Copyright (c) 1995 Tax Analysts Tax Notes Today SEPTEMBER 27, 1995 WEDNESDAY DEPARTMENT: Other Court Documents (CTO) CITE: 95 TNT 189-58 LENGTH: 2547 words HEADLINE: 95 TNT 189-58 PLAINTIFF'S MOTION FOR IN CAMERA INSPECTION OF DOCUMENTS. (Tax Analysts v. IRS) (94-CV-00220 (TFH)) (United States District Court for the District of Dist. of Columbia) (Section 6104 -- Exempt Organization Information) (Release Date: September 11, 1995) (Doc 95-8967 (13 pages)) CODE: Section 6104 -- Exempt Organization Information SUMMARY: Plaintiff filed a motion for in camera inspection of documents in the case of Tax Analysts v. Internal Revenue Service, a suit seeking release of all exempt organization closing agreements entered into by the IRS after Dec. 31, 1992. AUTHOR: Hogan, Thomas GEOGRAPHIC: United States INDEX: exempt organizations, disclosure REFERENCES: Subject Area: Exempt Organizations TEXT: TAX ANALYSTS, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant. Release Date: September 11, 1995 PLAINTIFF TAX ANALYSTS' MOTION FOR IN CAMERA INSPECTION OF DOCUMENTS I. INTRODUCTION At issue in this case is whether closing agreements executed between defendant INTERNAL REVENUE SERVICE and six (6) tax-exempt organizations are PAGE 18 (c) 1995, Tax Analysts, Tax Notes Today, SEPTEMBER 27, 1995 subject to disclosure under the Freedom of Information Act ("FOIA"). As explained in plaintiff's Motion for Summary Judgment now pending before the Court, under Internal Revenue Code Section ("IRC") 6104, the requested closing agreements must be made available for plaintiff's inspection if the Court finds that the agreements were 1) "issued" by the IRS 2) with respect to an exemption application process which led the IRS to recognize (or re- recognize) an organization's exempt status under IRC 501(a). Plaintiff moves the Court for in camera inspection of the six documents at issue. In camera inspection will facilitate resolution of this dispute and allow the Court to know, and not guess, whether the closing agreements contain any privileged material (as asserted by the IRS). While plaintiff submits that the agreements are disclosable in their entirety because IRC 6104 so provides, and IRS claims they are exempt in their entirety under IRC 6103, the Court may take a middle road and conclude that the agreements contain both non-exempt and exempt material. However, a determination regarding the existence and "segregability" of any privileged information which may be contained in the closing agreements can only be made following in camera inspection, since the IRS failed to provide the Court with a detailed affidavit or Vaughn index describing their contents as required by FOIA and this Circuit. II. STATEMENT REGARDING CONFERENCE WITH OPPOSING COUNSEL (Local Rule 108(m)) Pursuant to Local Rule 108(m), plaintiff conferred with counsel for defendant prior to filing this motion in a good faith effort to determine whether there is opposition to the relief sought. Counsel for defendant opposes in camera inspection. III. THE COURT SHOULD CONDUCT IN CAMERA INSPECTION OF THE SIX CLOSING AGREEMENTS FOIA provides that the Court may conduct in camera review of agency records to determine whether they are being properly withheld from the requesting party. 5 U.S.C. section 552(a)(4)(B). The decision to do so lies within the broad discretion of this court, Center for Auto Safety v. EPA, 731 F. 2d 16, 20 (D.C. Cir. 1984), if "needed in order to make a responsible de novo determination on the claims of exemption." Ray v. Turner, 587 F. 2d 1187, 1195 (D.C. Cir. 1978). In camera inspection is appropriate when: (1) the affidavits submitted by the agency are conclusory and the justifications for withholding the documents are not described in sufficient detail to demonstrate that the claimed exemption applies; (2) there is evidence of agency bad faith; and, (3) when the documents "are few in number and of short length" and the "dispute turns on the actual content of the documents". Carter v. Department of Commerce, 830 F. 2d 388 (D.C. Cir. 1987) (citations omitted). In this case, there are only six agreements at issue; plaintiff understands that none are lengthy; the dispute in this matter turns on the content of the agreements (i.e., whether they were an inherent part of a process for the PAGE 19 (c) 1995, Tax Analysts, Tax Notes Today, SEPTEMBER 27, 1995 establishment (or re-establishment) of tax exempt status and contain information, which under ordinary circumstances, is concededly disclosable under IRC 6104); and, most importantly, the IRS' affidavit does not describe in sufficient detail the justification for its withholding of the six closing agreements nor does it address the issue of "segregability". A. THE IRS' AFFIDAVIT DOES NOT SUFFICIENTLY DESCRIBE THE CLOSING AGREEMENTS AT ISSUE NOR THE JUSTIFICATION FOR THEIR WITHHOLDING In this Circuit, affidavits submitted by an agency to support its withholding of documents in response to a FOIA request must provide a "relatively detailed analysis" of the withheld information. Krikorian v. Department of State, 984 F. 2d 461, 467 (D.C. Cir. 1993); Goldberg v. Department of State, 818 F. 2d 71, 78 (D.C. Cir. 1987), cert. denied, 485 U.S. 904 (1988). In PHE, Inc. v. Department of Justice, 938 F. 2d 248, 250 (D.C. Cir. 1993), the Court stated: "A district court may grant summary judgment to the government in a FOIA case only if the agency affidavits describe the documents withheld and the justifications for nondisclosure in enough detail and with sufficient specificity to demonstrate that material withheld is logically within the domain of the exemption claimed. Because only the agency knows the substance of the withheld information, the agency affidavits have immense significance in a FOIA case." (Citations omitted.) Although a document may fall within one of FOIA's exemptions, non-exempt material contained therein which is "segregable" from the exempt information must be disclosed. 5 U.S.C. section 552(b). (Agencies "shall" disclose "any reasonably segregable portion of a record . . . after deletion of the portions which are exempt under this subsection.") In Mead Data Central v. Department of Air Force, 566 F. 2d 242, 260 (D.C. Cir. 1977), the Court stated: "It has long been a rule in this Circuit that non-exempt portions of a document must be disclosed unless they are inextricably intertwined with exempt portions." See also, Center for Auto Safety v. E.P.A., 731 F. 2d 16, 21 (D.C. Cir. 1984). Because of this "segregability" requirement, an agency's FOIA affidavit must explain why the individual passages in a withheld document are not subject to public disclosure. The agency can not merely assert that the document itself is exempt from disclosure since it contains exempt information. In Krikorian, supra, the Court stated: "[A]n agency cannot justify withholding an entire document PAGE 20 (c) 1995, Tax Analysts, Tax Notes Today, SEPTEMBER 27, 1995 simply by showing that it contains some exempt material . . . [T]he withholding agency must supply a relatively detailed justification, specifically identifying the reasons why a particular exemption is relevant and correlating those claims with the particular part of a withheld document to which they apply . . . A DISTRICT COURT THAT SIMPLY APPROVES THE WITHHOLDING OF AN ENTIRE DOCUMENT WITHOUT ENTERING A FINDING ON SEGREGABILITY OR LACK THEREOF, ERRS." 984 F. 2d at 467 (citations and references omitted; emphasis added.) In Schiller v. NLRB, supra, the Court remanded the case to the District Court for a finding as to whether the documents at issue therein contained non-exempt passages that could be segregated and disclosed to the plaintiff. The Court noted: "The [Vaughn] index [filed by the government] does not correlate the claimed exemptions to particular passages in the memos. The agency affidavit similarly refers to entire documents and not any passages within them. The index and affidavits, in other words, are written in terms of documents, not information, but the focus in the FOIA is information, not documents, and an agency cannot justify withholding an entire document simply by showing that it contains some exempt material." (966 F. 2d at 1209 (citations and references omitted).) See also, King v. Department of Justice, 830 F. 2d 210, 224 (D.C. Cir. 1987); Powell v. Bureau of Prisons, 927 F. 2d 1239, 1242 (D.C. Cir. 1991). In this case, the IRS submitted to the Court the affidavit of Steven T. Miller, Special Assistant to the Assistant Commissioner (EP/EO), to support its position that the withheld closing agreements are not subject to public disclosure. At pages 13 - 16 of his affidavit, Mr. Miller provides a general description of the withheld closing agreements and the background under which they arose. (A copy of the relevant pages of the Miller Declaration is attached hereto as Exhibit "A".) Importantly, Mr. Miller does not "correlate the claimed exemptions to particular passages" in the closing agreements as required in this Circuit nor does he explain why individual passages in each agreement are not subject to disclosure. PAGE 21 (c) 1995, Tax Analysts, Tax Notes Today, SEPTEMBER 27, 1995 Mr. Miller's failure to address the "segregability" issue in his affidavit is a result of his own conclusion that the information contained in the closing agreements "cannot be segregated for partial release". (Miller Declaration, paragraph 8.) However, whether or not information contained in a document which may be exempt from disclosure under FOIA is "segregable" is not a determination for the agency itself to make, but for the Court. See, Krikorian, supra; Schiller, supra. Mr. Miller's declaration is clearly deficient and fails to comport with FOIA and this Circuit's standards. The IRS cannot refuse to "correlate the claimed exemptions to particular passages" in the withheld agreements based solely upon its own conclusion that the information contained therein is not "segregable". Since the Miller Declaration does not describe in sufficient detail the justification for the Service's withholding of the six closing agreements and does not address the issue of "segregability", in camera inspection of the six agreements at issue is necessary. B. THE IRS' AFFIDAVIT APPEARS TO MASK THE TRUTH The Miller Affidavit states that none of the closing agreements "grant exempt status", but does not define the term "grant" nor inform the Court whether the IRS AGREED to grant exempt status to an organization (or recognize its exempt status) in any of the agreements. Although not apparent from Mr. Miller's affidavit, his use of the word "grant" is very technical and formal. The IRS can only "grant" exempt status to an organization for past years; when future years are involved, it "recognizes" exempt status. Typically, the document used to "grant" exempt status (for prior years) or recognize exempt status (for future years) is a ruling or determination letter, not a closing agreement. However, in a closing agreement the IRS can AGREE to issue a favorable ruling or determination letter granting an organization exempt status for prior years. In fact, IRS has admitted that it has done so in the past. (See, Schoenfeld Deposition, p. 115, 11. 4-11.) Thus, the IRS' statement in its declaration that none of the agreements "grant exempt status", may be technically accurate, but substantially inaccurate. True, exempt status is only "granted" by the ruling letter itself and not the closing agreement (which only provides that the favorable letter granting exempt status will be issued), but, in fact, the closing agreement is the dispositive document that resolves the issue of exempt status. We leave it to the Court to decide if the affidavit's ambiguity amounts to bad faith. C. THIS DISPUTE CENTERS ON THE CONTENT OF THE WITHHELD CLOSING AGREEMENTS In camera inspection is most appropriate when the parties' dispute is based entirely upon the content of the withheld documents. As the Court stated in Carter, "When the dispute turns on the actual contents of the documents, in camera inspection is likely to be helpful." 830 F. 2d at 393. It is indisputable that each of the closing agreements at issue contains information relevant to the application process and the IRS' determination to recognize or re-recognize the applicants as exempt from tax, including provisions relating to promises made by the applicants with respect to behavior in future years. These promises are especially important, because prior years PAGE 22 (c) 1995, Tax Analysts, Tax Notes Today, SEPTEMBER 27, 1995 behavior by at least some of the signatories (e.g., Church of Scientology and Old Time Gospel Hour) led to revocation of their exempt status. Due to the inapt and incomplete affidavit submitted by the IRS and the absence of a Vaughn index, the issue as to whether the agreements contain material subject to disclosure under IRC 6104 can only be resolved by the Court's review of each of the six agreements. In camera inspection will also allow the Court to determine whether the agreements contain any privileged information not subject to public disclosure. IV. IN CAMERA INSPECTION IS NOT DISFAVORED UNDER THE CIRCUMSTANCES PRESENT HERE Although some decisions in this Circuit have noted that in camera inspection is generally disfavored (PHE, Inc., 983 F. 2d at 252-253; Schiller, 964 F. 2d at 1209), it is disfavored solely because government agencies could use the Court's inspection as a devise to avoid preparing and filing detailed affidavits or a Vaughn index setting forth the specific basis for their refusal to make the requested documents available for inspection. As the Court stated in PHE: "[I]n camera review is generally disfavored. It is 'not a substitute' for the government's obligation to justify its withholding in publicly available and debatable documents." (983 F.2d at 253 (citations omitted).) But there, as here, when the agency does not provide a detailed affidavit which complies with FOIA or the decisions of this Circuit, in camera review is not only appropriate but necessary. V. CONCLUSION Based upon the foregoing, plaintiff TAX ANALYSTS respectfully requests that the Court conduct in camera inspection of the documents at issue herein. Respectfully submitted, September 11, 1995 William J. Lehrfeld D.C. Bar No. 51292 Bruce L. Stern D.C. Bar No. 436231 WILLIAM J. LEHRFELD, P.C. 1250 H Street, N.W., Suite 740 Washington, D.C. 20005 Telephone: (202) 659-4772 Facsimile: (202) 659-8876 William A. Dobrovir D.C. Bar No. 030148 William A. Dobrovir, P.C. 65 Culpeper Street Warrenton, Virginia 22186 PAGE 23 (c) 1995, Tax Analysts, Tax Notes Today, SEPTEMBER 27, 1995 Telephone: (703) 341-2183 Facsimile: (703) 341-4329 Exhibit "A" [OMITTED - See Doc. 95-6650 or 95 TNT 133-65 for Exhibit "A"] CERTIFICATE OF SERVICE On September 11, 1995, I served the foregoing document on defendant INTERNAL REVENUE SERVICE by mailing a true and correct copy thereof, first class mail, postage pre-paid, to: Margaret Earnest, Trial Attorney, Tax Division, U.S. Department of Justice, Post Office Box 227, Washington, D.C. 20044. September 11, 1995 Bruce L. Stern D.C. Bar No. 150420