Copyright (c) 1995 Tax Analysts Tax Notes Today AUGUST 31, 1995 THURSDAY DEPARTMENT: Other Court Documents (CTO) CITE: 95 TNT 171-41 LENGTH: 2242 words HEADLINE: 95 TNT 171-41 DEFENDANT IRS's REPLY TO PLAINTIFF TAX ANALYSTS' OPPOSITION TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT. (Tax Analysts v. IRS) (94-CV-0220) (United States District Court for the District of Dist. of Columbia) (Section 6104 -- Exempt Organization Information) (Release Date: August 11, 1995) (Doc 95-7972) CODE: Section 6104 -- Exempt Organization Information SUMMARY: Defendant IRS filed its reply to plaintiff Tax Analysts' opposition to defendant's motion for summary judgment in the case of Tax Analysts v. Internal Revenue Service, a suit seeking release of exempt organization closing agreements entered into by the IRS. 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: August 11, 1995 DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT Comes Now DEFENDANT, Internal Revenue Service, by and through its undersigned counsel, and hereby replies to plaintiff's opposition to the Internal Revenue Service's motion for summary judgment. PAGE 60 (c) 1995, Tax Analysts, Tax Notes Today, AUGUST 31, 1995 As an initial matter, plaintiff has chosen not to respond to the defendant's argument that it has failed to exhaust its administrative remedied. There can be no doubt, however, that plaintiff is bound by the description of documents sought in categories one and two of its FOIA request for closing agreements entered into by the Internal Revenue Service and the Church of Scientology prior to October 1, 1993; and entered into by the Internal Revenue Service and any exempt organizations after December 31, 1992. Plaintiff's belated attempt to change the language of that request by stating that it is seeking only a "sub-set" of documents must be rejected. /1/ See Gillin v. IRS, 980 F.2d 819, 822-23 (1st Cir. 1992) (Clarification of FOIA request during the course of litigation, including discovery, is "too late to be relevant," and amounts to "an impermissible attempt to expand the FOIA.") Plaintiff asserts that the closing agreements at issue in this case must be disclosed since they are part of the exemption application process. (Pltf. Opp., p. 2.) Contrary to plaintiff's assertion, NONE of the documents responsive to plaintiff's FOIA request were entered into as part of the exemption application process; the closing agreements at issue were executed as a result of an examination of the organizations to which the closing agreements pertain or as a result of a combination of an examination of the organizations and/or issues voluntarily brought to the Service's attention by the organizations. (Deft. Mo., Decl. of Steven Miller paragraphs 17, 18.) Plaintiff states that since the closing agreements of two particular taxpayers, namely the Church of Scientology /2/ and Old Time Gospel Hour, Inc., have not been disclosed, the information relevant to the Service's determination to approve these organizations' applications for exemption is not available to the public. The record in this case demonstrates otherwise. Old Time Gospel Hour, Inc. made an application for exemption for years subsequent to revocation; such application was approved by the Service. (Id., paragraph 17.) The application, along with the documents submitted by the organization in support of the application, and the favorable ruling letter are available for public inspection pursuant to Section 6104 of the Internal Revenue Code. (Id.) The deposition testimony as well as the administrative record demonstrate that the processing of the Church of Scientology's exemption applications was both scrupulous and painstaking. (See McGovern Tr. 92/23 - 93/19; Schoenfeld Tr. 101/12 - 102/7, Second Declaration of Steven T. Miller [attached as Exhibit A to Deft. Resp. to Pl. Mo.] pp. 2 - 31.) Plaintiff acknowledges that the Service requires a great deal of return information during the exemption application process. (Pltf. Opp., p. 6.) By stating that a substantial amount of information relating to an exempt organization is made public by virtue of Section 6104, plaintiff concedes that Section 6104 does not require public disclosure of ALL documents relating to an exempt organization. Thus, information relating to an exempt organization but not relating to the exemption application process, such as the closing agreements at issue in this case, is not the type of documents required to be made publicly available under Section 6104. Plaintiff also asserts that certain discrete items of return information relating to exempt organizations are always subject to disclosure regardless PAGE 61 (c) 1995, Tax Analysts, Tax Notes Today, AUGUST 31, 1995 or the context in which this information if received or collected by the Service. (Pltf. Opp., p. 10.) Clearly, information included in a document generated or compiled in connection with the Service's audit or investigation is confidential return information prohibited from disclosure under Section 6103. See Brehaus v. Internal Revenue Service, 609 F.2d 80 (2d Cir. 1979); Belisle v. Commissioner, 462 F. Supp. 460 (W.D. Okla. 1978). Such a document necessarily would contain some of the discrete items of return information plaintiff asserts are always open to public disclosure, for example, a taxpayer's identity. Although the closing agreements at issue in this case CONTAIN discrete items of return information which may be open to public disclosure in a different context from that of closing agreements, the closing agreements at issue CONSTITUTE IN THEIR ENTIRETY return information of the organizations to which they pertain. Plaintiff has not demonstrated any exception to the confidentiality provisions of Section 6103 which would permit disclosure of these documents. Notwithstanding its assertion in the Complaint that closing agreements must be disclosed under Section 6110 of the Code, plaintiff fails to respond to the Service's argument that Section 6110 does not provide a basis for disclosure of the documents at issue. (Def. Mo. Mem. pp. 22 - 26.) Nor does plaintiff address the legislative history of Section 6110 which supports the proposition that the closing agreements at issue are not subject to disclosure under either Section 6110 or Section 6104. Instead, plaintiff focuses on the meaning or the word "issued" found in Section 6104, arguing that because the Service mails a signed copy of the closing agreement to the organization to which it pertains, the Service has "issued" the agreement for purposes of Section 6104. (Pltf. Opp., p. 13.) How a document is physically delivered is not determinative of whether it is "issued" for purposes of Section 6104. In fact, the Treasury regulations explicitly provide that a document which RELATES TO an organization's tax exempt status but not to the application for exemption does NOT relate to that organization's application for tax exemption within the meaning of T. Reg. section 301.6104(a)-1(d). /3/ Accepting plaintiff's argument would require the Court to find that whenever the Service mails a document to an exempt organization, the Service has "issued" that document for purpose of Section 6104. Plaintiff also argues that it is undisputed that the Service has used closing agreements to revolve outstanding issues regarding an organization's exemption application, has predicated its recognition of exempt status on at least one applicant's agreement to be bound by the terms of a closing agreement, and has recognized an organization as tax exempt in a closing agreement. (Pltf. Mem., p. 15.) First, plaintiff erroneously assumes that its statement applies to the closing agreements at issue in this case. Second, the record evidence in this case reveals that a closing agreement does NOT grant exempt status. (Schoenfeld Tr. 114/4-5; McGovern Tr. 50/9-12, 109/13 - 110/5.) The deposition testimony established that a closing agreement and the granting of exempt status are two distinct matters. (McGovern Tr. 109/14 - 110/5.) Furthermore, while all or some of the closing agreements recognize the exempt status of the organizations to which they pertain, in order to have been granted such status, the organizations had to have had their applications for exemptions approved. The documents relating to the exemption application process as defined by Section 6104, are PAGE 62 (c) 1995, Tax Analysts, Tax Notes Today, AUGUST 31, 1995 open for public inspection for each organization. (Miller Decl. paragraphs 17, 18.) Plaintiff's reference to Church Universal Triumphant v. United States, 75 A.F.T.R.2d paragraph 95-612 (D.D.C. 1995) is misleading. Church Universal concerned an organization which, having made disclosures of certain information to the Department of Justice in civil discovery, sought to have the information subsequently protected from disclosure. The Court found that these materials, which were not collected by the Secretary of the Treasury, were not Church Universal Triumphant's return information for that reason. The closing agreements in this case are in no way analogous as they have never been made public, and WERE collected by the Secretary of the Treasury. Finally, plaintiff asserts that nondisclosure of the requested agreements violates the policy of the IRS' Exempt Organizations Division that ANY closing agreement the Service enters into regarding a pending exemption application with an exempt organization is subject to public disclosure. The deposition testimony of Marcus Owens stated that with regard to the cases with which he was familiar that involved applications for exemption and closing agreements, the agreements were included in both the administrative file and the administrative record. (Owens Tr. 120/24 - 121/9.) As noted above, although some or all of the closing agreements at issue recognize the exempt status of the organization, to which they pertain, none grant such status. A priori, the closing agreements at issue are not part of the exemption application process as none of the agreements at issue relate to a pending application. Accordingly, these six documents are protected from disclosure pursuant to Section 6103. This case does not involve discretion on the part of the Service or the Court. If, as the Internal Revenue Service contends, the documents at issue are prohibited from disclosure pursuant to Section 6103 and thus exempt from production under Exemption 3 of the FOIA, the result is clear. Plaintiff's public policy arguments simply do not provide a basis on which disclosure of the documents can be made. Dated: August 11, 1995. Respectfully submitted, MARGARET M. EARNEST Trial Attorney, Tax Division U.S. Department of justice P.O. Box 227 Ben Franklin Station Washington, DC 20044 Telephone: (202) 307-6562 OF COUNSEL: ERIC H. HOLDER, JR. United States Attorney CERTIFICATE OF SERVICE IT IS HEREBY CERTIFIED that the foregoing DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO DEFENDANT'S MOTION FOR SUMMARY JUDGMENT was caused to be served upon plaintiff this 11th day of August, 1995, by sending a copy by first class mail, postage prepaid, addressed as follows: William J. Lehrfeld, Esquire Bruce L. Stern, Esquire PAGE 63 (c) 1995, Tax Analysts, Tax Notes Today, AUGUST 31, 1995 William J. Lehrfeld, P.C. Suite 740 1250 H Street, NW Washington, DC 20005-3908 William A. Dobrovir, Esquire William A. Dobrovir, P.C. 65 Culpepper Street Warrenton, VA 22186 MARGARET M. EARNEST FOOTNOTES /1/ It is noteworthy (though not surprising) that plaintiff has chosen NOT to litigate category three of the documents identifies in its FOIA request inasmuch as the legislative history indicates that Congress specifically intended to exclude closing agreements from the disclosure provisions of Section 6110 of the Internal Revenue Code. (See Deft. Mo., Mem. pp. 22 - 26.) Moreover, even if closing agreements did come within Section 6110, the Court lacks subject matter jurisdiction to order disclosure under the FOIA pursuant to 26 U.S.C. section 6110(l). (Id.) /2/ For purposes of this reply, "Church of Scientology" refers to the Church of Scientology and its organizations as used by the plaintiff in this case. /3/ Contrary to plaintiff's assertions, a closing agreement is in no way analogous to a technical advice memorandum. The latter sets forth the Service's rendition of the facts and the law; the taxpayer may or may not agree with this or with the analysis and conclusions drawn by the Service. This unilateral character of a technical advice memorandum is what allows it to be issued by the Service once it is mailed. In marked contrast, a cloning agreement is a method by which a controversy with a taxpayer may be resolved with finality. It is a document containing the terms of a negotiated resolution. Indeed, the closing agreements at issue do not recite all relevant facts, explain the relevant provisions of law, or show the application of the law to those facts. (Deft. Mo., Miller Decl. paragraphs paragraphs [sic] 16, 20.) Accordingly, a closing agreement is not "issued" by the Service for purposes of Section 6104, no matter how the document is delivered, nor is it adopted by the Service. END OF FOOTNOTES