TOPICAL INDEX TO INTERNAL REVENUE MANUAL-LISTING OF IRM NUMBERS AND (10)200 Internal Audit Internal Audit Handbook PART XI-TECHNICAL (11)100 Authorities and Standards (11)300 Regulations (11)400 Tax Return Forms and (11)500 Tax Conventions and (11)600 Rulings, Determination *(11) 671 Exempt Organizations (11)700 Technical Advice to Regional and District Offices (11)900 Other Technical Programs Procedures and Facilities in the *Handbook-issued separately and may or may not be filed in sequence as listed. [From the Journal of Taxation, September 1967] THE NEW FREEDOM OF INFORMATION ACT-WHAT IT MEANS TO TAX PRACTITIONERS (By Jonathan Sobeloff) The running battle between Congress and the administrative The new Freedom of Information Act1 (the amended Section 3 of the Ad- 1 P.L. 89-487, 7/4/66. able to a member of the public who was denied access to a record. Because of this feature of the new law, it now becomes important for tax practitioners to consider what records of the Government may be available and which of such records they would like to see. The IRS regulations implementing the new law, published July 1, 1967,* evidence a narrow and cautious attitude. They provide specifically for inspection upon request of one type of record not previously available comments submitted on or after August 2, 1967 on proposed regulations, except as to any comment or portion which the commenter specifically requests be treated as confidential.* The Service has yet to take a position on the applicability of its new procedures for requesting records to any other types of records, but is awaiting determination of requests on a case-by-case basis. The second major innovation of the new law is the requirement that agency policy statements and interpretations, and administrative staff manuals and instructions to staff which affect any member of the public be published or made available in an agency reading room. Such matters which are issued, adopted or promulgated after July 4, 1967, must also be indexed currently by the agency * This "reading room" provision is of less immediate significance to the tax planner. It is not directly enforceable by judicial action, and IRS, which already has an extensive publication program, has determined to make available little new information under the provision. However, the Internal Revenue Manual, previously not available, has been placed (in a drastically censored version) in the reading room on the first floor of the National Office of the IRS. While apparently there is no remedy by which a tax practitioner can force the Service to publish or place in the reading room any items, there is a potentially significant indirect sanction for the enforcement of the reading room requirements. The Act provides in general that reading room matter which is not properly made available cannot be used against anyone who does not have actual timely notice of it. The significance of this provision remains to be determined in tax matters, but it is obviously a rule to keep in mind in connection with future tax controversies. PROVISIONS OF THE ACT A general understanding of the provisions of the Freedom of Information Act is helpful as a basis for considering what material may be available and how to obtain it. There are three principal categories of information which the agency is to make available, each requiring different treatment (the Act doesn't apply, however, to matters within any of nine specific exemptions). 1. Federal Register matters are those required to be published in the Federal Register. In the tax field, these are essentially the regulations (agency substantive rules, statements of general policy or interpretations "of general applicability") and include descriptions of the central and field organization, methods of making requests and obtaining decisions, and procedures. The principal change which may prove significant in the tax field is the broadening of the sanction for noncompliance by the agency. Formerly, the sanction was that no person could "in any manner be required to resort to organization or procedure" not so published in the Federal Register. However, if the rule not published was not one of "organization or procedure," presumably the sanction could not apply. Now, the sanction as revised is applicable also to “any matter" required to be published. Moreover, no person shall in any manner be required to resort to "or be adversely affected by any matter required be published in the Federal Register and not so published" "except to the extent that . . . [he] has actual and timely notice of the terms thereof. . . ." It appears that no tax 232 Fed. Reg. 9541. 3 Reg. 601.601 (b). See TIR 916, 7/17/67. 4 Reg. 601.702(c). See, e.g., Reg. 601.701 (b) (3). U.S.C. Section 552 (a) (2). 7 Former Section 3(a) of the Administrative Procedure Act, 5 U.S.C. Section 1002 (a) (1964 Ed.). 8 Idem. Under the decisions there has been a problem as to whether the fact that a person had actual notice of the terms of an item which should have been published would cure the defect so that he could be required to resort to such organization or procedure. The revision makes clear that actual and timely notice will substitute for publication. payer can be adversely affected after July 3, 1967, by any unknown matter which should have been published in the Federal Register at any time in the past and which has not been so published. 10 2. Reading Room matters relates to material which is to be made available for inspection and copying in an agency reading room. It includes opinions and orders made in the adjudication of cases, "statements of policy and interpretations adopted by the agency but not published in the Federal Register, and administrative staff manuals and instructions to staff that affect any member of the public." It is this requirement which accounts for the new availability of the expurgated Internal Revenue Manual and the new IRS reading rooms. There is provision for the agency to delete "identifying details," fully explaining the justification for the deletion in writing."2 Deletion is required "to the extent necessary to prevent a clearly unwarranted invasion of personal privacy." The agency is also to maintain for public inspection and copying a current index providing identifying information as to any matter which is issued, adopted or promulgated after July 4, 1967, and which is required to be placed in the reading room or published under this subsection. The sanction is that no material of this type that affects any member of the public may be "relied upon, used or cited as precedent by any agency against any private party" unless it has been indexed and either made available or published as provided above or unless that private party has actual and timely notice of its terms. 13 3. Other records available upon request is a catchall for all identifiable records not made available under (1) and (2); it is largely new. It replaces a provision that matters of "official record" shall be available to persons properly and directly concerned, except as to information held confidential for good cause. Now, agency records are to be available upon request to any person regardless of whether or not he has any proper or direct concern. Thus, newspaper reporters, technical publishers, lawyers and accountants, as well as other curious members of the public, can request records and see them. The House Report makes clear, however, that the cost of searching for and making available such records shall be borne by the applicant for the record. If the agency refuses to produce the record upon request, a judicial action is provided wherein the burden is upon the agency to sustain its refusal.1 The various agency regulations provide for an administrative review within the agency prior to the judicial action. As the IRS provision (Reg. 601.702(c) (10)) requires a 30-day waiting period for review within the agency, this will tend to slow down contested requests and make it more difficult to obtain information. No specific provision for such administrative review is found in the Act but an implication thereof may be found in the statement that the court is to determine the matter de novo. If the court decides that the applicant is entitled to production of the record, it has jurisdiction to enjoin the agency from withholding and to order the production of any agency records improperly withheld. In the event of noncompliance with its order, the court may punish the responsible employee for contempt. The House Report indicates that it is assumed that the agencies will ordinarily comply without judicial action and certainly without the necessity of a contempt citation. This seems a reasonable assumption, at least after initial litigation establishes some of the ground rules to the satisfaction of the agency. The court proceedings to compel production of records under the Act, are to "take precedence on the docket over all other causes and be assigned for hearing and trial at the earliest practicable date and expedited in every way." Under this provision any identifiable record is available upon request unless it is covered by one of the exemptions. The term "record" is interpreted very broadly by the Attorney General under the new legislation.15 It includes virtually every piece of paper and anything else that one might be interested in seeing. Furthermore, although the Act requires that the request must be for "identifiable" records, it is the author's opinion that the identification requirement will not be used as a method for withholding.16 10 IRS Manual Supplement No. 1 (19) G 32; Reg. 601.702(b) (1); 115 U.S.C. Section 552 (a) (2). An agency is permitted to promptly publish and offer copies of such material for sale instead of placing it in the reading room. Normally the agency would place such material in the reading room too. 12 The deletion of identifying details does not apply to "orders" made in the adjudication of cases. 135 U.S.C. Section 552 (a) (3). 145 U.S.C. Section 552 (a) (3). 15 Attorney General's Memo on the public information section of the A.P.A., 1967, p. 23. 10 Reg. 601.702 (c) (4). EXEMPTIONS UNDER THE ACT The nine exemptions from disclosure fall generally into two major categories. In the first category are certain internal communications within a Government agency or between agencies. In the second category are matters which are obtained by an agency in confidence from any person. The internal communication exemptions pertain to matters "related solely to the internal personnel rules and practices of an agency," "inter-agency or intra-agency memorandums or letters," and "investigatory files compiled for law enforcement purposes."" Reflecting the influence of IRS and other agency representatives, the House Report broadens "personnel rules" to include "operating rules, guidelines, and manuals of procedure for Government investigators or examiners." Thus, audit instructions have been deleted from the Internal Revenue Manual in the IRS reading room, and they would not be disclosed in response to a request. While the House Report strains the statutory language, the result of this interpretation seems defensible since such "matters which are for the guidance of agency personnel only . . . cannot be disclosed to the public without substantial prejudice to the effective performance of a significant agency function." 18 The exemption for internal memorandum reflects the need to encourage frank exchange of opinions within Government agencies and to prevent premature disclosure of information while a Government process, such as issuing a regulation, is still going on." The confidential information exemptions in the tax area pertain to those “specifically exempted from disclosure by statute," "trade secrets and commercial or financial information obtained from a person and privileged or confidential," and "personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy." 20 In the tax field, the statutory provisions which treat tax return information as largely confidential and exempt from disclosure by IRS thus are not affected by the new law. Similarly, information derived on audits or in connection with requests for advance rulings would appear to be exempt as "financial information obtained from a person and... confidential." 2 21 An interpretative problem is whether an agency can withhold the entire record because some matters in it are covered by exemptions. The alternative would be. if possible, to furnish the record after deleting and perhaps re-writing but disguising the non-disclosable portion of the material. Neither the language of the Act, nor any official interpretations have explicitly dealt with this question. It would seem that the agency should ordinarily furnish the record, deleting the exempt matters, with an appropriate charge for the employee time required. The Act, as codified, begins by specifically providing that "each agency shall make available to the public information as follows. . ." The IRS regulations suggest the possibility of disclosure of non-exempt information from a document containing exempt matter without conceding the applicants' right to the material requested. Under Reg. 601.701(b)(3), the IRS "may, if not precluded by law. elect under the circumstances of that case not to apply the exemption to such matter." The use of this discretion, it is noted, "has no precedential significance as to the application of the exemption to such matter in other case. . . ." Nevertheless, some Government personnel would argue that the statute is merely one for 17 5 U.S.C. Section 552 (b) (2), (5), (7). The latter two exemptions are qualified respectively in that matters can be withheld, in general, if they "would not be available by law to a party other than an agency in litigation with the agency" or "to the extent [not] available by law to a party other than an agency." An additional exemption applies to matters that are specifically required by executive order to be kept secret in the interest of the national defense or foreign policy. 18 Attorney General's Memo, on the public information section of the A.P.A., 1967, p. 30. 19 A similar privilege has been upheld in several cases. See, e.g., Carl Zeiss Stiftung v. V.E.B. Carl Zeiss, Jena, 40 F.R.D. 318 (DC D.C., 1966). 20 5 U.S.C. Section 552 (b) (3), (4), (6). Additional confidential information exemptions include matters "contained in or related to examination, operating or condition reports prepared by, on behalf of or for the use of an agency responsible for the regulation or supervision of financial institutions" and "geological and geophysical information and data. including maps, concerning wells" (552(b) (8), (9)). 21 Included in the statutory provisions which exempt certain information are Section 6103 relating to publicity of returns and disclosure of information as to persons filing income tax returns and Section 7213 relating to unauthorized disclosure of information, as well as 18 U.S.C. Section 1905, relating to disclosure of confidential information generally. It is to be noted that the trade secrets and financial information exemption has been broadened by the House Report to cover "any information given to an agency in confidence, since a citizen must be able to confide in his Government." House Report 1497 (Gov't. Operations Committee May 9, 1966, p. 10. the discovery of a document and that if the document is one that contains confidential information, it cannot be compelled to be disclosed. Future court litigation, it appears certain, will test the validity of their argument unless liberal discovery is granted in practice on a case by case basis. TYPES OF RECORDS AVAILABLE The pattern of what will be available under the Act begins to emerge. Federal Register publication items should be generally unaffected. Newly available reading room material will include only the Internal Revenue Manual, with major deletions, some alcohol and tobacoo tax material, and a small looseleaf notebook containing "Policy Statements of the IRS." 22 Some new materials will be available upon request and payment of search and/or copying charges; so far these definitely will include only comments subsequent to August 2, 1967 on proposed regulations (unless the commenter wants confidentiality) and other items on a case-by-case basis. Items that will not be available at all include identified tax return information and other such material obtained from persons under statutory or other rules or understandings as to confidentiality, internal "work product" material such as comments or opinions from one subordinate employee to his immediate supervisor, and internal management material the secrecy of which is essential to its effectiveness, such as audit tolerances including rules for selection of returns for audit, and audit file material except to the extent already available. Other miscellaneous types of information of interest which may possibly eventually be available upon request include comments and explanations of law in letters to members of the public, statistical series, nonconfidential personnel information as to particular Government employees, such as salaries, IRS training publications, lists of names and telephone numbers of IRS employees responsible for particular issues or duties, and abstracts of pending issues and cases now recorded for IRS personnel in the RIRA system. PROBLEM AREAS The problem areas under the Act may be considered in two categories, paralleling the two general types of exemptions and following the approach that information is either from inside or outside "agencies." The first problem area involves agency material contained in documents which also contain confidential information obtained from outside. Prime examples are private letter rulings addressed to taxpayers and related documents, and some correspondence with outsiders. Congressmen and Congressional Committees, members of the judiciary and non-Federal Government officials are outsiders for this purpose." 23 The second area involves memorandums and correspondence internal to agencies as a group. Problems arise if these contain statements of agency policy or instructions to staff affecting the public of a type which should be published or placed in the reading room. Problems also arise if the internal memorandums contain other internally generated material, not meriting publication or reading room availability, but also as to which there is no need for secrecy to protect internal frankness or prevent premature disclosure of agency programs. Prime examples in this area are memorandums stating guidelines for use of rulings personnel in determining whether to rule on specific issues and if so whether to rule favorably, and technical memorandums which accompany drafts of proposed regulations or opinions of the Chief Counsel which have been distributed and filed in the national office for future reference. LETTER RULINGS The regulations," with specific Committee Report sanction, state that the reading room requirements apply "only to matters which have precedential significance," and do not apply "to any ruling or advisory interpretation which is issued to a taxpayer on a particular transaction or set of facts and applied only to that set of facts." This indicates that unpublished rulings will not be placed in the reading room. It can be argued that any unpublished rulings which are retained as internal references for use by Service personnel in disposing of similar 22 This deals with such matters as general personnel and promotion policies and appears largely to overlap material in the Internal Revenue Manual and various published statements. 23 Administrative Procedure Act, Section 2(b). 24 Reg. 601.702 (b) (1). |