District court orders IRS to release field service advice memoranda under the FOIA.

The District Court for the District of Columbia recently ordered the IRS to release field service advice memoranda (FSAs) in Tax Analysts v. Internal Revenue Service, 3/15/96. The court held that FSAs must be disclosed under Section 552(a) (2) of the Freedom of Information Act (FOIA), because they are statements of policy and interpretations of law that the Service has adopted. The court also said exemptions under FOIA do not apply to prevent disclosure of FSAs, except to the extent they include return information or work product.

FSAs are prepared by attorneys in the Office of Chief Counsel for use by IRS field attorneys, revenue agents and appeals officers, among others. FSAs discuss significant tax issues in the context of cases of specific taxpayers. One of their stated purposes is to promote uniformity in IRS positions. They are strictly advisory, however, binding neither the taxpayers to whom they pertain nor the Service. The IRS has indicated that nonetheless are "highly regarded" and that the advice they contain is "generally taken."

Tax Analysts, the publisher of Tax Notes and other periodicals, submitted a request in February 1994 for access to all FSAs, which the Service denied. After exhausting all administrative remedies, Tax Analysts filed suit in district court seeking disclosure of FSAs under FOIA Section 552 (a) (2).

FSAs Are Subject to Disclosure Under FOIA Section 552(a)(2)

Tax Analysts argued that FSAs were subject to disclosure under FOIA Section 552(a) (2) as either statements of policy or interpretations of law which the Office of the Chief Counsel has adopted, or as instructions to agency staff. The IRS responded that it had not adopted FSAs because (1) they do not represent formal agency positions; (2) they are only occasionally subjected to high-level review; (3) they do not serve as precedents and are not formally binding; and (4) they are different from those documents the Service was ordered to disclose under the FOIA in Taxation With Representation Fund v. IRS, 646 F2d 666 (D.C. Cir. 1981). Tax Analysts countered that the IRS had adopted FSAs as established policy through which the agency discharged its regulatory duties.

The court found that FSAs qualify as statements of policy and interpretations of law that the Service has adopted, since IRS staff routinely use FSAs as guidance in conducting their audits and as references in their dealings with the public; see Coastal States Gas Corp. v. Department of Energy, 617 F2d 854 (D.C. Cir. 1980). Thus, the court determined that FSAs were subject to disclosure under FOIA Section 552 (a) (2).

Do Exemptions Under the FOIA Apply to FSAs?

The FOIA provides nine exceptions to its rule of disclosure, and the Service asserted that two applied to FSAs: 5 U.S.C. Section 552(b) (3) and (b) (5).

* FOIA Section 552(b) (3): This section applies to materials specifically exempted from disclosure by statute. The IRS asserted that FSAs not only contain, but actually constitute, return information under Sec.6103(b); thus, they must be withheld in their entirety. The court held, however, that the information Tax Analysts sought (i.e., legal analysis and conclusions) did not constitute return information, and held further that Section 552 (b) (3) did not apply to FSAs as long as the Service redacted all return information from the documents.

* FOIA Section 552(b) (5): The IRS also asserted that FSAs are exempt from disclosure under this section, because governmental deliberative process privilege, the attorney-client privilege or the work-product doctrine applied.

Deliberative process privilege: The deliberative process privilege exempts: documents that are part of a process by which agencies make decisions and formulate policies. The court concluded that the privilege does not apply to FSAs because they explain the Service's position on an issue after the IRS has adopted it, and also because FSAs are interpretations of law which the Service applies in cases before it.

Attorney-client privilege:The attorney-client privilege applies to confidential communications between attorney and client concerning a legal matter for which the client seeks the attorney's advice. The IRS sought to extend the privilege to FSAs on the basis that they are communications between the Service and its attorney, the Office of the Chief Counsel. The court concluded that the privilege does not apply because FSAs are objective analyses of IRS regulations, not advice regarding how to protect the Service's interests.

Work-product doctrine: The work-product doctrine protects documents and other memoranda prepared in anticipation of litigation. The IRS argued that 309 FSAs were prepared in contemplation of specific litigation, a point Tax Analysts conceded. The court allowed the Service to exclude only the work product and ordered the disclosure of the remaining material.

The IRS is expected to appeal Tax Analysts. If affirmed, the case will provide an opportunity for taxpayers and practitioners to obtain FSAs that offer some insight into the Service's analysis and decision-making. However, if the court of appeals upholds this decision, it may prompt the IRS to avoid using FSAs, much as the Service did with GCMs. Note that both Tax Analysts and BNA are also now seeking disclosure of Advance Pricing Agreements through the FOIA.

FROM JOAN ROOD, CPA,J.D., LL.M., WASHINGTON, D.C.