Tax Analysts v. Internal Revenue Service

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued May 10, 2005 Decided June 7, 2005

No. 04-5304

TAX ANALYSTS,
APPELLANT

v.

INTERNAL REVENUE SERVICE AND
CHRISTIAN BROADCASTING NETWORK, INC.,
APPELLEES

Appeal from the United States District Court
for the District of Columbia
(No. 98cv02345)

William A. Dobrovir argued the cause for appellant. With
him on the briefs was Cornish F. Hitchcock.

Teresa T. Milton, Attorney, U.S. Department of Justice,
argued the cause for appellee Internal Revenue Service. With
her on the brief were Kenneth L. Wainstein, U.S. Attorney, and
Jonathan S. Cohen, Attorney.

Bruce C. Bishop and J. William Koegel, Jr. were on the
brief for appellee Christian Broadcasting Network, Inc.

Before: GINSBURG, Chief Judge, and SENTELLE and
HENDERSON, Circuit Judges.
 2

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: Tax Analysts (“TA”), a publisher
of tax materials, sued the Internal Revenue Service (“IRS” or
“the Service”) and the Christian Broadcasting Network (“CBN”)
under the Freedom of Information Act (“FOIA”) and the
Internal Revenue Code in an effort to obtain copies of a closing
agreement reached between the IRS and CBN in connection
with CBN’s filing for tax-exempt status. The District Court
dismissed the action against both defendants. On appeal, in Tax
Analysts v. Internal Revenue Service, 214 F.3d 179 (D.C. Cir.
2000), we affirmed the judgment of dismissal as to CBN, but
remanded for further proceedings the claim against the IRS. In
the remand order, we directed the provision of further discovery
before entry of dispositive judgment. Following some
discovery, which TA contends was inadequate, the District
Court granted summary judgment in favor of the IRS. TA once
again appeals, arguing that the IRS failed to meet its burden
under FOIA, the Internal Revenue Code, Treasury regulations,
and case law of this Circuit by showing that withheld documents
were exempt from FOIA’s disclosure requirements. For the
reasons set forth below, we affirm the District Court’s judgment.

I. Background

A. The Underlying Controversy

We detailed the facts underlying this controversy in
disposing of the previous appeal of this case, Tax Analysts v.
Internal Revenue Service, 214 F.3d 179, 181-83 (D.C. Cir. 2000)
(“Tax Analysts I”). We incorporate that discussion by reference,
and reiterate facts only as necessary for the purposes of
resolving the matter now before us.
 3

TA publishes tax materials. It sued the IRS and CBN under
FOIA and the Internal Revenue Code (both discussed below) to
obtain copies of a CBN-IRS closing agreement regarding taxes
due for previous taxable years. The closing agreement was
reached in the same time period during which CBN secured tax-
exempt status going forward. In our previous opinion, this
Court described the closing agreement as being reached “in
conjunction” with CBN’s tax-exemption filing.

CBN had been a tax-exempt 501(c)(3) organization since
1961. In 1985 and 1986, CBN allegedly engaged in political
activities in support of presidential candidate and CBN founder
Pat Robertson. The IRS audited CBN regarding CBN’s past and
continued eligibility for tax-exempt status.

CBN filed a Form 1023 Application for Exempt Status on
February 2, 1998; the IRS granted the application on March 13,
1998, retroactive to April 1, 1987. On March 16, CBN issued a
press release announcing that it had entered into an agreement
with the IRS to conclude an audit and to preserve its exempt
status; the press release announced both the closing agreement
regarding previous taxable years and the Form 1023 regarding
the period subsequent to those years.

On April 6, 1998, TA sent a FOIA request to the IRS
seeking the following: a copy of the closing agreement
mentioned in the press release; any closing agreement relating
to the issues noted in the press release; any written
correspondence or memoranda of conversations between CBN
and the IRS pertaining to those agreements; and any renewal,
revocation, or modification of any ruling granting tax-exempt
status to CBN.

On June 29, 1998, the IRS responded. Citing FOIA
Exemption 3, 5 U.S.C. § 552(b)(3), and I.R.C. § 6103, 26 U.S.C.
 4

§ 6103, the Service declined to disclose any of the requested
information except for the February 1998 Form 1023 filing and
the March 1998 determination letter. On July 20, 1998, TA sent
a letter to CBN requesting the same information. CBN, like the
IRS, declined to produce any document except for the Form
1023 and the determination letter. Shortly thereafter, TA filed
this action against the IRS and CBN.

B. Statutory and Regulatory Framework

The Freedom of Information Act sets forth a basic rule for
disclosure of federal records, 5 U.S.C. § 552(a), but includes a
number of exceptions, including an exception for documents
specifically exempted by statute, commonly referred to as
“FOIA Exemption 3.” Id. § 552(b)(3). The Internal Revenue
Code sets forth a basic rule regarding public disclosure of
documents pertaining to application for tax-exempt status:

[For organizations exempt under Section 501(c) or (d)] the
application filed by the organization with respect to which
the Secretary made his determination that such organization
was entitled to exemption . . . , together with any papers
submitted in support of such application or notice, and any
letter or other document issued by the Internal Revenue
Service with respect to such application or notice shall be
open to public inspection at the national office of the
Internal Revenue Service.

I.R.C. § 6104(a)(1)(A) (emphasis added). By contrast, Section
6103 explicitly protects the confidentiality of such tax return
information as closing agreements, so long as the return
information is not subject to disclosure under Section 6104. Tax
Analysts I, 214 F.3d at 183 (characterizing Section 6104 as “an
exception to the exception from the general disclosure rule
offered by FOIA Exemption 3 and I.R.C. § 6103”). This Court
 5

has already held that the fact that Section 6103 is a statute
“contemplated by FOIA Exemption 3 is beyond dispute.” Tax
Analysts v. IRS, 117 F.3d 607, 611 (D.C. Cir. 1997).

The U.S. Department of the Treasury (“Treasury”)
implemented Section 6104 with Treasury Regulation section
301.6104(a)-1, 26 C.F.R. § 301.6104(a)-1. Section (a) of this
rule essentially mirrors the statutory provision. Section (b)
defines “[l]etters or documents issued by the Internal Revenue
Service with respect to an application for tax exemption.”
Section (c) notes that no such documents will be made public
until the applicant “is determined, on the basis of the
application, to be exempt from taxation for any taxable year.”
Section (d) defines “application for tax exemption.” And
section (e) defines “supporting documents”:

Supporting documents defined. For purposes of this section,
“supporting documents”, as used with respect to an
application for tax exemption, means any statement or
document not described in paragraph (d) of this section that
is submitted by an organization in support of its
application. For example, a legal brief submitted in support
of an application for tax exemption is a supporting
document.

Treas. Reg. § 301.6104(a)-1(e) (emphasis added).

Finally, section (i) of the rule provides that certain
documents are never subject to Section 6104 disclosure, even
when they relate to tax-exempt organizations. This list includes
“[u]nfavorable rulings or determination letters . . . issued in
response to applications for tax exemption,” Treas. Reg. §
301.6401(a)-1(i)(1), and “[a]ny other letter or document filed
with or issued by the Internal Revenue Service which, although
it relates to an organization’s tax exempt status as an
 6

organization described in section 501(c) or (d), does not relate
to that organization’s application for tax exemption, within the
meaning of paragraph (d).” Id. § 301.6401(a)-1(i)(6).

Tax returns and return information remain confidential
except where provided to the contrary. I.R.C. § 6103(a).
Closing agreements contain such information, but it is at least
theoretically possible that they may contain information subject
to disclosure under Section 6104(a)(1)(A). We identified this
intersection of the two sections in the previous appeal in this
case, but noted that the parties agreed on that reading of the law
and only disputed whether the closing agreement was subject to
disclosure. Tax Analysts I, 214 F.3d at 184-85.

C. The First Round of Litigation: Trial and Appeal

The District Court did not examine any of the documents in
question before dismissing TA’s complaint. The court
concluded from the pleadings that requested information
represented a closing agreement under I.R.C. § 7121(a), and was
therefore a tax return exempt from disclosure under Section
6103 and FOIA Exemption 3. It granted judgment under FED.
R. CIV. P. 12(c). The court also concluded that Section 6104
provides no private right of action against a tax-exemption
applicant, and dismissed the claim against CBN under FED . R.
CIV. P. 12(b)(6).

This Court affirmed the Rule 12(b)(6) dismissal of the claim
against CBN, Tax Analysts I, 214 F.3d at 186, but vacated the
12(c) dismissal and remanded, holding that Section 6103 does
not exclude all closing agreements and their documentary
precursors. Instead, that provision only excludes those
agreements which are not “any papers submitted” or “any letter
or document issued”subject to public disclosure under Section
6104(a)(1)(A). 214 F.3d at 184-85 (emphasis added by the
 7

Court). We concluded this analysis with the following
instruction for the District Court on remand:

At bottom, the case before us does not present a
disagreement over the law to be applied, but the narrow and
fact-specific question of whether the closing agreement
between the IRS and CBN and any accompanying
documentation represent material disclosable under I.R.C.
§ 6104(a)(1)(A), despite their apparent status as material
exempt from disclosure under I.R.C. § 6103. As the present
record is inadequate for such determination, further
discovery is necessary. We therefore vacate the district
court’s judgment in favor of the IRS and remand for further
proceedings consistent with this opinion. We leave to the
district court in the first instance the question of whether in
camera examination or the filing of a Vaughn index is
sufficient to create an adequate record upon which to base
the disclosability determination.

214 F.3d at 185 (emphasis added).

D. On Remand

On remand, the IRS filed a motion for summary judgment,
accompanied by a statement of material facts with attached
declarations. One of the declarants was Steven Miller, then-
Director of Exempt Organizations in the IRS’s Tax Exempt and
Government Entities Operating Division. Miller had been
involved in the CBN-IRS negotiations. On inspection of 13
boxes of documents relevant to the matter, he stated that the
boxes contained memos and correspondence on resolution of
CBN’s past returns. The other declarant, Sanford Ayers,
Executive Assistant to Miller, was familiar with 19 more boxes
and a file cabinet of materials, all related to the past returns.
According to Miller, discussions regarding the tax-exempt status
 8

going forward involved no documents in connection with CBN’s
February 1998 tax-exemption application and the materials
supporting that application. As such, all documents required to
be disclosed had already been disclosed.

TA opposed the motion, disputing some of the allegations
of fact and requesting discovery. The District Court granted TA
discovery in the form of deposition testimony. But the court
limited questioning regarding the “substance” of materials so as
to not “go beyond what would be disclosed by a Vaughn
affidavit.” Miller was deposed, and identified documents that
were dated after August 1996, the time at which the subject of
the new tax exemption had been raised. TA requested that the
IRS produce those documents. Instead, on July 20, 2001, the
IRS submitted a Vaughn Index describing the documents at
issue and explaining the reasons why each document was not
disclosable. The documents were as follows:

i. A draft application for tax-exempt status (“TES”);

ii. A March 6, 1997 letter from CBN to the IRS
enclosing a draft closing agreement;

iii. A Form 1023 Application for TES, submitted
April 15, 1997;

iv. An August 12, 1997 letter from Miller to CBN
regarding issues arising from the April 1997 TES
application;

v. An October 3, 1997 letter from CBN to the IRS
with draft responses to the August 1997 letter;

vi. A November 10, 1997 letter from CBN
withdrawing the April 1997 application; and
 9

vii. A November 17, 1997 letter from CBN
responding to the August 1997 letter.

JA 174-83. Later, the IRS filed a supplemental Vaughn Index
identifying one more document:

viii. A February 21, 1997 letter from CBN’s counsel to
the IRS with three attachments: two draft closing
agreements, and a list of related issues.

JA 197. TA filed a motion to compel Miller to answer more
questions; the District Court denied this motion and scheduled
a status hearing. The Court conducted an in camera review of
the closing agreement.

On February 25, 2004, the District Court granted the
Service’s motion for summary judgment. Tax Analysts v. IRS,
No. 98-2345 (D.D.C. Feb. 25, 2004) (“Memo Op.”), reprinted
at JA 260. The Court held in its memorandum opinion that the
documents were not submitted “with, or in support of, [CBN’s]
application for tax exempt status.” Memo Op. at 1. The closing
agreement itself, viewed by the Court, made “only passing
reference to the [CBN] application for tax exempt status,” and
that reference indicated that the application had “already been
approved.” Memo Op. at 3. Because the closing agreement was
not “submitted with, or in support of, CBN’s application for tax
exempt status,” it was not subject to disclosure under I.R.C. §
6104(a)(1)(A). Id.

The Court then amended its decision so as to also grant
summary judgment for the IRS on all claims regarding the eight
Vaughn Index documents, on the same grounds. Tax Analysts
v. IRS, No. 98-2345 (D.D.C. Aug. 19, 2004), reprinted at JA
271-72. TA timely filed this appeal.
 10

II. Analysis

A.

The standard governing a grant of summary judgment in
favor of an agency that claims it has fully discharged its
FOIA disclosure obligations is well established. . . . The
agency must show, viewing the facts in the light most
favorable to the requester, that there is no genuine issue of
material fact. . . . We review the issue de novo on the
district court record.

Lopez v. DOJ, 393 F.3d 1345, 1348-49 (D.C. Cir. 2005)
(quoting Steinberg v. DOJ, 23 F.3d 548, 551 (D.C. Cir. 1994)).
This Court reviews the District Court’s discovery rulings for
abuse of discretion. Stewart v. Evans, 351 F.3d 1239, 1245
(D.C. Cir. 2003).

B.

In remanding this matter to the District Court for it to
develop further the record on which it was to determine whether
the materials requested were subject to Section 6104 disclosure,
we provided instructions for the means by which the court was
to construct such a record: “We leave to the district court in the
first instance the question of whether in camera examination or
the filing of a Vaughn index is sufficient to create an adequate
record upon which to base the disclosability determination.”
214 F.3d at 185. The District Court has done no less.

As described above, the court allowed the IRS to avoid
voluminous Vaughn Index submissions by relying on a mix of
deposition testimony, declarations, a Vaughn Index, and in
camera review to identify and evaluate documents possibly
implicated by Tax Analysts’s disclosure requests. The District
 11

Court did not abuse its discretion in adopting this approach.
Alyeska Pipeline Serv. Co. v. EPA, 856 F.2d 309, 315 (D.C. Cir.
1988) (holding that agency affidavits carried agency’s burden of
proof under FOIA); Mapother v. DOJ, 3 F.3d 1533, 1539-40
(D.C. Cir. 1993) (relying on in camera review of documents to
determine that information was subject to FOIA disclosure).
Indeed, we suggested such a process in the first appeal. 214
F.3d at 185.

Tax Analysts argues that because this Court remanded the
proceedings for “some review of the content of the documents
in question,” id., the District Court erred by not requiring the
Service to respond to Tax Analysts’s inquiries into the content
of various documents. Br. for Appellants at 36 (citing Depo. of
Miller, reprinted at JA 204-22). Therefore, they argue, the
District Court’s judgment violated the express order of this
Court.

But Tax Analysts reads this Court’s holding too broadly: in
remanding the matter for “some review of the content,” we did
not require that the IRS provide disclosure in excess of that
which would have been provided in a full Vaughn Index of all
of the documents. The inquiry into the content of the documents
need only look deeply enough to satisfy the requirements of
Vaughn and its progeny: that is, to

force[] the government to analyze carefully any material
withheld, [to] enable[] the trial court to fulfill its duty of
ruling on the applicability of the exemption, and [to]
enable[] the adversary system to operate by giving the
requester as much information as possible, on the basis of
which he can present his case to the trial court.
 12

Keys v. DOJ, 830 F.2d 337, 349 (D.C. Cir. 1987) (collecting
cases and quoting Lykins v. DOJ, 725 F.2d 1455, 1463 (D.C.
Cir. 1984)).

This Court’s instructions are fulfilled if the District Court’s
inquiry into the documents is sufficient to demonstrate that the
Service rightfully withheld the documents from Tax Analysts.
As we describe in the following discussion, it has served that
purpose.

C.

Section 6104 of the Internal Revenue Code requires the
Service to disclose “the application filed by the organization
with respect to which the Secretary made his determination”
regarding CBN’s tax-exempt status and those documents which
were “submitted in support of such application or notice” or
which were “issued by the Internal Revenue Service with
respect to such application.” I.R.C. § 6104(a)(1)(A).

The parties disagree over whether the Code’s reference to
the “application” for tax-exempt status necessarily incorporates
all prior applications that precede the particular application
submission that is accepted by the Service. Tax Analysts argues
that “earlier submissions of CBN’s application” – in this case,
a draft application and a withdrawn application – were “part of
the negotiation of the terms of the final application that IRS
would grant,” Br. for Appellants at 45-46, and as such are
subject to disclosure as documents submitted in support of the
successful application.

The IRS argues that, according to “longstanding policy,”
documents are disclosable “if they were actually submitted with
or in support of a successful application for tax-exempt status,
but not if they were merely exchanged in an informal process
 13

leading up to the successful application and not included with
the application itself.” Br. for IRS at 39; see also Decl. of Miller
at 9-10 (Jan. 4, 2001) (describing Service practice).

In support of this argument, the Service points to Treasury
Regulations section 301.6104(a)-1(e) and -1(i)(6). Neither of
those specifically defines as documents submitted “in support
of” an application only those documents submitted with an
application or submitted for the purpose of promoting a specific
application and only that application, though each is certainly
consistent with that interpretation. Those sections of the
regulations read as follows:

(e) Supporting documents defined. For purposes of this
section, “supporting documents”, as used with respect
to an application for tax exemption, means any
statement or document not described in paragraph (d)
of this section that is submitted by an organization in
support of its application. For example, a legal brief
submitted in support of an application for tax
exemption is a supporting document.

* * *

(i) Material not open to public inspection under section
6104 or 6110.

* * *

(6) Any other letter or document filed with or issued
by the Internal Revenue Service which, although
it relates to an organization’s tax exempt status as
an organization described in section 501(c) or (d),
does not relate to that organization’s application
for tax exemption, within the meaning of
 14

paragraph (d).

Treas. Reg. § 301.6104(a)-1. While these sections of the
Treasury Regulations are indeed consistent with a Service policy
that deems disclosable those documents that “were actually
submitted with or in support of a successful application for tax-
exempt status, but not . . . merely exchanged in an informal
process leading up to the successful application and not included
with the application itself,” such a policy is not commanded by
the regulations. By formulating the policy in terms of
documents “actually” submitted in support of the application, to
the exclusion of document submitted “in an informal process
leading up to the successful application and not included with
the application itself,” the Service imputes a definition to the
regulation that is not compelled by the text of the regulation.

That said, because this is the agency’s interpretation of its
own regulation, we grant the agency great deference: “under
well-recognized precedent, we can reject the Secretary’s
interpretation only if ‘it is plainly erroneous or inconsistent with
the regulation.’” Sec’y of Labor v. Ohio Valley Coal Co., 359
F.3d 531, 534-35 (D.C. Cir. 2004) (quoting Akzo Nobel Salt, Inc.
v. FMSHRC, 212 F.3d 1301, 1303 (D.C. Cir. 2000)). The
proffered interpretation is neither inconsistent with the text nor
plainly erroneous. We readily defer to the agency.

Turning now to the nine documents at issue – to wit, the
final closing agreement and the eight other documents
enumerated at pages 8-9 above – we agree with the District
Court that the Service has met its burden to demonstrate that
each of the documents is exempt from disclosure under Section
6104. The Miller Declaration provided an exhaustive list of the
documents that comprised either “the application itself” and the
supporting “attachments” or the documents issued by the
Service with respect to CBN’s application. Miller Decl. ¶ 19,
 15

reprinted at JA 79-81. The eight controverted documents for
which the Service provided a Vaughn Index were not among
these documents, and as such they do not constitute documents
submitted in support of the successful application or documents
issued by the Service with regard to the successful application.
As for the closing agreement itself, the District Court found
upon in camera review that “it makes only passing reference to
the application for tax exempt status as having already been
approved,” and as such it does not constitute a document
submitted in support of the application. Memo Op. at 3,
reprinted at JA 262. In sum, the Service has met its burden.

D.

Tax Analysts’s demand for further inquiry into the
substance of the documents would, if granted, turn FOIA on its
head, awarding Appellant in discovery the very remedy for
which it seeks to prevail in the suit. The courts must not grant
FOIA plaintiffs discovery that would be “tantamount to granting
the final relief sought.” Military Audit Project v. Casey, 656
F.2d 724, 734 (D.C. Cir. 1981). Cf. Cheney v. United States
Dist. Court, 124 S.Ct. 2576, 2591 (2004) (describing as
“anything but appropriate” those discovery requests which
“provide respondents all the disclosure to which they would be
entitled in the event they prevail on the merits, and much more
besides”). Under the limited requirements of FOIA and Sections
6103 and 6104 of the Internal Revenue Code, the IRS has met
its burden, and we therefore affirm the District Court’s grant of
summary judgment.