Practitioners should consider submission of a Freedom of Information Act (FOIA)[i] request to the IRS following the unagreed resolution of every tax examination. Although not always a wealth of information, the government response to a FOIA request will provide insight into why the examining agent made certain adjustments and asserted penalties. It will also help tailor your discussions before an IRS Appeals Officer at the next administrative level and provide insight into what the Appeals Officer will be looking at before meeting with the practitioner. Often, the FOIA response will include the agents notes and thoughts which may prove invaluable in later explaining why the matter was not resolved (or capable of resolution) during the initial examination.
The FOIA requires that federal agency records be made available to the public unless specifically required or permitted to be withheld. If information is not prohibited from disclosure, an IRS Disclosure Officer must consider whether, as an exercise of administrative discretion, the information should be released or withheld. Any IRS discretionary decision to release information protected under the FOIA should be made only after considering the institutional (i.e., public accountability, safeguarding national security, law enforcement effectiveness, and candid and complete deliberations), commercial, and personal privacy interests that could be implicated by disclosure of the information.
The form in which IRS maintains a record does not affect its availability. A request may seek a printed or typed document, tape recording, map, photograph, computer printout, computer tape or disk, or a similar item. The IRS must provide the requested information in any format requested if it is readily reproducible by the IRS in that format and must make reasonable efforts to maintain its information in formats that are reproducible for such purposes. Generally, there is no charge for the first 100 pages and $ 0.20 per page thereafter.
The IRS is only required to look for an existing record or document in response to a FOIA request. FOIA does not require the IRS to collect information it does not have, or to research or analyze data for a requester. The IRS is not obliged to create a new record to comply with a FOIA request. However, when records are maintained in a computer, the IRS may be required to retrieve information in response to a FOIA request. The process of retrieving the information may result in the creation of a new document when the data is printed out on paper or written on computer tape or disk.
Form of FOIA request. There is no required form FOIA request. It can be an informal letter requesting each and every document contained in the administrative files of the government relating to the tax liabilities of the taxpayer for the tax years at issue. IRS FOIA requests should be submitted to the IRS Disclosure Office based on the location of the taxpayer. IRS Disclosure Offices are listed at www.irs.gov (Search FOIA). The request should identify the documents as specifically as possible. A general form of FOIA request, addressed to the appropriate IRS Disclosure Office, should be tailored to the specific client situation involved and state substantially as follows:
We represent [Client] and have attached an Internal Revenue Service Power of Attorney (Form 2848) confirming the foregoing. This letter is intended to formally request, under the Freedom of Information Act, 5 U.S.C. § 552, and the regulations promulgated thereunder, each and every document (exclusive of the filed tax income tax returns) contained in the administrative files of the Internal Revenue Service relating to the individual income tax liabilities of [Client)] (TIN 123456789) for taxable years (state the tax years).
This request does not include copies of the foregoing tax returns, nor does it include copies of correspondence generated by our office. Subject to the foregoing, the requested information includes, but is not limited to:
1. The Examination Division Administrative File for the audit. This information should include any worksheets, workpapers, notes, emails, documents, memoranda, computations and other materials prepared or accumulated relative to this examination by employees of the IRS, any other governmental agency, or otherwise, including internal documents, memoranda, memoranda of all interviews of persons regarding the individual income tax liabilities of the taxpayer, copies of all statements (sworn or otherwise) given by individuals in connection with the investigation of the individual income tax liabilities of the taxpayer, Case Activity record, written reports and recommendations concerning the proposed assessment of additional tax and penalties and any other information that is related to the determinations by the IRS as set forth in the Revenue Agents Report (30 Day Letter).
2. A list of any information and documents maintained electronically identifying each document by subject matter and format (i.e., tape, disk, etc.).
3. Any and all files relative to this audit that include information and documents obtained pursuant to summonses issued to third parties which are not otherwise included in the Administrative File.
4. Any and all files relative to this audit that may have been prepared by independent consultants, international examiners, economists, engineers, and any other specialists assigned to this case which are not otherwise included in the Administrative File.
5. We have determined that the information requested is not exempt under disclosure laws, is not a classified document, is not a protected internal communication, is not protected by “privacy”, and is not a “protected investigative record” within the meaning of the Freedom of Information Act. If any material is deemed to be exempt, we hereby request a detailed statement of the portion deleted or withheld, a full statement of the reasons for the refusal or access, and specific citations or statutory authority for the denial. Specifically, if the Disclosure Section determines an exemption applies to some or all of the requested information, we request that a Privilege Log be provided in the form of a Vaughn Index. In Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973), cert. denied, 415 U.S. 977 (1974), the court rejected an agency’s conclusory affidavit stating that requested FOIA documents were subject to exemption. Id. at 828. “A Vaughn Index must: (1) identify each document withheld; (2) state the statutory exemption claimed; and (3) explain how disclosure would damage the interests protected by the claimed exemption.” Citizens Comm’n on Human Rights v. FDA, 45 F.3d 1325, 1326 n.1 (9th Cir. 1995). A Vaughn Index ” ‘permit[s] the court system effectively and efficiently to evaluate the factual nature of disputed information.’ “ John Doe Agency v. John Doe Corp., 493 U.S. 146, 149 n.2 (1989) (quoting Vaughn, 484 F.2d at 826). With a Vaughn Index we will have the means to adequately assess if any claimed exemptions have merit thereby avoiding potentially costly litigation to seek such item.
Since the requested information relates directly to [Client], we have determined that the information requested is not exempt under disclosure laws, is not a classified document, is not a protected internal communication, is not protected by “privacy,” and is not a “protected investigative record” within the meaning of the Freedom of Information Act.
We believe that your office has custody of the requested information, but if not, we hereby request prompt notice of the current location of such information. To expedite this request, we are willing to discuss specific instances of deletion or other exemption claims in advance of a final decision. If any material is deemed to be exempt, we hereby request a detailed statement of the portion deleted or withheld, a full statement of the reasons for the refusal of access, and specific citations or statutory authority for the denial.
This letter shall confirm that [Client] hereby agrees to pay for all reasonable search and copying costs that may be associated with this request. However, we would appreciate the opportunity to inspect these records before any documents are copied If search and copying costs exceed $200, please telephone us in advance for an agreement as to such additional costs.
The FOIA Response. Under the FOIA, the IRS is required to determine within 20 days (excluding Saturdays, Sundays, and legal public holidays) after the date of receipt of a request whether to comply with the request.[ii] IRS can extend the 20 day period by an additional 10 days in unusual circumstances.[iii] These circumstances generally include the need to collect information from field locations, review large numbers of documents, and consultations with other agencies. [iv] If a request is denied in whole or in part, the IRS must state the reasons for the denial that there is a right to appeal any adverse determination to the Commissioner of the IRS or his designee.[v]
A delay resulting from a predictable IRS workload is not an unusual circumstance. IRS may seek to limit the scope of the request or arrange an alternative time frame for processing the request. If the request is denied to any extent, the IRS is required to state the reasons for the denial. If IRS fails to comply with the request within the applicable time limitations, any person making a request is deemed to have exhausted their administrative remedies with respect to the request and they may proceed to the filing of an action in Federal District Court. In practice, the IRS typically requests an additional 30 days within which to provide the requested information. It is often appropriate to grant this request since the IRS usually provides the requested information within the additional time period and any appeal would likely exceed the additional time in any event.
FOIA Exemptions. The IRS may withhold an IRS document that is specifically exempted or excluded by statute. The exemptions protect against the disclosure of information that would harm national security, the privacy of individuals, the proprietary interests of a business, the functioning of the government, and other important recognized interests.
When a document contains some information that qualifies as exempt, the entire document is not necessarily exempt. Instead, the FOIA specifically requires that any reasonably segregable portions of a document must be provided after the deletion of the portions that are exempt. The IRS must identify the location of deletions in the released portion of the document and, where technologically feasible, show the deletion at the place on the document where the deletion was made, unless including that indication would harm an interest protected by an exemption.
Exemption 1 – Classified Documents Pertaining to National Defense and Foreign Policy.[vi] This exemption permits the withholding of matters specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy and which are in fact properly classified under such executive order. IRS does not generally deal with these types of matters, thus this exemption is rarely used.
Exemption 2 – Internal Personnel Rules and Practices.[vii] This exemption covers matters that are related to IRS’s internal personnel rules and practices. There are two separate classes of documents that are generally held to fall within this exemption: (a) The information relating to personnel rules or internal IRS practices may be exempt if it is a trivial administrative matter of no genuine public interest; and (b) More substantial internal IRS matters, the disclosure of which would risk circumvention of a legal requirement.
Exemption 3 – Information Exempt Under Other Laws.[viii] This exemption incorporates into the FOIA other laws that restrict the availability of information. To qualify, a statute must require that matters be withheld from the public in such a manner as to leave no discretion on the issue or if the statute establishes particular criteria for withholding or refers to particular types of matters to be withheld. One example of a qualifying statute is Section 6103 of the Internal Revenue Code (IRC) which governs the disclosure of tax returns and return information. By law, tax records may not be disclosed to any individual unless specifically authorized by IRC Section 6103.
Exemption 4 – Trade Secrets and Confidential Commercial or Financial Information[ix]. This exemption protects from public disclosure both trade secrets and confidential commercial or financial information. A trade secret has been narrowly defined by the courts under the FOIA as a commercially valuable plan, formula, process, or device that is used for making, preparing, compounding or processing trade commodities and that can be said to be the end product of either innovation or substantial effort. The second type of protected data is privileged or confidential commercial or financial information obtained from a person.
Exemption 5 – InterAgency or IntraAgency Memorandums or Letters.[x] This exemption applies to interagency or intraagency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency. An example may be a letter from one IRS office to another about a decision that has not yet been adopted. One purpose of this is to safeguard the deliberative policymaking process of government (the “deliberative process privilege”) which encourages open discussion of policy matters between IRS officials by allowing certain predecisional, deliberative documents to be withheld from public disclosure. It also protects against premature disclosure of deliberations before final adoption of an agency policy or position.
This exemption protects the policymaking process, but it does not generally protect purely factual information related to the policy process that is protected under the deliberative process privilege. The deliberative process privilege distinguishes between documents that are predecisional and postdecisional. Once a policy is adopted, the public has a greater interest in knowing the basis for the decision. Therefore, the deliberative process privilege does not ordinarily apply to postdecisional documents. This exemption also incorporates other privileges that apply in litigation involving the government, including the attorney-client and work-product privileges. For example, certain documents prepared by IRS lawyers may be withheld in the same way that documents prepared by private lawyers for clients are not available through discovery in civil litigation.
Exemption 6 – Personal Privacy.[xi] This exemption covers personnel, medical, and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. It protects the privacy interests of individuals by allowing IRS to withhold personal data kept in its files where there is an expectation of privacy. Only individuals have privacy interests. Corporations and business associations have no privacy rights under this exemption, with the exception of closely held corporations or similar business entities.
Exemption 7 – Law Enforcement.[xii] This exemption allows agencies to withhold records or information compiled for law enforcement purposes, but only to the extent that disclosure could reasonably be expected to interfere with ongoing enforcement proceedings, would deprive a person of a right to a fair trial or an impartial adjudication, could reasonably be expected to constitute an unwarranted invasion of personal privacy, the information may be exempt from disclosure, could reasonably be expected to reveal the identity of a confidential source (including a State, local, or foreign agency or authority, or a private institution that furnished information on a confidential basis), would reveal techniques and procedures for law enforcement investigations or prosecutions or that would disclose guidelines for law enforcement investigations or prosecutions if disclosure of the information could reasonably be expected to risk circumvention of the law, or could reasonably be expected to endanger the life or physical safety of any individual.
Exemption 8 – Financial Institutions.[xiii] This exemption protects information that is 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 (such as FDIC, the Federal Reserve, or similar agencies).
Exemption 9 – Geological Information. The ninth FOIA exemption covers geological and geophysical information, data, and maps, concerning wells.[xiv]
FOIA Exclusions. The FOIA also contains special protection provisions that expressly authorize federal law enforcement agencies to treat especially sensitive records under certain specified circumstances as not subject to the FOIA. IRS may not be required to even confirm the existence of these types of records. If requested, IRS may respond that there are no records responsive to the request. However, these exclusions do not broaden the authority of the IRS to withhold documents from the public. The exclusions are only applicable to information that is otherwise exempt from disclosure.
Exclusion 1 – This exclusion may be used when a request seeks information described in subsection (b)(7)(A) of the FOIA if the investigation in question must involve a possible violation of criminal law, there is reason to believe that the subject of the investigation is not already aware that the investigation is underway and disclosure of the existence of the records could reasonably be expected to interfere with enforcement proceedings. When each of these conditions exist, the IRS may respond to a FOIA request for investigatory records as if the records are not subject to the requirements of the FOIA. The IRS response does not have to reveal that it is conducting an investigation.
Exclusion 2 – This exclusion applies to informant records maintained by IRS criminal law enforcement filed under the informant’s name or personal identifier. IRS is not required to confirm the existence of these records unless the informant’s status has been officially confirmed. This exclusion is intended to protect the identity of confidential informants.
Exclusion 3 – This exclusion is limited to to records maintained by the Federal Bureau of Investigation pertaining to foreign intelligence, counterintelligence, or international terrorism. When the existence of these types of records is classified, the FBI may treat the records as not subject to the requirements of FOIA.
FOIA Administrative Appeal Procedures. Whenever a FOIA request is denied, the IRS must clearly state the reasons for the denial and state the right to appeal the denial. An appeal may be based upon the withholding of a document, denial of a fee waiver request, the type or amount of fees charged, failure by the IRS to conduct an adequate search for the requested documents or any other type of adverse FOIA determination.[xv] However, an appeal may not be filed for the lack of a timely response. If a request is granted in part and denied in part, the appeal would solely relate to the part that was denied. If IRS has agreed to disclose some but not all requested documents, the filing of an appeal does not affect the release of the documents that are otherwise disclosable. A FOIA appeal is an administrative appeal. The procedural requirements for filing an appeal are found at. There is no charge for filing an administrative appeal.
The appeal should include reasons why the IRS response to the FOIA was inadequate and must be postmarked within 35 days after the date of the letter of denial or the date of other adverse determinations.[xvi] An administrative appeal for denial of a request for expedited processing must be made by letter postmarked within 10 days after the date of the response letter denying expedited processing.[xvii] An appeal is filed by sending a letter to IRS Appeals, Attn: FOIA Appeals, 5045 E. Butler Avenue, M/Stop 55201, Fresno, California 93727-5136. The appeal should include copies of the FOIA request and the initial IRS decision responding to the request. The envelope containing the appeal should be marked in the lower lefthand corner with the words “Freedom of Information Act Appeal.” When a FOIA request is filed, the IRS assigns it a number which should be set forth in the appeal.
IRS is required to make a decision on an appeal within 20 days (excluding Saturdays, Sundays, and legal holidays) after the date of receipt of the appeal unless extended.[xviii] It is possible for the IRS to extend the time limits by an additional 10 days under unusual circumstances.[xix] If the IRS fails to comply with the time limitations, the FOIA requester shall be deemed to have exhausted administrative remedies and may proceed with a judicial appeal in a Federal District Court.[xx]
Judicial Action. If an administrative appeal is denied, a complaint against the IRS may be filed to a federal district court seeking disclosure of the requested information.[xxi] The complaint must be served upon the Commissioner of Internal Revenue, Attention: CC:PA, 1111 Constitution Avenue, NW., Washington, DC 20224. Attorneys fees and litigation costs reasonably incurred may be awarded if the requestor substantially prevails in litigation.
Summary. The FOIA request represents an important component of every practitioners procedural toolbox when pursuing the administrative appeal following an examination. The information received will almost always justify the limited effort required to submit a FOIA request. Sometimes it might be a key document or some comment within the agents narrative statement. At other times, it might simply represent affirmation of the lack of adverse information within the government administrative file. If not requested, the information will not be forthcoming. If requested…the responsive information may be the key to a favorable resolution!
[i]. 5 U.S.C. § 552
[ii]. 5 U.S.C. § 552 (a)(6)(A)(i).
[iii]. 5 U.S.C. § 552 (a)(6)(B)(i)-(iii) and Treasury Regulation 601.702 (c)(11)(i)(A)(1)-(4)
[iv]. 5 U.S.C. § 552 (a)(6)(B)(i).
[v]. 5 U.S.C. § 552 (a)(6)(A)(i)
[vi]. 5 U.S.C. § 552 (a)(7)(B)(1).
[vii]. 5 U.S.C. § 552 (a)(7)(B)(2).
[viii]. 5 U.S.C. § 552 (a)(7)(B)(3).
[ix]. 5 U.S.C. § 552 (a)(7)(B)(4).
[x]. 5 U.S.C. § 552 (a)(7)(B)(5).
[xi]. 5 U.S.C. § 552 (a)(7)(B)(6).
[xii]. 5 U.S.C. § 552 (a)(7)(B)(7).
[xiii]. 5 U.S.C. § 552 (a)(7)(B)(8).
[xiv]. 5 U.S.C. § 552 (a)(7)(B)(9).
[xv]. Treasury Regulation 601.702 (c)(10)
[xvi]. Treasury Regulation 601.702 (c)(10)
[xvii]. Treasury Regulation 601.702 (c)(10)
[xviii]. Treasury Regulation 601.702(c)(10)(iii).
[xix]. Treasury Regulation 601.702( c)(11)(i)
[xx]. Treasury Regulation 601.702( c)(12)
[xxi]. 5 U.S.C. 552(a)(4)(B); Treasury Regulation 601.702(c)(13)