FOIA ARTICLE
HOW TO GET INFORMATION FROM THE IRS
by
Gary D. Borek
February 21, 1991
Introduction
The tax return files of the Internal Revenue Service are a cache of information which can be extremely useful in a variety of matters, including tax proceedings, civil and criminal litigation, divorce and bankruptcy actions, and banking and commercial transactions. But like Jules Verne's Professor Hardwigg, the Internal Revenue Service consumes information which it does not readily share with others. The hoarding of information by the IRS, however, is not the result of bureaucratic idiosyncracy. Section 6103 of the Internal Revenue Code ("I.R.C." or the "Code") prohibits the disclosure of most of the information about individual taxpayers which the IRS has stored in its paper files and computer databanks. The Code also imposes civil and criminal penalties for violations of the disclosure prohibitions. See IRC §§7431, 7213, and 7216.
Standing between the lawyer and the invaluable information in the IRS's files are three statutes: The Freedom of Information Act, commonly referred to as the "FOIA" ( 5 U.S.C. §552), the Privacy Act (5 U.S.C. §552a), and the non-disclosure provisions contained in I.R.C. §6103 ("Section 6103"). Although each of those statutes presents a barrier to obtaining tax return information, each is also a bridge to such information. The intramural relationship of those statutes, however, is not determinable from their wording or their legislative histories, and the courts have not yet solved some of the apparent conflicts caused by the overlapping provisions.
The Basics
The Freedom of Information Act was enacted to foster public access to government records. Section 6103 of the Code was enacted to prevent public disclosure of a taxpayer's tax returns and tax return information. The Privacy Act was enacted to prohibit the government's collection and dissemination of unnecessary information, and to allow citizens to access and correct the information in government record keeping systems. Each act contains exceptions to its general rules. The FOIA exceptions limit access to information. The Privacy Act exceptions expand the type of information which can be kept in governmental record systems, and contract access to that information. The exceptions in Section 6103 allow access to information which the general rule of Section 6103 holds secret.
This article will focus on using the FOIA and Section 6103 to obtain useful information for representing clients in a variety of situations. The Privacy Act is a lesser tool for such purposes, but should not be ignored if the sought after information is in one of the systems of records identified in Exhibit (15)00-2 of the Internal Revenue Manual, Handbook 1272 (Disclosure), and the taxpayer seeks a correction of the information.
The Freedom of Information Act
The FOIA divides government information into three categories. First is the information required to be published in the Federal Register. Impotence is the penalty for failure to include the required information in that widely distributed but seldom read daily diary of the bureaucracy:
Except to the extent that a person has actual and timely notice of the terms thereof, a person may not in any manner be required to resort to, or be adversely affected by, a matter required to be published in the Federal Register and not so published.
5 U.S.C. §552(a)(1). This first category includes the general rules and regulations of the federal agencies, such as the Treasury Department's regulations.
The second category of FOIA material is that which the government must publish and offer for sale to the public, or make available for public inspection. The penalty for an agency's failure to do so is similar to the penalty for the failure to publish the first category of information in the Federal Register:
A final order, opinion, statement of policy, interpretation, or staff manual or instruction that affects a member of the public may be relied on, used, or cited as precedent by an agency against a party other than an agency only if-
(i) it has been indexed and either made available or published as provided by this paragraph; or
(ii) the party has actual and timely notice of the terms thereof.
5 U.S.C. §552(a)(2). The second category includes agency decisions, policy statements, and staff manuals.
The third category of material under the FOIA includes all information not otherwise made available to the public by categories one and two. 5 U.S.C. §552(a)(3). If tax returns and tax return information are subject to FOIA (a matter discussed below) then they fall into the third category.
The FOIA contains nine major exceptions to the information otherwise described in the above three categories. The exceptions are contained in 5 U.S.C. 522(b). Anticipating that some bureaucrats might automatically invoke these exceptions to arbitrarily keep information from the public, Congress imposed on the government the burden of proof in any district court action challenging the government's refusal to disclose information. In such an action, the court must make a de novo determination about the propriety of the government's refusal to disclose the information. The court may also inspect the subject records in camera in making its determination. 5 U.S.C. §552(a)(4). The FOIA procedures also apply to any determinations made under the FOIA exceptions listed in §522(b) of the FOIA. Id.
The IRS has enacted procedural and substantive regulations for the implementation of the FOIA. Reg. §§601.701 and 601.702. These regulations, however, assume that a request for tax returns or tax return information is governed exclusively by Section 6103 rather than by the FOIA. Reg. §601.702(d). In the IRS's view, Section 6103 is a law unto itself, wholly independent of the FOIA. As more fully discussed below, most of the circuit courts have held that Section 6103 is nothing more than one of the FOIA exceptions and that the determinations under Section 6103 are subject to the standards and procedures of review set forth in 5 U.S.C. 522(a)(4).
Section 6103 of the Internal Revenue Code
Section 6103(a) of the Internal Revenue Code states that tax returns and tax return information shall be confidential and shall not be disclosed except as authorized by the Internal Revenue Code. "Tax return" means any tax or information return, declaration of estimated tax, or claim for refund, including supporting schedules, attachments, or lists which are supplemental to, or part of, a return. See I.R.C. §6103(b)(1). Section 6103(b)(2) defines "tax return information" as:- A taxpayer's identity
- The nature, source, or amount of a taxpayer's 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.
- Any other data, received by, recorded by, prepared by, furnished to, or collected by the IRS 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 for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense.
- Any part of any written determination or any background file document relating to such written determination (as defined in §6110(b)) which is not open to public inspection under §6110.
"Tax return information", however, does not include data in a form which cannot be associated with, or which does not identify, directly or indirectly, a particular taxpayer. I.R.C. §6103(b)(3).
In addition to the taxpayer, tax returns and tax return information may be disclosed to a third-party designated by the taxpayer (e.g. a bank or financial aid office of a college) under I.R.C. §6103(c). Such a disclosure may be refused, however, if the IRS determines that the disclosure would seriously impair federal tax administration. Tax returns must also be disclosed to certain persons with a "material interest" in the returns. I.R.C. §6103(e)(1) through (5). Tax returns must be disclosed to a duly authorized attorney in fact on the same terms and conditions for disclosure to the taxpayer or person with a material interest. I.R.C. §6103(e)(6) and Reg. §601.502(c)(2). Any person entitled to disclosure of a tax return is also entitled to disclosure of the tax return information associated with the tax return. I.R.C. §6103(e)(7).
Persons with a Material Interest
Section 6103(e) of the Internal Revenue Code provides that a person's tax returns may be disclosed to a person with a material interest upon written request. The Code describes persons with material interests in reference to the type of tax return at issue. The various categories are set forth below.
Tax Returns of Individuals
An individual's tax return can be disclosed to the taxpayer. An individual's tax return can be disclosed to a trustee or trustees, jointly or severally, if needed to determine whether the trust incurred a liability under I.R.C. §644 in connection with a sale of property within two years of the date of acquisition from the taxpayer. An individual's gift tax return can be disclosed to a spouse who has joined in an election to split gifts for gift tax purposes. An individual's income tax return can be disclosed to a child of the taxpayer if necessary to comply with I.R.C. §§1(i) or 59(j). I.R.C. §6103(e)(1)(A).
Either spouse is entitled to inspect their joint income tax return. I.R.C. §6103(e)(1)(B). A spouse who claims that a joint return should be treaty as a nullity because it was signed under duress, or was not signed by that spouse, is nevertheless entitled to disclosure of the tax return and associated tax return information. Rev. Rul. 79-64, 1979-1 C.B. 390 and G.C.M. 37727, October 23, 1978. Thus, a person claiming innocent spouse status would nevertheless be entitled to disclosure of the joint return.
Tax Returns of Partnerships
The return of a partnership may be disclosed to any person who was a member of such partnership during any part of the period covered by the return. I.R.C. §6103(e)(1)(C). In light of the broad definition of "tax return information", a partner should be able to obtain copies of the Schedule K-1's attached to the partnership return. The Schedule K-1's would include the name and address of each partner and each partner's share of the income and loss.
Tax Returns of Corporations
The return of a corporation or a subsidiary thereof, can be disclosed to any person designated by resolution of the corporation's board of directors or other similar governing body, and to any officer or employee of the corporation upon written request signed by any principal officer and attested to by the secretary or other officer. Disclosure is also allowed to any bona fide shareholder of record owning 1 percent or more of the outstanding stock of the corporation. I.R.C. §6103(e)(1)(D). The tax returns of S-Corporations may be disclosed to any person who was a shareholder during any part of the period covered by the particular return. I.R.C. §6103(e)(1)(D)(v).
If the corporation has been dissolved, its tax returns may be disclosed to any person authorized by applicable state law to act for the corporation or any person who the IRS finds to have a material interest which will be affected by information contained therein. I.R.C. §6103(e)(1)(D)(vi). Note, however, that no special provisions exist for inspection of the income or employment tax returns of a corporation by an alleged responsible person charged with the 100% penalty. Such a person must depend on access to the corporate returns under the foregoing rules.
Tax Returns of Estates, Decedents, and Trusts
The tax return of an estate may be disclosed to the administrator, executor, or trustee of the estate. The tax return of the estate may also be disclosed to any heir at law, next of kin, or beneficiary under the will of the decedent, but only if the IRS finds that such heir at law, next of kin, or beneficiary has a material interest which will be affected by information contained in the tax return. I.R.C. §6103(e)(1)(E). Similar rules apply to tax returns of decedents (I.R.C. §6103(e)(3)) and of trusts (I.R.C. §6103(e)(1)(F)). Special rules apply to tax returns of debtors in Chapter 11 bankruptcy and receivership proceedings. I.R.C. §§6103(e)(4) and 6103(e)(5).
Relationship between FOIA and I.R.C. §6103
The IRS believes that I.R.C. §6103 exclusively governs its duty to disclose tax returns and tax return information, thereby overriding the FOIA. Under the IRS's interpretation, the procedures and standards of review set forth in the FOIA are inapplicable to a request for tax returns or tax return information. If I.R.C. §6103 exclusively governs disclosure by the IRS, then the procedures for, and standards of, review are governed by the general rules of the federal Administrative Procedures Act ("APA"). Under the general rules of the APA court review is limited to determining if the agency decision not to disclose was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. §706(2)(A). Grasso v. IRS, 785 F.2d 70, 73 (3d Cir. 1986); Linsteadt v. IRS, 729 F.2d 998, 999 (5th Cir. 1984); King v. IRS, 688 F.2d 488, 495 (7th Cir. 1982).
The Third, Fifth, Ninth, Tenth, Eleventh, and District of Columbia Circuits have held that I.R.C. §6103 is a mere exception to the FOIA under 5 U.S.C. §522(b)(3), thereby subjecting the IRS's determinations to the de novo procedures and standard of review under 5 U.S.C. §522(a)(4)(B). Grasso v. IRS, 785 F.2d 70, 74-75 (3d Cir. 1986); Linsteadt v. IRS, 729 F.2d 998, 1001-02 (5th Cir. 1984); Long v. United States, 742 F.2d 1173, 1177-78 (9th Cir. 1984); DeSalvo v. IRS, 861 F.2d 1217, (10th Cir. 1988); Currie v. IRS, 704 F.2d 523, 526-27 (11th Cir. 1983); Church of Scientology v. IRS, 792 F.2d 146, 150 (D.C. Cir. 1986), enbanc review of separate issue, 792 F.2d 153 (D.C. Cir.), aff'd 108 S. Ct. 271 (1987). The Eighth Circuit was "inclined to agree" that I.R.C. §6103 is a mere exception to the FOIA. Barney v. IRS, 618 F.2d 1268, 1274 (8th Cir. 1980). The Second and Fourth Circuits have applied the FOIA without deciding whether section 6103 precluded them from doing so. Kuzma v. IRS, 775 F.2d 66 (2d Cir. 1985); Willard v. IRS, 776 F.2d 100, 101 n.1 (4th Cir. 1985). The Sixth Circuit has been inconsistent on the issue. White v. IRS, 707 F.2d 897, 900 (6th Cir. 1983).
The trend is definitely leaning towards the view that I.R.C. §6103 is an ancillary exception to the FOIA. Thus, there is no reason to request information from the IRS other than in accordance with the FOIA. Doing so will insure the benefit of the short response times imposed by the FOIA and provide the best chance of obtaining the most favorable procedures and standards of review if enforcement action in the district courts becomes necessary. Using the IRS's provincial procedures will merely slow your progress towards obtaining the requested information.
Procedures under FOIA See FOIA FORMS MENU
Title 31 CFR Part 1, Subpart A, contains the general rules for the implementation of the FOIA by the Treasury Department. FOIA requests are to be made to the FOIA "component". The IRS is treated as a separate "component" of the Treasury Department. The legal division for the IRS (the Office of Chief Counsel), however, is not treated as a separate component. Instead, it is treated a part of the IRS for FOIA purposes.
FOIA requests should be mailed or hand delivered to the office of the Internal Revenue Service official who is responsible for the control of the records requested regardless of where the records are maintained. Reg. §601.702(c)(3)(iii). The responsible officials and their addresses are listed in Reg. §601.702(g). (The records of a District Counsel's Office are deemed to be under the jurisdiction of the local District Director.) If the person making the request does not know the official responsible for the control of the records being requested, the request should be mailed or hand delivered to the office of the director of the Internal Revenue Service district office in the district where the requester resides. Reg. §601.702(c)(3)(iii).
The form of a FOIA request to the IRS is governed by Reg. §601.702(c)(3). The request must be in writing and signed by the person making the request. The request must state that it is made pursuant to the Freedom of Information Act, 5 U.S.C. 552, or regulations thereunder. The request must reasonably describe the records as specified by Reg. §601.702(c)(4)(i). Generally, the name, subject matter, location, and years at issue, of the requested records will be sufficient. If the request seeks records pertaining to pending litigation, the request should indicate the title of the case, the court in which the case was filed, and the nature of the case.
A request for disclosure which is limited by statute or regulations (such as Section 6103), must establish the identity and the right of the person making the request to the disclosure. Reg. §601.702(c)(4)(ii). Persons seeking access to records which pertain to themselves must establish their identity by the presentation of a single document bearing a photograph (such as a passport or identification badge), or the presentation of two items of identification which do not bear a photograph but do bear both a name and signature (such as a driver's license or credit card), if the request is made in person. For request made by mail, the requester's signature, address, and one other identifier (such as a photocopy of a driver's license) bearing the requester's signature must be submitted. The presentation in person or the submission by mail of a notarized statement swearing to or affirming such person's identity can also be used.
Persons requesting records on behalf of or pertaining to another person must provide adequate proof of the legal relationship under which they assert the right to access to the subject records. An attorney-in-fact must furnish an original of a properly executed power of attorney with one other identifier bearing the signature of the person who executed the power of attorney. For corporations, a written statement of the person making the request on behalf of the corporation, on corporate letterhead, will be sufficient if the requester has the authority to legally bind the corporation under applicable state law. If the requester is an officer or an employee of a corporation, then the requester must furnish a certification by one of the corporation's officers (other than the requester) that the person making the request on behalf of the corporation is properly authorized to make such request. If the requester is other than one of the above, then the requester must furnish a resolution by the corporation's board of directors providing that the person making the request on behalf of the corporation is properly authorized to make such a request. A person requesting access to records of a single shareholder corporation must provide a notarized statement that the requester is in fact an officer or official of the corporation.
The request must state the address for sending notification of the IRS's determination. The request must state whether the requester wants to inspect the records or wants to have a copy made and furnished without inspection. The request must state that the requester agrees to pay the fees for search and duplication ultimately determined in accordance with Reg. §601.702(f), or request that such fees be reduced or waived and state the justification for such reduction or waiver. The request must identify the category of the requester and state how the records will be used as per Reg. §601.702(f)(3).
The initial determination is to be made, and notification thereof mailed, within 10 days (excepting Saturdays, Sundays, and legal public holidays) after the date of receipt of the request (as determined by Reg. §601.702(c)(5)). The IRS usually responds with a take-it-or-leave-it letter stating that the IRS needs at least 30 more days to determine whether it will comply in full or part with the request. This initial response also states that the requester may voluntarily extend the IRS's response time by doing nothing, or may treat the initial letter as a denial of the request and take an immediate administrative appeal. A voluntary extension of time is not a waiver of the requester's right to appeal any denial of access ultimately made or the requester's right to appeal in the event of the IRS's failure to comply with the time extension granted.
If the IRS determines that the request for records should be denied (whether in whole or in part or subject to conditions or exceptions), the person making the request will be so notified by mail. The letter of notification will specify the city or other location where the requested records are situated, contain a brief statement of the grounds for not granting the request in full, set forth the name and title or position of the official responsible for the denial, and advise the person making the request of the right to an administrative appeal under Reg. §601.702(c)(8).
Administrative Appeals See FOIA FORMS MENU
The requester may submit an administrative appeal to the Commissioner at any time within 35 days after the date of a notification described in Reg. §601.702(c)(7)(iii) or (iv), or after receipt of an adverse determination of the requester's category, as described in Reg. §601.702(f)(3), or after the date of the letter transmitting the last records released, whichever is later. The letter of appeal must be signed by the requester, addressed and mailed to the Office of the Commissioner of Internal Revenue. An appeal by mail should be addressed to Freedom of Information Appeal, Commissioner of Internal Revenue, c/o Ben Franklin Station, P.O. Box 929, Washington, DC 20044, or if hand delivered, delivery should be made to the Office of the Director, Disclosure Litigation Division, Chief Counsel, National Office of the Internal Revenue Service, 1111 Constitution Avenue, Washington, DC 20224.
The appeal letter must reasonably describe the records requested in accordance Reg. §601.702(c)(4)(i). The appeal letter must set forth the address where the appellant desires to be notified of the determination on appeal. The date of the request, and the office to which the request was submitted must also be stated. If possible, a copy of the initial request and the determination under appeal should be enclosed. The appeal letter must also ask the Commissioner to grant the request for records and state any arguments in support thereof.
The IRS will acknowledge receipt of the appeal, advise the requester of the date of receipt of the appeal, and state the due date of the response. If an appeal fails to satisfy any of the requirements of the regulations, then the person making the request will be promptly advised in writing of the additional requirements to be met. The IRS has 20 days to respond, unless the response time is extended by Reg. §601.702(c)(9)(i). The IRS must notify the requester in writing of a denial of the appeal, the reasons therefor, the name and title or position of the official responsible for the denial on appeal, and the provisions of 5 U.S.C. §552(a)(4) for judicial review of that determination.
If a determination cannot be made within the 20-day period (or extension thereof pursuant to Reg. §601.702(c)(9)(i) of this section or by grant of the requester) the requester shall be promptly notified in writing that the determination will be made as soon as practicable. The notice must also state that the requester may immediately commence an action in a district court. In the alternative, the requester may agree to a voluntary extension of time for the Commissioner to decide the appeal. Such a voluntary extension does not constitute a waiver of the right of the requester to commence an action in a United States district court.
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