 F.2d at 679. 

9 There is an exception to the Administrative Procedure Act's 

notice and comment rulemaking provisions for "interpretive rules 

[and] general statements of policy." 5 U.S.C. § 553(b). In applying this provision, we have distinguished binding rules from policy 

statements and interpretive rules, which are not binding and which 

leave agency decisionmakers with some discretion. See, e.g., Vietnam Veterans of Am. v. Secretary of the Navy, 843 F.2d 528, 536-

38 (D.C. Cir. 1988); National Latino Media Coalition v. FCC, 816 

F.2d 785, 787-89 & n.2 (D.C. Cir. 1987). Yet no one could reasonably suppose that because statements of agency policy fall within 

the notice and comment exception, all agency policy statements are 

exempt from disclosure under FOIA. 

point we recognized in TWRF, 646 F.2d at 679.8 And as in 

Coastal States, 617 F.2d at 869, the documents here are 

"routinely used" and relied upon by field personnel. The 

field offices may make the initial decisions with respect to 

individual taxpayers, and those decisions may not necessarily 

agree with the conclusions contained in FSAs. But the 

structure and purposes of the FSA system reveal that the 

national office, in issuing these memoranda, is attempting to 

develop a body of coherent, consistent interpretations of the 

federal tax laws nationwide. The fact that FSAs are nominally non-binding is no reason for treating them as something 

other than considered statements of the agency's legal position. Cf. Note, The Freedom of Information Act and the 

Exemption for Intra-Agency Memoranda, 86 HARV. L. REV. 

1047, 1058-60 (1973).9

Rather than documents produced in the process of formulating policy, FSAs are themselves statements of an agency's 

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legal position and, as such, cannot be viewed as predecisional. 

See Coastal States, 617 F.2d at 868. Although FSAs may 

precede the field office's decision in a particular taxpayer's 

case, they do not precede the decision regarding the agency's 

legal position. Representing the considered view of the Chief 

Counsel's national office on significant tax law issues, FSAs 

do not reflect the "give-and-take" that characterizes deliberative materials. The IRS tells us that FSAs may evaluate the 

strengths and weaknesses of alternative views. But that does 

not make them deliberative. The government's opinion about 

what is not the law and why it is not the law is as much a 

statement of government policy as its opinion about what the 

law is.

Exemption 5, and the deliberative process privilege, reflect 

the legislative judgment that "the quality of administrative 

decision-making would be seriously undermined if agencies 

were forced to 'operate in a fishbowl' because the full and 

frank exchange of ideas on legal or policy matters would be 

impossible." Mead Data Cent., Inc. v. Department of the Air 

Force, 566 F.2d 242, 256 (D.C. Cir. 1977); see also Sears, 421 

U.S. at 151; Coastal States, 617 F.2d at 866. A ruling that 

the privilege applies "should therefore rest fundamentally on 

the conclusion that, unless protected from public disclosure, 

information of that type would not flow freely within the 

agency." Mead Data Cent., 566 F.2d at 256. This, the IRS 

maintains, would be the consequence of making FSAs available to the public. If FSAs are revealed, the argument 

continues, officials who request and prepare these documents 

might be subjected to pressure from those who disagree with 

their reasoning, and to criticism when the advice turns out to 

be ill-considered. The argument proves too much. Whenever an agency's actions are opened to public view, the agency 

exposes itself to pressure and criticism. Since 1976, redacted 

Technical Advice Memoranda have been made available to the 

public. See 26 U.S.C. § 6110. Yet the IRS has offered no 

evidence that disclosing technical advice pursuant to § 6110 

has harmed the agency or has inhibited it in reaching legal 

judgments. FSAs and Technical Advice Memoranda are, as 

we have already mentioned, quite similar in purpose, in 

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10 In an affidavit, an Assistant Chief Counsel asserts that FSAs 

and Technical Advice Memoranda "differ greatly in content." But 

he fails to identify any great differences. He states that Technical 

Advice Memoranda concern the "interpretation and proper application of tax law, tax treaties, regulations, revenue rulings, notices, 

and other precedents." On the other hand, FSAs involve "a much 

wider range of authority," including "the Internal Revenue Code 

and other federal statutes, and rules of procedure for federal 

courts." FSAs, he continues, discuss judicial opinions "rather than 

... agency regulations, rulings, or notices." Are we to suppose 

that Technical Advice Memoranda are not concerned with judicial 

opinions? A Supreme Court decision interpreting a section of the 

Internal Revenue Code is as much a part of "tax law" as an IRS 

regulation. And in fact hundreds of Technical Advice Memoranda 

do discuss Supreme Court cases, to say nothing of cases from other 

courts. E.g., Tech. Adv. Mem. 9721002 (May 23, 1997); Tech. Adv. 

Mem. 9717006 (Apr. 25, 1997). 

organization, and in content.10 Both types of documents 

reflect the law the government is actually applying in its 

dealings with the taxpaying public. See Coastal States, 617 

F.2d at 869. True, FSAs differ in that they are not formally 

binding on the field offices. But if disclosing Technical 

Advice Memoranda has not damaged the functioning of the 

Office of Chief Counsel or the IRS, there is no basis for 

supposing that disclosing FSAs would.

The government points out that in addition to the protection of agency decision making, we have also identified as 

purposes of the deliberative process privilege "protect[ion] 

against premature disclosure of proposed policies" and "protect[ion] against confusing the issues and misleading the 

public by dissemination of documents suggesting reasons and 

rationales for a course of action which were not in fact the 

ultimate reasons for the agency's action," Coastal States, 617 

F.2d at 866. Neither of these purposes warrants a cloak of 

secrecy around FSAs. As discussed above, FSAs are statements of the agency's legal position, and there is nothing 

premature or misleading about disclosing them. Even if an 

FSA reflects a view eventually rejected by a field official, it 

still represents the opinion of the national office of the Office 

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of Chief Counsel, and the public can only be enlightened by 

knowing what the national office believes the law to be.

2. Attorney-Client Privilege

The attorney-client privilege protects confidential communications from clients to their attorneys made for the purpose 

of securing legal advice or services. In re Sealed Case, 737 

F.2d 94, 98-99 (D.C. Cir. 1984). The privilege also protects 

communications from attorneys to their clients if the communications "rest on confidential information obtained from the 

client." Id. at 99; see also Mead Data Cent., 566 F.2d at 254. 

In the governmental context, the "client" may be the agency 

and the attorney may be an agency lawyer. The IRS claims 

that FSAs are confidential communications between attorneys 

in the Office of Chief Counsel and their clients (the requesters), and are based upon confidential information relayed 

from the requesters to the attorneys.

In light of our decision about exemption 3, the issue here is 

not whether the IRS must disclose taxpayer-specific information. Wholly aside from the attorney-client privilege, such 

information must be redacted from FSAs because it is "return information" protected by § 6103. As to application of 

the privilege to the remaining portions of the FSAs relating 

to individual taxpayers and to the approximately 112 FSAs 

relating to classes of taxpayers, see supra note 6, our decisions in Schlefer v. United States, 702 F.2d 233 (D.C. Cir. 

1983), and Coastal States are controlling.

Schlefer dealt with documents containing legal advice from 

an agency's chief counsel to agency officials. The officials 

sought legal guidance to assist them in ruling on requests 

from "outsiders." 702 F.2d at 235-36. We held that the 

documents had to be disclosed under FOIA and were not 

protected by the attorney-client privilege. Id. at 245. "The 

outsider's communications to the official do not contain any 

confidential information concerning the Agency; when the 

official transmits the relevant facts to the Chief Counsel, no 

new or confidential information concerning the Agency is 

imparted.... Accordingly, [the documents] do not fall within 

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the scope of the attorney-client privilege and are not within 

FOIA exemption 5." Id. (footnote omitted). The IRS acknowledges Schlefer but makes not the slightest attempt to 

distinguish it. The case is, we believe, directly on point and 

we therefore must follow it. To the extent that the legal 

conclusions in FSAs are based upon information obtained 

from taxpayers, Schlefer holds that the attorney-client privilege does not apply.

Coastal States leads to the same conclusion. We there held 

that when agency auditors communicate information from 

third parties to the agency's regional counsel and ask for 

legal advice, the regional counsel's written responses containing "neutral, objective analyses of agency regulations" are not 

privileged. 617 F.2d at 863. The IRS does attempt to 

distinguish Coastal States. There is no evidence, the IRS 

tells us, that FSAs contain "neutral, objective analyses" of the 

tax laws; rather "FSAs provide case-specific advice on substantive and procedural matters." There are several problems with the IRS's distinction. The first is that "casespecific" and "objective" are not mutually exclusive. Are we 

to suppose that the Office of Chief Counsel decides what the 

law is or should be on the basis of how much tax revenue can 

be squeezed out of the particular taxpayer who is being 

audited? Government officials serve the public; they have a 

responsibility to be objective in applying the law, whether 

they are dealing with an individual taxpayer or a class of 

taxpayers. Unless they operate objectively the law cannot be 

applied uniformly and consistentlythe very ends FSAs are 

intended to promote. The second thing wrong with the IRS's 

argument is that it misconceives where the burden lies. The 

IRS is invoking a FOIA exemption. It had the burden of 

proving that the exemption warranted its withholding of the 

documents. If there is no evidence to show whether FSAs 

are of the same character as the documents before the court 

in Coastal States, that is a strike against the IRS, not in favor 

of it. Furthermore, we are at a loss to understand why, as 

the IRS proposes, the existence of the attorney-client privilege turns on whether the lawyer's advice may be characterized as "objective." Private attorneys, one would hope, usualUSCA Case #96-5241 Document #283077 Filed: 07/08/1997 Page 23 of 28
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ly give objective advice to their clients. That does not 

deprive their communications of the privilege's protections. 

But no private attorney has the power to formulate the law to 

be applied to others. Matters are different in the governmental context, when the counsel rendering the legal opinion 

in effect is making law. Here, the Office of Chief Counsel is 

one of the principal tax lawgivers within the Executive 

Branch. Nearly all the interpretations of the tax laws the 

IRS applies in assessing and collecting taxes emanate from 

the Office of Chief Counsel. The Office drafts formal regulations (Treasury Decisions), Revenue Rulings, Private Letter 

Rulings, Technical Advice Memoranda, Treasury Memoranda, 

General Counsel Memoranda and Actions on Decisions. See 

TWRF, 646 F.2d at 669-73. As we have discussed previously, 

FSAs issued by the Chief Counsel create a body of private 

law, applied routinely as the government's legal position in its 

dealings with taxpayers. It is this quality, not the objective 

character of the legal analyses in the documents, that Schlefer

and Coastal States deem significant. See also Niemeier v. 

Watergate Special Prosecution Force, 565 F.2d 967, 974 (7th 

Cir. 1977); Falcone v. IRS, 479 F. Supp. 985, 989-90 

(E.D.Mich. 1979); cf. Sterling Drug Inc. v. FTC, 450 F.2d 

698, 708 (D.C. Cir. 1971). Under those decisions, FOIA 

exemption 5 and the attorney-client privilege may not be used 

to protect this growing body of agency law from disclosure to 

the public.

The IRS suggests that some FSAs may reveal confidential 

information transmitted by field personnel regarding "the 

scope, direction, or emphasis of audit activity." Communications revealing such client confidences are in a different 

category than those we have been discussing. They are 

clearly covered by the attorney-client privilege, and the IRS 

may still assert the privilege with respect to particular portions of FSAs containing this sort of confidential government 

information.

3. Work Product Doctrine

The work product doctrine shields materials "prepared in 

anticipation of litigation or for trial by or for [a] party or by 

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11 Federal Rule of Civil Procedure 26(b)(3) allows discovery of 

materials prepared in anticipation of litigation only upon a showing 

of "substantial need," but in all cases "the court shall protect 

against disclosure of the mental impressions, conclusions, opinions, 

or legal theories of an attorney ... concerning the litigation." The 

point of the rule is that while all materials prepared in anticipation 

of litigation are work product and protected from discovery by 

other parties, a sufficient showing of need may overcome that 

protection with respect to factual materials, but not with respect to 

deliberative materials. This does not mean that factual materials 

are not work product; it means only that they receive a lower 

degree of protection under the Federal Rules than deliberative 

work product. 

or for that ... party's representative (including the ... 

party's attorney, consultant, ... or agent)." FED. R. CIV. P. 

26(b)(3); see also Hickman v. Taylor, 329 U.S. 495 (1947). 

The IRS has identified 309 of the FSAs as attorney work 

product. There is no dispute that these FSAs are protected 

under exemption 5, and the district court properly permitted 

the government to redact "all attorney work-product." However, in making this ruling the district court confined the 

scope of the work product doctrine too narrowly. It said the 

IRS "may exclude only ... text concerning 'the mental 

impressions, conclusions, opinions, or legal theories of an 

attorney.' " The work product doctrine protects such deliberative materials but it also protects factual materials prepared 

in anticipation of litigation. See, e.g., Martin v. Office of 

Special Counsel, 819 F.2d 1181, 1184-87 (D.C. Cir. 1987); A. 

Michael's Piano, Inc. v. FTC, 18 F.3d 138, 147 (2d Cir. 

1994).11 Any part of an FSA prepared in anticipation of 

litigation, not just the portions concerning opinions, legal 

theories, and the like, is protected by the work product 

doctrine and falls under exemption 5.

IV

We agree with the district court that no blanket exemption 

applies to all of the requested FSAs, and they must be 

released to Tax Analysts except to the extent that they are 

protected by some specific FOIA exemption. As the district 

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court ordered, the IRS may redact any true return information or attorney work product from the FSAs.

Other grounds for withholding certain FSAs or portions of 

FSAs may also apply. The IRS may redact matters that are 

properly within the scope of the attorney-client privilege 

consistent with what we said above. The IRS claims that 

portions of 32 of the FSAs fall under exemption 3 due to 

secrecy clauses in tax treaties and tax information exchange 

agreements. It says that portions of 206 of the FSAs are 

protected by exemption 7(E), which applies to materials that 

"would disclose techniques and procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions if 

such disclosure could reasonably be expected to risk circumvention of the law," 5 U.S.C. § 552(b)(7)(E). And it contends 

that one FSA falls under exemption 6, which shields "personnel and medical files and similar files the disclosure of which 

would constitute a clearly unwarranted invasion of personal 

privacy," id. § 552(b)(6). The district court did not pass on 

these claims, and Tax Analysts raises some doubt about 

whether the government properly presented them. We remand the case to the district court so it may consider these 

issues.

So ordered.

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Appendix

(See supra note 1.)

ADDITIONS TO TAX, PENALTIES, APPLICATION OF 

NEGLIGENCE TO CARRYBACK YEARS: The addition to 

tax under I.R.C. § 6653(a)(2) may not be asserted on the 

basis of an NOL carryback in a tax year for which the tax is 

due prior to December 31, 1981.

From 1954 until 1982, the addition to tax under I.R.C. 

§ 6653(a) applied where any part of an underpayment was 

due to negligence. Section 6653 was amended by the Economic Recovery Tax Act of 1981 (ERTA), Pub. L. No. 34, HR 

4242, 97th Cong., 1st Sess. The effective rate of the addition 

was increased by adding to it an amount equal to 50 percent 

of the interest on the negligence-tainted portion of the deficiency. Section 6653(a)(2) was enacted to apply the interest 

component.

In this case, the taxpayers claimed NOL carrybacks, arising from a tax shelter in 1983, on their 1980 tax returns. The 

Service issued penalty-only notices of deficiency for 1980, 

asserting additions under I.R.C. §§ 6653(a)(1) and (a)(2). 

Section 722(b)(2) of ERTA states that the interest element of 

the addition applies "to taxes the last date prescribed for 

payment of which is after December 31, 1981." Payment of 

the taxpayers' 1980 tax was due by April 15, 1981.

The General Explanation of the Economic Recovery Tax 

Act of 1981 prepared by the staff of the Joint Committee on 

Taxation provides that section 6653(a)(2) applies "for the 

period beginning on the last day for payment of the underpayment (i.e., the due date of the return without regard to 

any extension of time for payment) and ending on the date of 

the assessment." This language supports that whether section 6653(a)(2) applies to an underpayment is determined by 

when the related tax return and payment are due.

Handel v. Commissioner, T.C. Memo. 1992-355, and Thomas Nelson, Inc. v. United States, 734 F. Supp. 810 (M.D. 

Tenn. 1989), involve carrybacks and section 6653 additions to 

tax for years pre- and post-enactment of the interest component. Neither case directly addresses the propriety of applyUSCA Case #96-5241 Document #283077 Filed: 07/08/1997 Page 27 of 28
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ing section 6653(a)(2) to the earlier tax years. In both cases, 

however, the Service applied section 6653(a)(2) only to the 

later years.

The regulations for the accuracy-related negligence penalty 

under section 6662(c) include a special transitional rule for 

carrybacks. The inference taken from the regulation is that 

absent a special rule the negligence penalty or addition in 

effect for the carryback year applies to the underpayment 

attributable to the carryback. There is no similar special rule 

for I.R.C. § 6653(a)(2).

For further information, please contact....

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