Memorandum of Tax Executives Institute, Inc. as Amicus Curiae in Opposition to Plaintiff Bureau of National Affairs, Inc.'s Motion for Summary Judgment.

On February 25, 1999, Tax Executives Institute filed the following brief amicus curiae with the United States District Court for the District of Columbia. The brief was filed in a lawsuit filed by the Bureau of National Affairs against the Internal Revenue Service to force the disclosure of advance pricing agreements, which are used to resolve transfer pricing agreements between taxpayers and the IRS and, in many instances, foreign governments. The Institute's brief was prepared by Donald C. Alexander, Michael Quigley, and C. Fairley Spillman, all of the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP, together with Timothy J. McCormally, Mary L. Fahey, and Jeffery P. Rasmussen of TEI's legal staff. As with all Institute submissions, the brief -- which was prepared under the aegis of the Institute's International and IRS Administrative Affairs Committee -- was approved by TEI's Executive Committee.

Tax Executives Institute, Inc. (hereinafter "TEI" or "amicus") respectfully submits this brief as amicus curiae in opposition to plaintiff Bureau of National Affairs, Inc.'s motion for summary judgment. TEI files this brief to assist the Court in consideration of BNA's motion by presenting compelling arguments against that motion that defendant Internal Revenue Service has not fully presented.

Statement of the Case

BNA seeks the release under the Freedom of Information Act, 5 U.S.C. [sections] 552, and Section 6110 of the Internal Revenue Code ("the Code") of Advance Pricing Agreements ("APAs") between taxpayers and the Internal Revenue Service (the "IRS"). Each APA specifies a methodology negotiated and settled between the specific taxpayer and the IRS (and, in the case of bilateral and multilateral APAs, foreign taxing authorities) for the taxpayer to use in determining its intercompany transfer pricing and thereby assure that the methodology complies with Section 482 of the Code. Transfer pricing is a very comp]ex application of a relatively simple provision of the tax law to a taxpayer's unique factual situation. The negotiation and settlement of transfer pricing are vital to the determination of the tax liabilities of many corporations and in assuring that multinational corporations are neither subject to double taxation nor able to avoid tax obligations.

The APAs at issue here were entered into pursuant to Rev. Proc. 91-22(1) or Rev. Proc. 96-53,(2) which provide, among other things, that the agreements themselves and the information the taxpayer supplies to the IRS in conjunction with their negotiation constitute "return information" under Section 6103 of the Code (26 U.S.C. [sections] 6103). Section 6103 mandates that "return information" may not be publicly disclosed by the IRS.

From the inception of this litigation until January 8, 1999, the IRS consistently asserted that APAs are subject to the protections of Section 6103. On that date, after BNA filed its motion for summary judgment, the IRS notified BNA that the agency now takes the position that APAs constitute "written determinations" under Section 6110 of the Code. Shortly thereafter, the IRS sent letters to taxpayers that were parties to APAs, informing them of this change in position and the IRS's intent to disclose the APAs pursuant to Section 6110 after redacting certain information. As a result of this unfounded concession made by the IRS, the Court now is considering a schedule for review and production of APAs under the terms of Section 6110. TEI respectfully suggests that, before this path is pursued, the Court should resolve whether the documents at issue, in fact, fall within the narrow bounds of Section 6110 or whether, as TEI contends, APAs consist entirely of return information protected from disclosure under Section 6103. Such a decision is necessary to preserve the privacy rights of taxpayers that are parties to APAs.

Interest of Amicus

TEI is a voluntary, non-profit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. TEI was organized in 1944 and currently has approximately 5,000 members who are employed by 2,800 of the leading corporations in the United States and Canada. The members of TEI come from a cross-section of the business community in North America and represent companies that are vitally interested in the effective enforcement of the Code's transfer pricing rules.

TEI is dedicated to promoting the uniform, systematic, and equitable interpretation and enforcement of the tax laws. It is also dedicated to reducing the costs and burdens of tax administration and compliance to the benefit of both the government and taxpayers.

TEI has many members who are officers or employees of corporations that are parties to APAs. These corporations have found APAs to be very useful because they permit the negotiation and settlement of complex tax liability issues based upon the unique circumstances of each taxpayer through a means that can be fully relied upon by the taxpayer, the government, and, in many cases, foreign taxing authorities. TEI believes that the APA program represents the best way for many companies to resolve transfer pricing disputes and thereby avoid costly and time-consuming audits or litigation. TEI and its members fear that public disclosure of APAs would significantly decrease the desirability of entering into these agreements in the future and, therefore, would deprive both taxpayers and governments of this valuable method of settling tax liability issues. TEI members also believe that legitimate privacy interests and expectations will be compromised by the disclosure sought by BNA.

Argument

A. APAs Are Tax Return Information and May Not Be Publicly Disclosed

1. Section 6103 Prohibits Public Disclosure of Tax Return Information

In the aftermath of the Watergate scandal (and the Nixon Administration's attempted abuse of the IRS and taxpayers), Congress revised Section 6103 of the Code to assure that taxpayer information is kept confidential by the IRS. See Church of Scientology v. IRS, 484 U.S. 9, 16 (1987) ("One of the major purposes in [the 1976 revisions of] [sections] 6103 was to tighten the restrictions on the use of return information by entities other than [the IRS].") Although Congress has adopted certain exceptions to this general rule of privacy protection and non-disclosure, it is well-established that information subject to Section 6103 falls within FOIA Exemption 3 (5 U.S.C. [sections] 552(b)(3)) concerning matters "specifically exempted from disclosure by statute." See, e.g., Church of Scientology v. IRS, 792 F. 2d 146, 150 (D.C. Cir.), en banc review of separate issue, 792 F. 2d 153 (D.C. Cir. 1986), aff'd, 484 U.S. 9 (1987).

Under Section 6103, both returns and "return information" are protected. See 26 U.S.C. [sections] 6103(a). Section 6103 defines "return information" in part, as follows:

   (A) a taxpayer's identity, the nature, source, or amount of his 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, or any other
   data, received by, recorded by, prepared by, furnished to, or collected by
   the Secretary 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 under this title for any tax, penalty, interest,
   fine, forfeiture, or other imposition, or offense.

26 U.S.C. [sections] 6103(b)(2)(A). Courts repeatedly have confirmed the broad scope of this statutory language. E.g., Branch Ministries, Inc. v. Richardson, 970 F. Supp. 11, 18 (D.D.C. 1997) ("[t]his language is extremely broad.... "); Lehrfeld v. Richardson, 954 F. Supp. 9, 13 (D.D.C. 1996), aff'd, 132 F.3d 1463 (D.C. Cir. 1998) ("`return information' is defined broadly by the statute to include almost any information compiled by the IRS in connection with its determination of a taxpayer's liability"). Furthermore, notwithstanding statutory language excluding from this definition "data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer" (26 U.S.C. [sections] 6103(b)(2)), the Supreme Court has ruled that return information does not lose its protection simply because identifying information could be redacted from it. Church of Scientology, 484 U.S. at 18 (holding that this exception to disclosure was intended to apply only to IRS statistical studies and similar matters). Accordingly, the IRS has no duty under FOIA to make such redactions and produce return information. Id.

2. APAs Are Return Information

APAs have been described in the parties' filings. As set forth in the November 2, 1998, declaration of Richard F. Barrett filed by the IRS in support of its November 4, 1998, motion for clarification (Barrett Decl. I), APAs are written agreements executed by and binding upon a taxpayer and the IRS. Barrett Decl. I [paragraphs] 5, 8. In many cases, APAs also reflect agreements negotiated by the IRS and one or more foreign taxing authorities pursuant to a "competent authority agreement" made between the United States and its tax treaty partner in connection with the APA process. Id [paragraph] 9. APAs set forth the manner in which a transfer pricing methodology ("TPM") will be determined and applied by the taxpayer to ensure arm's-length pricing. Id. [paragraph] 5, citing Rev. Proc. 96-53, [sections] 1, 1996-2 C.B. 375; Rev. Proc. 91-22, [sections] 1, 1991 C.B. 526, 527.

The APA process includes negotiation and agreement regarding (1) the best basic method for determining arm's-length prices; and (2) how that method will be applied to the taxpayer's specific facts and circumstances. Id. [paragraph] 6, citing Rev. Proc. 96-53, [sections] 2, at 375, and Rev. Proc. 91-22 [sections] 2, at 527. The process is highly fact-specific. See id. at [paragraph] 7. The taxpayer submits extensive and highly sensitive financial and commercial information to the IRS in conjunction with APA negotiations. See Rev. Proc. 96-53, [sections] 5, 1996-2 C.B. 377. Some of this information received by the IRS is contained or reflected in the APA itself. See January 9, 1999, Declaration of Richard F. Barrett (Barrett Decl. II).

APAs are negotiated by a team of IRS personnel and the taxpayer's representatives. Each IRS APA team includes members from the IRS's local Examination Division (e.g., revenue agents, international examiners, and industry economists) in addition to the IRS National Office APA staff. See Rev. Proc. 96-53, [sections] 6.04, 1996-2 C.B. 380. The function of the IRS Examination Division members of an APA team is to scrutinize the detailed factual submissions made by the taxpayer and to analyze the factual circumstances of the taxpayer in order to support the IRS's negotiating position. The IRS Examination Division often develops an alternative, frequently opposing, position to that propounded by the taxpayer, and usually supports its alternative position with economic studies and analyses of the taxpayer's functions, risks, and operations.

The transfer pricing methodology agreed to in the APA (based in large part on the specific information supplied by the taxpayer and verified by the IRS) is used by the taxpayer in its determination of income and expenses, which, in turn, is used to determine tax liability. See Barrett Decl. II at [paragraph] 4. See also October 25, 1998, Declaration of Charles Triplett ("Triplett Decl.") (filed by BNA) at [paragraph] 4 (describing how transfer pricing issues are important in determining tax liability). Thus, APAs and the information provided to the IRS in conjunction with APA negotiations relate directly to the existence and amount of tax liability. APAs therefore constitute or reflect "data received by, recorded by, prepared by, furnished to and/or collected by the Secretary with respect to the determination of the existence or possible existence of the [taxpayer's tax] liability." Barrett Decl. I [paragraph] 10.

Not surprisingly, then, the procedures adopted by the IRS in 1991 and 1996 for negotiation of APAs specifically provided that APAs and supporting information would be subject to the confidentiality provisions of Section 6103. Rev. Proc. 96-53, [sections] 12, 1996-2 C.B. 375, 386; Rev. Proc. 91-22, [sections] 11, 1991-1 C.B. 526, 534. In addition, amicus understands that many APAs contain provisions acknowledging this conclusion.

BNA makes four arguments to support its claim that APAs are not return information. None of these has merit. First, BNA claims that APAs cannot constitute return information because they are prospective in nature. As the IRS has noted, this assertion is factually incorrect; negotiation of an APA often is not completed until after one or more of the covered tax years has concluded, and the procedures applicable to APAs also include discretionary "roll back" provisions to even earlier years. See IRS memorandum at 14, Barrett Decl. II [paragraph] 13. See also Rev. Proc. 96-53, [subsections] 3.06 and 8, 1996-2 C.B. 376 and 382. Indeed, as part of the APA negotiation process, the IRS Examination Division examines the taxpayer's tax returns for the taxable years immediately preceding the years to which the APA will apply. Typically, the IRS will focus on the taxpayer's three preceding taxable years. If an APA agreement is reached, the approach taken in the APA is generally retroactively applied (e.g., "rolled back") to these preceding years.(3) Furthermore, even if all APAs were solely prospective in nature, BNA's position is of no legal moment because nothing in Section 6103 requires that return information relate to current liability; Section 6103 (b)(2)(A) refers to the existence or possible existence of tax liability.(4)

Second, BNA asserts that APAs can be redacted to remove information identifying the taxpayers.(5) This argument was specifically rejected in Church of Scientology, which held that the redaction of identifying information would not deprive return information of its protected status and, moreover, that the IRS was under no duty to make such redactions. 484 U.S. at 18. See also Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1976, 94th Cong., 2d Sess. 316 (Dec. 29, 1976). BNA's argument, therefore, is without merit.

Third, BNA invokes the language of Section 6103(b)(2)(B). As the IRS has explained (memorandum at 15-16), however, BNA has misquoted the relevant language. Thus, this contention also is meritless.

Finally, BNA argues that the D.C. Circuit's decision in Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997), is controlling here. As TEI now shows, this argument is equally without merit.

3. The D.C. Circuit's Decision in Tax Analysts Is Inapposite

In Tax Analysts, plaintiffs sought disclosure of "Field Service Advice Memoranda" issued by the Office of Chief Counsel of the IRS in response to requests of field personnel of either the Office of Chief Counsel or the IRS seeking legal guidance. 117 F.3d at 608. The government conceded in that case that "among the primary purposes of FSAs is ensuring that field personnel apply the law correctly and uniformly." Id. at 609. As described by the D.C. Circuit, each FSA includes "a statement of issues, a conclusions section, a statement of facts, and a legal analysis section." Id. In ordering disclosure of the legal analysis section (but not the other portions) of FSAs, the court explained that FSAs are functionally equivalent to Technical Advice Memoranda, which are to be publicly disclosed under Section 6110 of the Code. Id. at 616. Furthermore, the Court held that the legal analysis portions of FSAs do not implicate the privacy concerns underlying Section 6103 and, accordingly, should not reasonably be considered "data" within the meaning of that statute. Id. at 615.

In stark contrast to FSAs, APAs contain no "legal analysis" section. Instead, they set forth:

   (1) the contractual rights and obligations of specific taxpayers; (2) a
   definition of the agreed-to TPM for that specific taxpayer; (3) an
   identification of the specific critical assumptions upon which the
   agreement was based; and (4) taxpayer-specific document retention
   requirements, accounting requirements, provisions for annual reporting,
   compensatory adjustments, covered transactions, and nonfactual
   representations. Barrett Decl. I [paragraph] 8. All of this information
   clearly falls within the broad scope of Section 6103 because it is
   taxpayer-specific and unmistakably implicates the privacy concerns forming
   the basis for Section 6103. Thus, Tax Analysts -- which deals with a wholly
   different type of document -- has no bearing on the issue before the Court.

B. APAs Are Not Written Determinations for Purposes of Section 6110

Notwithstanding the application of Section 6103 to APAs, BNA seeks their disclosure pursuant to Section 6110 of the Code. While the IRS has shown in its memorandum opposing summary judgment (at 13-17) that Section 6103 applies to APAs, it nonetheless agreed to produce the APAs after making the redactions required under Section 6110. Section 6110, however, applies only in respect of written determinations. An examination of the language and history of Section 6110 makes manifest that APAs are not "written determinations" and, therefore, are not subject to its disclosure provisions.(6)

Like Section 6103, Section 6110 was enacted as part of the Tax Reform Act of 1976. In part, it codified what were then recent decisions by various courts compelling disclosure under FOIA of private letter rulings and Technical Advice Memoranda issued by the IRS. See, e.g., Fruehauf Corp. v. IRS, 522 F. 2d 284 (6th Cir. 1975), vacated and remanded for reconsideration in light of 1976 Act, 429 U.S. 1085 (1977).(7) Section 6110 provides for public disclosure of "written determinations" and defines that term as "a ruling, determination letter, technical advice memorandum or Chief Counsel advice." 26 U.S.C. [sections] 6110(b)(1). The reach of Section 6110 is limited to these specific categories of documents.

The Senate Report confirms that Section 6110 is of limited scope. For example, the report states that "IRS written determinations, i.e., rulings, technical advice memoranda and determination letters, would generally be open to public inspection." S. Rep. No. 94-938 (Part II), 94th Cong., 2d Sess. 306 (1976), reprinted in 1976 U.S.C.C.A.N. 3735 (emphasis supplied). In other words, the list in Section 6110 was intended to be exclusive, not exemplary.(8) See, e.g., New v. Dept. of Veterans Affairs, 142 F.3d 1259, 1265 (Fed. Cir. 1998) (use of "i.e." in regulation refutes notion that item mentioned was exemplary rather than a limitation). Furthermore, the Committee noted that "a written determination would not be considered a ruling, technical advice memorandum or determination letter unless it recites the relevant facts, explains the applicable provisions of law, and shows the application of law to the facts." Id. at 3736.(9)

In light of the statutory language and the legislative history of Section 6110, APAs cannot reasonably be considered written determinations under the statute. APAs are not "determinations" by the IRS; they are agreements negotiated between the IRS and a specific taxpayer. Indeed, the IRS procedures for APAs note that "[t]he APA process is designed to be a flexible problem solving process, based on cooperation and principled negotiations between taxpayers and the Service." Rev. Proc. 96-53, [sections] 3.01, 1996-2 C.B. 376. Unlike IRS rulings or determination letters, APAs are not just "issued"(10) by the IRS, they are signed by and binding upon the taxpayer. APAs impose real obligations on the taxpayer, including annual reporting and record retention obligations. See id. [sections] 11. Conversely, APAs provide significant benefits to the IRS. See Triplett Decl., [paragraph] 7. Furthermore, unlike rulings, which can be revoked by the IRS for any reason (see 26 C.F.R. [sections] 601.201(I)), APAs may be revoked only in cases of fraud, malfeasance, or disregard by the taxpayer. Rev. Proc. 96-53, [sections] 11.05, 1996-2 C.B. 385.

Many APAs reflect agreements between the IRS and foreign taxing authorities that may result in transfer pricing methodologies different from any of the specific methods set forth in the regulations under Section 482. Barrett Decl. II [paragraph] 8. Thus, they cannot be characterized as reflecting a determination by the IRS.

Most critically, APAs lack the key characteristics of rulings described in the committee report and the IRS regulations: they contain no discussion of the applicable provisions of law, nor do they show the application of law to fact. Instead, they set forth a certain transfer pricing methodology (which is determined through negotiation) and provide that if that methodology is utilized by the taxpayer (and if the taxpayer complies with various record-keeping and other requirements designed to assure that the IRS can verify its use), then the IRS will not challenge the use of that methodology in determining the taxpayer's tax liability.

In their character as agreements between the IRS and the taxpayer reflecting a negotiated resolution of a tax liability issue, APAs closely resemble "closing agreements," which have been used for years by the IRS for resolution of tax liability issues.(11) The Senate Report specifically noted that:

   Additionally, the committee amendment would not require public disclosure
   of a closing agreement entered into between the IRS and a taxpayer which
   finally determines the taxpayer's tax liability with respect to a taxable
   year. (Where it is in the interest of a taxpayer and the IRS, a closing
   agreement may be made in order to provide certainty as to a person's past
   tax liability.) The committee understands that a closing agreement is
   generally the result of a negotiated settlement and, as such, does not
   necessarily represent the IRS view of the law. (Emphasis supplied.)

S. Rep. No. 94-938 (Part II), supra, at 306, reprinted in 1976 U.S.C.C.A.N. 3736. See also General Explanation of the Tax Reform Act of 1976, at 304-05 (containing nearly identical language).(12) Similarly, APAs are the result of negotiated settlements between the IRS and a taxpayer and, in some cases, foreign taxing authorities, and "do not necessarily represent the IRS view of the law." For this reason, APAs, unlike rulings, determination letters, and Technical Advice Memoranda, cannot be regarded as "secret law" of the IRS that ought to be publicly disclosed.

Furthermore, the ongoing involvement of examination personnel in the APA process and the common practice of "rolling back" the TPM to prior tax years make the negotiation of the APA analogous to an accelerated examination for which a settlement is reached pursuant to a closing agreement or the less formal IRS Form 870-AD, which also is regarded as return information by the IRS. This process is quite unlike the IRS National Office's issuance of written determinations within the scope of Section 6110.

BNA argues that APAs must be written determinations because the IRS has admitted that it relies upon its authority to issue written determinations to enter into APAs. See IRS January 11, 1999 Statement Of Material Facts As To Which There Exists a Material Issue [paragraph] 69. The record shows, however, that the IRS also relied upon its "general authority to enter into agreements with taxpayers" when it entered into APAs. Triplett Decl., [paragraph] 9. Mr. Triplett further states that the IRS decided to use the name Advanced Pricing Agreement rather than "Advance Determination Ruling," in part "because the notion of an `agreement' more appropriately characterized a document signed by both parties." Id. [paragraph] 10. Furthermore, the legislative history demonstrates Congress's intent not only that contracts between the IRS and taxpayers would not fall under the disclosure requirements of Section 6110, but also that not even all written determinations of the IRS would be subject to such disclosure.(13) As we have demonstrated, APAs lack key characteristics of Section 6110 material.

Finally, BNA's own argument is also internally inconsistent with respect to this issue. Just after it asserts that APAs are "rulings," BNA acknowledges that the Tax Analysts court did not hold that any portion of FSAs -- that are much more similar to traditional Section 6110 material than APAs -- were subject to Section 6110. In light of this, BNA asserts, not that APAs are "rulings," but that APAs are the "modern equivalents" of rulings. (BNA memorandum at 20). Amicus has already shown why Tax Analysts does not support disclosure of APAs.

Thus, APAs are not written determinations subject to disclosure under Section 6110. Because they are return information for purposes of Section 6103, they also may not be disclosed under FOIA. Accordingly, the Court should deny BNA's motion for summary judgment in its entirety. At minimum, the Court should provide interested taxpayers with the opportunity to intervene to address the issue of whether APAs are protected from disclosure.

C. In the Event The Court Should Accept the IRS's Concession, the Court Should Adopt the Schedule for Disclosure Proposed by the IRS

TEI has shown that APAs constitute return information protected from disclosure under Section 6103. TEI has further shown that BNA's claim and the IRS's concession that APAs are written determinations under Section 6110 is wrong. If the Court should be inclined to accept that concession, however, TEI believes that it is critical that the Court adopt the schedule for production set forth by the IRS.

As has been described to the Court in some detail, by their very nature, APAs reflect and contain highly sensitive competitive information, the disclosure of which would be very harmful to the taxpayers who entered into the APAs with the understanding that they would remain confidential. It is therefore critical that the affected taxpayers have adequate time to consider the redactions proposed by the IRS and the need for additional redactions.(14) As even BNA concedes, such taxpayers also should be given the opportunity to intervene to protect their interests with respect to redactions. Contrary to BNA's suggestion, the IRS's prior good faith assertion that APAs are protected from disclosure in their entirety pursuant to Section 6103 should not be used as a basis to deprive third parties who relied on that confidentiality adequate time to protect their interests. Nor should it be used as a basis for finding waiver of any legitimate argument for redactions under Section 6110(c). Taxpayers that are parties to APAs should not be penalized by the disclosure of their confidential information as a result of the actions of the IRS.(15)

In addition, TEI fully supports the IRS's assertion that tax treaties are properly considered statutory law for purposes of Exemption 3 of Section 6110. TEI will not repeat the compelling arguments made by the IRS in favor of this position. Instead, TEI notes that many taxpayers, including corporations whose employees and officers are members of TEI, have operations both in the United States and overseas and must comply with the tax laws of several jurisdictions. Key to this compliance is the coordination and cooperation of the United States and foreign taxing authorities in resolving complex issues and competing interests. If the Court were to ignore the confidentiality provisions included in these treaties (which, indisputably, have the force of law), such action may not only disrupt the negotiation and agreement of bilateral and multilateral APAs, but also harm the ongoing working relationship between the United States and its treaty partners. Thus, the confidentiality provisions of tax treaties should be respected, and material deemed confidential by those provisions should be subject to redaction under Section 6110(c). In any event, the Court should not permit any disclosure of information arguably subject to tax treaty confidentiality provisions without first giving the affected treaty partners the opportunity to express their views.

Conclusion

APAs are confidential return information shielded from public disclosure under 26 U.S.C. [sections] 6103. The IRS's ill-conceived concession that the documents are written determinations under Section 6110 has no basis in fact or law, and should not be accepted in the face of the privacy concerns set forth in Section 6103. Instead, the Court should deny BNA's motion for summary judgment in its entirety and find that the confidentiality of the APAs should be maintained.

Notes

(1) Rev. Proc. 91-22, 1991-1 C.B. 526.

(2) Rev. Proc. 96-53, 1996-2 C.B. 375.

(3) The IRS's Examination Division has jurisdiction over the years preceding the APA term and, generally, exercises considerable influence over the APA negotiation process.

(4) BNA also asserts that TPMs are "formulas" and, therefore, not "data" within the scope of Section 6103. This assertion is factually incorrect. See Barrett Decl. II [paragraph] 12. Under Section 482, a taxpayer must identity and use comparables -- a fact negating the notion that TPMs are formulas. Moreover, the assertion is legally unfounded. The term "data" means information; a pricing formula or methodology certainly can be and is useful information in determining tax liability.

(5) BNA has asserted that even without redaction, some parts of APAs do not contain information that would identify the taxpayer involved. The IRS has demonstrated that this assertion is wrong as a matter of fact. Barrett Decl. II, [paragraphs] 15, 16 & 20. See also Triplett Decl. [paragraph] 17. Likewise, in assessing whether individual APAs constitute "return information," it is not significant that the IRS has developed certain "boilerplate" provisions for APAs. The IRS already has disclosed a model APA setting forth some boilerplate provisions. See Notice 98-10, 1998-6 I.R.B. 9 (attached as Exhibit E to Barrett Decl. l). Whether or not "boilerplate" terms are included in any specific APA is a matter for negotiation, and the individual APAs, therefore, remain taxpayer-specific.

(6) The Court may question why, assuming trade secret and confidential commercial or financial material is redacted, disclosure pursuant to Section 6110 is troubling to TEI and its members. First, such disclosure undermines the taxpayer's legitimate confidentiality expectations. There may well be sensitive material that does not meet the technical requirements of confidential commercial or financial information pursuant to Section 6110(c)(4) that the taxpayer nonetheless reasonably expected to remain confidential pursuant to Section 6103 (and the terms of the APAs themselves). Second, Section 6110 requires disclosure not only of written determinations but also of "any background file document," which includes "any written material submitted in support" of the determination. In the case of APAs, voluminous material is provided by the taxpayer in the course of negotiations. While BNA has not yet requested this material, it is reasonable to assume that if BNA prevails in this litigation such a request will follow (if not by BNA, then by other parties). Not only are there confidentiality concerns with respect to this background material, but the very redaction process that would accompany such disclosure would be extremely difficult, burdensome, and time-consuming. All of this is troubling to because it could have a chilling effect on the APA process, which has been extremely useful to TEI's members, as well as to U.S. and foreign governments.

(7) The legislative history of the 1976 Act shows that members of the Senate Finance Committee believed that the issue of access to these IRS rulings should be resolved by Congress, not the courts. S. Rep. No. 94-938 (Part II), at 306 (1976), reprinted in 1976 U.S.C.C.A.N. 3735. Accordingly, the 1976 Act included Section 6110 "providing an exclusive remedy with respect to disclosure of rulings and related material." Id.

(8) The court in Tax Analysts did rely on Section 6110 to conclude that the legal analysis portion of FSAs (which, like APAs, did not exist at the time Section 6110 was enacted) did not constitute "return information" for purposes of Section 6103. Significantly, however, the D.C. Circuit did not hold that FSAs were subject to the provisions of Section 6110.

(9) The IRS has adopted this view in its own regulations under Section 6110. In particular, the IRS regulations define "ruling" for purposes of Section 6110, as follows:

   a written statement issued by the National Office to a taxpayer or to the
   taxpayer's authorized representative.... that interprets and applies tax
   laws to a specific set of facts. A ruling generally recites the relevant
   facts, sets forth the applicable provisions of law, and shows the
   application of the law to the facts.

26 C.F.R. [sections] 301.6110-2(d).

(10) BNA relies on the IRS's admission that APAs are "issued" in the sense that the IRS mails APAs to the taxpayer. See IRS Responses to First Request for Admissions (Ex. 6 to BNA Memorandum), Request No. 2. The regulation relied upon by BNA -- 26 C.F.R. [sections] 301.6110-2(h)-- concerns the issue of finality. It does not support the notion that APAs are equivalent to the unilateral statements of the IRS that are the subject of Section 6110.

(11) TEI is aware that the IRS has admitted that APAs are not, in fact, closing agreements. See IRS Response to Plaintiffs First Set of Requests For Admission No. 41 (filed July 19, 1996). This admission does not, however, mean that the similarity between APAs and closing agreements should be ignored by the Court, just as the similarity between FSAs and TAMs was considered by the D.C. Circuit in Tax Analysts.

(12) See also H.R. Rep. No. 94-658, 94th Cong., 1st Sess. 316 (1975), reprinted in 1976 U.S.C.C.A.N. 3212 (also containing nearly identical language).

(13) The IRS's definition of "ruling" for purposes of Section 6110 differs from its general definition of "ruling" set forth in the regulation cited by the IRS when promulgating the APA procedures. The more general definition does not state that a ruling "recites" relevant facts or "shows" the application of fact to law. Compare 26 C.F.R. [sections] 310.6110-2(d) to 26 C.F.R. [sections] 601.201.

(14) Indeed, the use of a range of comparables to determine the pricing methodology may require more than a redaction process. To make the released information relevant may require the use of hypothetical numbers.

(15) The affidavits submitted by the IRS in its opposition to BNA's motion demonstrate that there are legitimate concerns about the confidentiality of information contained in the APAs. Clearly, APAs should not be disclosed without the taxpayers having had a fair opportunity to participate in the redaction process and, if necessary, defend specific redactions from their APAs.