The Freedom of Information ActAuthor(s): James W. Quiggle, Robert Scheff and Jonathan SobeloffSource: American Bar Association Journal, Vol. 54, No. 7 (JULY 1968), pp. 709-712Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/25724486 .

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Tax

Notes

Prepared under the direction of the Committee on Bulletin and Tax Notes, Section of Taxation; James W. Quiggle, Chairman; Rob ert Scheff, Vice Chairman; Thomas M. Haderlein, Tax Notes Editor

The Freedom of Information Act

By Jonathan Sobeloff, Washington, D. C.

JuLY 4, 1968, marks the completion of the first year of government opera tion under the Freedom of Information Act.1 This note analyzes the act and its demonstrated and potential impact on law practice in the field of taxation.2

The most important new concept in the law is the provision that every per son has a judicially enforceable right to see any Federal Government agency

records, subject to nine specific exemp tions.

The second major innovation is the

requirement that agency policy state ments and interpretations and adminis

trative staff manuals and instructions

to staff which affect any member of the

public be published or made available in an agency reading room and in dexed currently. This publication re

quirement also is subject to the nine

specific exemptions.

The nine exemptions from disclosure

may be placed generally into two

major categories. In the first are cer

tain internal communications within a

government agency or between agen

cies. In the second category are matters that are obtained by an agency in con

fidence from any person. The internal communications exemp

tions pertain to matters "related solely to the internal personnel rules and

practices of an agency", "inter-agency or intra-agency memorandums or let

ters" and "investigatory files compiled for law enforcement purposes".3

The confidential information exemp tions in the tax area pertain to matters

that are "specifically exempted from disclosure by statute", "trade secrets and commercial or financial informa tion obtained from a person and privi leged or confidential" and "personal and medical files and similar files the disclosure of which would constitute a

clearly unwarranted invasion of per

sonal privacy".4

Reading rooms have been established

by the Internal Revenue Service in the

national office and each of the seven re

gional offices.5 Each contains IRS pub lications, with facilities for obtaining

copies at 25 cents a page. Among sig nificant items that have become newly accessible to the public because of the

establishment of reading rooms are the

complete topical index to the Internal Revenue Manual, portions of the man

ual (after deletion of confidential por tions and portions being revised) and

the uniform issue list used by IRS per sonnel in classifying pending cases for

recording in the RIRA information re

trieval system.

The term "record" is interpreted very broadly by the Attorney General under the new legislation.6 It includes

virtually every piece of paper and any

thing else that one might be interested in seeing. Furthermore, although the act requires that the request must be for "identifiable" records, it is my own opinion that the identification

requirement generally will not be used as a method for withholding.7 A writ ten request for records, under 5 U.S.C.

? 552 (a) (3) and Treasury Regula tions ? 601.702(c), must identify the records and be signed by the requester. It may be submitted to any Internal Revenue Service office, but if the rec

ords are unavailable in a field office or

are not of a routine, obviously disclos

able nature, the request will be for

warded to the national office. The

requester will then ordinarily hear

from the national office as to whether the request is granted or denied. There

is no express time limit for this re

sponse, but the national office indicates that it normally responds within about two weeks of receiving the request

1. Pub. L. 89-487, the amended Section 3 of the Administrative Procedure Act, now codified as 5 U.S.C. ? 552.

2. For an earlier treatment of this subject by the author, see Sobeloff, The New Free dom of Information Act: What it Means to Tax Practitioners, 27 J. Taxation 130 (1967).

3. 5 U.S.C. ?? 552(b)(2), (5), (7). The lat ter two exemptions are qualified in that mat ters can be withheld, in general, if they "would not be available by law to a party other than an agency in litigation with the agency" or "to the extent [not] available by law to a party other than an agency". An additional exemption applies to matters that are specifically required by executive order to be kept secret in the interest of the na tional defense or foreign policy.

4.5 U.S.C. ?? 552(b)(3), (4), (6). Addi tional confidential information exemptions in clude matters "contained in or related to examination, operating or condition reports prepared by, on behalf of or for the use of

an agency responsible for the regulation or

supervision of financial institutions" and "geological and geophysical information and data, including maps, concerning wells". 5 U.S.C. ?? 552(b)(8), (9). Included in the statutory provisions which exempt certain in formation are Section 6103 relating to pub licity of returns and disclosure of information as to persons filing income tax returns and Section 7213 relating to unauthorized disclo sure of information, as well as 18 U.S.C. ? 1905 relating to disclosure of confidential in formation generally. It is to be noted that the trade secrets and financial information exemp tion has been broadened by the House report to cover "any information given to an agency in confidence, since a citizen must be able to confide in his Government". H.R. Rep. No. 1497, 89th Cong., 2d Sess. 10 (1966).

5. Treas. Reg. ? 601.702 (b) (3) (i). 6. Att'y Gen. Mem. on Public Information

Section of the Administrative Procedure Act 2 (1967).

7. Treas. Reg. ? 601.702(c)(4).

July, 1968 Volume 54 709

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Tax Notes

from the field. If the request is

granted, there may be a $3.50 per hour

charge for record search in addition to

the copying charge. If the request is

denied, the requester has thirty days to

appeal to the commissioner, who in turn has thirty days to act on the ap

peal.

When the commissioner denies the

request upon appeal, or fails to re

spond within thirty days, 5 U.S.C. ? 552(a) (3) provides an action against the agency (here the IRS) in a federal district court. The court is to deter mine the matter de novo and the bur den is on the agency to sustain its ac

tion. Such cases are to be "expedited in

every way" and to take precedence on

the docket except over cases that the court deems to be of greater impor tance. If the court decides that the ap

plicant is entitled to production of the

record, it has jurisdiction to enjoin the

agency from withholding and to order the production of any agency records

improperly withheld. The Attorney General takes the position that the court may weigh customary equitable considerations, such as the purpose

and needs of the plaintiff and the bur dens involved, in determining whether to grant relief.8

This position is questionable in view of the fact that 5 U.S.C. ? 552 (a) (3) replaces a provision that matters of of

ficial record be available "to persons properly and directly concerned".

Under the new law, agency records, un

less covered by one of the exemptions, are to be available upon request to any person regardless of whether he has

any proper or direct concern. Thus,

newspaper reporters, technical publish ers, lawyers and accountants, as well as

other curious members of the public, can request records and see them. Any burden to show cause could intimidate a requester who was unwilling to dis close the reason for his interest, a re sult contrary to the spirit of the act.

The national office has been receiv

ing a relatively small but substantial number of requests for "records"

under the act. In the last half of 1967, there were sixty-two requests, of which twenty-eight were approved and

thirty-four denied. In the first four

months of 1968, there were seventy three requests, of which thirty-eight were approved and thirty-five denied. The denials resulted in five appeals to the commissioner in 1967 and ten ap

peals in 1968.9 Not surprisingly, it ap pears that none of the appeals were suc

cessful, although there may have been a case where the information was

granted after initial denial when the

requester supplied additional partinent facts establishing his right to disclo sure. It seems somewhat surprising,

however, that none of the denied ap

peals have so far resulted in a district court action to compel disclosure.

Among items requested, largely by attorneys, have been ruling letters or

information contained therein, portions of the audit manual including portions which are not in the reading rooms, such as the Offer in Compromise

Handbook, revenue agents' reports and

interoffice memorandums.

Apparently, practitioners also have used the uniform issue list to deter mine the appropriate description for is sues in their cases and have asked the

service for the names of all pending cases throughout the country on the same issues as recorded for rapid

re

trieval in the RIRA system. The IRS

may have granted some requests for

names of pending cases, although it will not furnish the abstract of the cases or

comments by the service attorney con

tained in the RIRA file.

One of the major practical diffi

culties under the act is finding out

what kind of records the service has which might be worth requesting and

the service's attitude toward disclosure thereof. It would seem desirable for the

service to publish information of this

nature in a form that would protect from disclosure the identity of reques ters who desire confidentiality.

Although there apparently have not

yet been any district court actions

against the Internal Revenue Service under the act, there has been some

pertinent recent litigation. In Benson v.

General Services Administration, an

unreported case decided by the Federal

District Court for the Western District of Washington, a taxpayer sued under the act for production of records. He

alleged that appraisal reports relating to a surplus defense plant and lands, part of which he had purchased from the General Services Administration, were

relevant to contesting an income tax

deficiency which he anticipated would be asserted based on an IRS theory that his purchase of the property oc

curred not more than six months prior to its sale by him. The district court

ordered production of some of the rec

ords, and the Government's appeal is

pending.

In two recent Tax Court cases, poten

tial issues under the act were aborted. In Pittsburgh Plate Glass Company v.

Commissioner, Docket No. 5842-66, the taxpayer attempted to compel

Treasury and IRS officials to pro duce economic data which had been

compiled in determining guideline lives for depreciation of glass manufactur

ing equipment. The Tax Court denied

production on the ground that the doc uments were irrelevant. A similar issue

had been raised in Haws Refractories v. Commissioner, Docket No. 5412-66, when the taxpayer demanded produc tion of Treasury file materials relating to the legislative history of Public Law

87-321, which granted retroactive re

lief from the Cannelton decision to brick and tile producers. That request became moot when the parties agreed to settle the case.

In Shakespeare Company v. United

States, 68-1 USTC fl 15,797 (Ct. Cl.

1968), the taxpayer demanded produc tion of certain letter rulings pertinent to his refund claim, relying in part on

the act. The Court of Claims reversed

the trial commissioner's order to pro

duce on the ground that the request did not identify specific rulings, stating: "We can find nothing in the ... act

which would entitle this plaintiff to en

gage in a hunt for something which

might aid it in this action any more

than it could within the subpoena or

8. Att'y Gen. Mem. on Public Information Section of the Administrative Procedure Act 28 (1967).

9. The foregoing statistics were furnished on May 21, 1968, by a Service spokesman upon inquiry by the author. The statistics include only those requests which were not dis posed of informally or by field offices; nearly all reflect requests made directly to the na tional office.

710 American Bar Association Journal

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Tax Notes

discovery processes. Furthermore, even

if inspection could be had under the Freedom of Information Act, supra, the same rules as to identification of the

particular documents sought, as well as

materiality, we believe should be ad hered to." The Government had argued in the Shakespeare case that the act

authorizes a suit against the Govern

ment for production of records only in a district court proceeding, so that neither the Court of Claims nor the Tax Court could compel production. The court did not discuss this point.

Problem Areas The problem areas under the act

may be considered in two catego ries, paralleling the two general types of exemptions and following the ap

proach that information is either from inside or outside the "agencies".

The first problem area involves

agency material contained in docu

ments which also contain confidential information obtained from outside. Prime examples are private letter rul

ings addressed to taxpayers and related documents and some correspondence with outsiders. Congressmen and Con

gressional committees, judges and non

federal government officials are out siders for this purpose.10

Disclosure on request of the sub stance of particular rulings would re

quire the IRS to block out confiden tial information, presumably including the taxpayer's name, and perhaps to re

place some of the deleted matter with more general language so as to pre serve both sense and secrecy. The

requester would have to pay the $3.50

per-hour charge for the time involved. Whether the service will do this awaits

case-by-case determination, with re

fusal to disclose the likely result.

The problem posed by individual re

quests may differ depending on how the ruling is identified. If such a re

quest is made by the name of the tax

payer (without authorization from the

taxpayer), perhaps less or nothing could be revealed without divulging in formation properly intended to be con

fidential. A subject matter request, such as one for "the last three rulings on sales of accounts receivable prior to

electing the installment method", might

make it somewhat more difficult for the service to locate the records but would

ordinarily pose fewer problems as to confidential information.

The second problem area involves memorandums and correspondence in

ternal to agencies as a group. Problems

arise if these contain statements of

agency policy or instructions to staff that affect the public and that should be published or placed in the reading room. Problems also arise if the in ternal memorandums contain other

internally generated material not merit

ing publication or reading room avail

ability, but as to which there is no need for secrecy to protect internal frankness or prevent premature disclo

sure of agency programs. Prime exam

ples in this area (1) are memoran dums stating guidelines and instruc tions for personnel who prepare rulings and (2) the technical memorandums which accompany drafts of proposed regulations or opinions of the chief counsel and which have been distrib uted and filed in the national office for future reference.

The internal memorandums exemp

tions must be reconciled with the

rquirement that instructions to staff and statements of agency policy be dis closed.

An important type of document on the borderline of this area is the tech nical memorandum explaining the po sition taken in a regulation forwarded for signature with the memorandum. This memorandum in itself would ap pear to be within the exemption. How

ever, assume that copies of the memo

randum then became part of the files used by IRS personnel for guidance in

interpreting the regulation. Because of this usage, the substance of the memo randum (at least after deleting any

portions which relate solely to internal communications and not to future in

terpretation) appears to be an agency

interpretation which should be indexed and placed in the reading room.

Most guidelines for personnel who

prepare rulings are currently consid ered by the service to be in the nature of decisions as to whether or not a

ruling should be issued on certain facts, rather than what the ruling will be. In such cases, the assistant commissioner

(technical) has indicated that such "tolerances" do not have to be made

public, relying on an analogy to audit tolerances. Similarly, he stated that he considers the issuance of a ruling to be like a preaudit.11 Obviously, the audit and ruling situations are distinguish able since taxpayers can have a legiti mate interest in knowing in advance law interpretation policy as to wether their facts would entitle them to a

ruling, but not in knowing law enforce ment policy as to whether their return will probably escape audit.

An important analogy to IRS rulings are the Securities and Exchange Com mission's no-action letters which state that on the basis of facts submitted by the requester the Securities and Ex

change Commission would take no ac tion under the securities laws. The Se curities and Exchange Commission has not purported to publish the substance of all significant no-action letters, but the Division of Corporation Finance has circulated periodic internal memo randums for staff members containing summaries of interpretations and no

action letters. In the past several

months, the division has changed the form of these memorandums to elimi nate names of parties involved and some identifying details. The question of making the memorandums and simi lar material of other divisions avail able to the public has been pending for some time before the full commis sion. The decision could also extend to the question of making available no-action letters themselves with the deletion of names.12

As with the Internal Revenue Serv

ice, the Securities and Exchange Com mission would not want to impair the

ability of its staff to give informal reactions to inquiries from practition ers, because the advantages of speed outweigh the increased possibility of error. Thus, routine telephone advice would continue to be recorded in mem

orandums, and routine actions not

circulated within the agency might also

10. 5 U.S.C. ? 551. 11. Bulletin op Section of Taxation, April,

1967, at 43, 51, 56. 12. Interview with a Securities and Exchange

Commission staff official by the author on May 23, 1968.

July, 1968 Volume 54 711

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Tax Notes

continue to be unavailable to the

public*

The propriety of disclosing informa tion from no-action letters might be

much greater after some delay, such as two months. Delayed disclosure of sig nificant agency actions would still be of value to lawyers in interpreting the law. Yet it might not prejudice the business interests of requesters, be

cause information which they fur nished in confidence, even if inadvert

ently revealed because it was impossi ble to disclose the substance of the

legal interpretation in their case without

enabling sophisticated readers to dis cern their identity, would no longer be current.

Treasury Department Records

The Treasury Department has issued

separate regulations (32 Federal Regis ter 9662) applicable to records of the Office of the Secretary of the Treasury, including, among others, the offices of the general counsel and of the assistant

secretary for tax policy (including tax

legislative counsel and tax analysis).

A public reading room section has been established in the library of the main Treasury Building. Recent in

quiry indicates that there have been no

requests under the act for records re

lating to taxation.

A potentially co-operative attitude on a case-by-case basis toward requests

for information contained in Treasury documents is indicated by the Treas

ury's regulations. Treasury Regulations ? 1.5(b) states that "a record which

may be classified as exempt . . . nev

ertheless may be made available, in whole or in part, if it is determined in a particular case that there is no need to rely on the exemption". Thus a re

quest for information contained in an

intraoffice or interagency memoran

dum could be honored after deletion of certain information.

Some significant Treasury docu ments which might be made available include correspondence with Congres sional committees. This would include not only reports on bills, but corre

spondence with individual Congress

men. Treasury Regulations ? 1.4(b)

provides that "if a record is of concern to another Federal agency or body whose interest in the record is para mount, the request shall be referred to that other agency or body for determi nation . . . and the record shall be made available or not in accordance with that determination". It appears, therefore, that the Treasury intends to continue its practice of releasing infor

mation as to Congressional correspond ence only upon an authorization from the member of Congress. Doubtless there will be some disclosure, but the same disclosure could have been made

by the member of Congress prior to the Freedom of Information Act.

Effects of the Act on Litigation

Under the new indirect sanctions,13 failure to publish in the Federal Regis ter and failure to place in the reading room or to index currently may be come the basis for additional issues in tax litigation for taxpayers who lack ac

tual notice. Presumably, this will not

usually be of crucial significance where the unpublished policy is merely "in

terpretative", since the taxpayer's case

will stand or fall under the proper in

terpretation of the code apart from such policy. But if a "substantive" pol icy is involved, such as one under the commissioner's authority as to ac

counting method changes, Section 367 clearances or consolidated returns, tax

payers who lacked timely notice of an

unfavorable rule could perhaps compel in court favorable exercise of the serv ice's discretion.

One perverse effect of the new sanc

tions may be that while a revenue

agent may continue to rely upon un

published audit and procedural guide lines, if he should exceed his authority by admitting the existence of such se cret rules in justifying his action to the

taxpayer, the service might decide to disclose the rule to the particular tax

payer in the interest of attempting to cure any infirmity caused by having "cited" secret rules.

The new right of taxpayers to com

pel production of records also will have an indirect effect on litigation. It

will make available to any litigant as a

member of the public at least any new

types of material which become gener

ally available. This may be significant in pretrial discovery or in discovery as to a matter in which a deficiency is an

ticipated, but has not yet developed, as

in the Benson case. However, there

does not appear to be any other direct effect upon what is discoverable in tax

litigation. Further indirect effects may arise as

litigation in connection with attempts to secure records results in public dis closure of relevant IRS procedures which the service will have to bring out in meeting its burden of justifying withholding the records. Similarly, a

taxpayer claiming that unpublished material was improperly "used" by the service against him would seem to be entitled to discovery as to how the service used the material, a subject which would formerly have been met

by a claim of executive privilege.

Protecting Client's Secrets

A corollary of the increased availa

bility of information under the new act is the need for attorneys to guard against inadvertently making public confidential information obtained from a client. A specific illustration con

tained in the regulations is the provi sion that comments submitted (after

August 2, 1967) on proposed regula tions will be available for inspection upon request, except any comment or

portion which the commenter specifi cally requests be treated as confiden tial.14 In any case of possible doubt, it is now especially important in commu

nicating with a government agency to make clear that the communication is intended to be confidential.

The Internal Revenue Service takes the position that it publishes every

thing that it properly should publish, so that the Freedom of Information Act has made little difference to its op eration. Nevertheless, the service has made available some new material under the act, and with development of court actions it may be expected to dis close still more material.

13. 5 U.S.C. ?? 552(a)(1), (2). 14. Treas. Reg. ? 601.601(b).

712 American Bar Association Journal

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