Retained Risk Managers Llc v. Internal Revenue Service

MOTION for Summary Judgment

D. Ariz.August 26, 2016

1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Kieran O. Carter P.O. Box 227 Washington, DC 20044 Virginia Bar No. 81953 Facsimile: (202) 514-6866 Email: Kieran.O.Carter@usdoj.gov Phone: (202) 616-1920 Attorney for Defendant Internal Revenue Service IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Retained Risk Managers LLC, ) ) Plaintiff, ) ) v. ) ) Internal Revenue Service, ) ) Defendant. ) _________________________________ ) Case No. CV-16-0005-PHX-SMM INTERNAL REVENUE SERVICE’S MOTION FOR SUMMARY JUDGMENT The Defendant Internal Revenue Service (the “Service” or “IRS”), respectfully moves this Court for summary judgment in this case. As grounds for this motion, defendant states that the material facts are not in dispute and that it is entitled to judgment as a matter of law. The Service has (1) performed an adequate search for documents responsive to plaintiff’s two FOIA requests; and (2) with respect to the withheld documents, it has withheld only those documents, or portions thereof, Case 2:16-cv-00005-SMM Document 16 Filed 08/26/16 Page 1 of 3 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 authorized to be withheld by 5 U.S.C. § 552(b). Accordingly, the Court should grant judgment in favor of the Service.1 Attached to this motion are the Internal Revenue Service’s Memorandum in Support, the Declarations of Shante Brown, Ocie Baker, and Kieran O. Carter, a Statement of Uncontested Material Facts, Exhibits A through G, and a proposed Order. DATED this 26th day of August, 2016. /s/ Kieran O. Carter Kieran O. Carter Attorney for Defendant Internal Revenue Service U.S. Department of Justice, Tax Division P.O. Box 227 Washington, D.C. 20044 Telephone: (202) 616-1920 Facsimile: (202) 514-6866 Email: Kieran.O.Carter@usdoj.gov 1 The issue of attorneys’ fees is premature as plaintiff has not moved for attorneys’ fees at this time. Case 2:16-cv-00005-SMM Document 16 Filed 08/26/16 Page 2 of 3 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 CERTIFICATE OF SERVICE I certify that on August 26, 2016, I sent a copy of this Motion for Summary Judgment, Memorandum in Support of the Internal Revenue Service’s Motion for Summary Judgment, Statement of Uncontested Material Facts, Declaration of Shante Brown, Declaration of Ocie Baker, Declaration of Kieran O. Carter, Exhibits A through G, and proposed Order via CM/ECF and first class mail, postage prepaid, to the following individuals: Attorney for Plaintiff: Derek W. Kaczmarek FRAZIER, RYAN, GOLDBERG & ARNOLD, LLP 3101 North Central Avenue, Suite 1600 Phoenix, AZ 85012-2010 /s/ Kieran O. Carter Kieran O. Carter Attorney for Defendant Internal Revenue Service Case 2:16-cv-00005-SMM Document 16 Filed 08/26/16 Page 3 of 3 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Kieran O. Carter P.O. Box 227 Washington, DC 20044 Virginia Bar No. 81953 Facsimile: (202) 514-6866 Email: Kieran.O.Carter@usdoj.gov Phone: (202) 616-1920 Attorney for Defendant Internal Revenue Service IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Retained Risk Managers LLC, ) ) Plaintiff, ) ) v. ) ) Internal Revenue Service, ) ) Defendant. ) _________________________________ ) Case No. CV-16-0005-PHX-SMM INTERNAL REVENUE SERVICE’S MEMORANDUM IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT Defendant Internal Revenue Service (the “Service” or “IRS”) moves for summary judgment in this Freedom of Information Act (FOIA) case. None of the material facts are in dispute. The matter is ripe for summary judgment. SUMMARY OF ARGUMENT The Court should grant the defendant’s request for summary judgment in this case because the undisputed material facts show that the Service has (1) performed adequate searches for records responsive to plaintiff’s First and Second FOIA requests; and (2) properly withheld only those records that are exempt from disclosure under 5 U.S.C. § 552(b). Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 1 of 17 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 A representative for the plaintiff filed two substantially similar FOIA requests. The First FOIA Request asked for all records relating to an investigation of the plaintiff regarding abusive tax shelters. See Ex. A. The Second FOIA Request asked for the same records as the First FOIA Request, but added information clarifying where responsive records might be located. See Ex. D. For each request, the Service executed a search reasonably calculated to uncover records responsive to the four corners of the request. The Service searched all logical locations for records. In response to plaintiff’s First Request, the Service extensively searched the Integrated Data Retrieval System (IDRS) for responsive records or leads to where responsive records could be located. Only when the IDRS search and other resources provided no leads to where responsive material could be located, did the Service finally report that no records were found. After the plaintiff clarified to the Service where records responsive to plaintiff’s requests might be found, the Service’s Disclosure Office contacted Revenue Agent David Day, who provided it with the entire examination file. Through Disclosure Specialist Baker, the Service searched for additional leads where responsive records might be located based on the contents of the examination file. The Service however, did not find any additional sources of responsive records. Second, the Service properly withheld records, or portions thereof, pursuant to one or more of the following FOIA exemptions: (a) 5 U.S.C. § 552(b)(3) (“FOIA Exemption 3“), in conjunction with 26 U.S.C. § 6103(a); (b) 5 U.S.C. § 552(b)(5) (“FOIA Exemption 5”), in conjunction with the deliberative process privilege; (c) 5 U.S.C. §§ 552(b)(6) and (b)(7)(C) (“FOIA Exemptions 6 and 7(C)”); and (d) 5 U.S.C. § Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 2 of 17 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 552(b)(7)(A) (“FOIA Exemption 7(A)”). DS Baker found 177 pages of records that were responsive to the Second FOIA Request. Of those pages, 61 were disclosed in full; 3 pages were withheld in part; and 113 pages were withheld in full. Based on the undisputed material facts, the Service submits that the plaintiff’s FOIA claims should be dismissed, as the Service has complied with the requirements of the FOIA. ARGUMENT I. SUMMARY JUDGMENT STANDARD Summary judgment is appropriate if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Matsushita Electronics Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Most FOIA cases are resolved via summary judgment. Yonemoto v. VA, 686 F.3d 681, 688 (9th Cir. 2012). Summary judgment in FOIA cases may be granted solely on the basis of agency affidavits if they are “reasonably detailed” and are “submitted in good faith.” Muir v. United States, Case No. CIV 95-1791, 1999 U.S. Dist. LEXIS 4269, at *3 (D. Ariz. March 9, 1999) (citing Zemansky v. EPA, 767 F.2d 569, 571 (9th Cir. 1985)). Here, the facts pertinent to plaintiff’s FOIA claims are not in dispute and the issues in this case can be decided as a matter of law. The Service performed an adequate search for records responsive to the plaintiff’s FOIA requests, disclosed to plaintiff those records that were not exempt from disclosure under FOIA, and properly Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 3 of 17 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 withheld records or portions of records pursuant to FOIA Exemptions 3 (in conjunction with 26 U.S.C. § 6103(a)), 5, 6, 7(A) and 7(C). II. THE IRS CONDUCTED A REASONABLE SEARCH FOR RECORDS In order for a FOIA search to pass muster, the agency must establish that it executed a search “reasonably calculated to uncover all relevant records.” Steinberg v. DOJ, 23 F.3d 548, 551 (D.C. Cir. 1994) (quoting Weisberg v. DOJ, 745 F.2d 1476, 1485 (D.C. Cir. 1984) (“Weisberg II”)). The focus is on the reasonableness of the search, not the result. Steinberg, 23 F.3d at 551. A search is not inadequate simply because it does not locate every document a requester seeks. Lahr v. NTSB, 569 F.3d 964, 987 (9th Cir. 2009) (citing Zemansky, 767 F.2d at 571). The agency can sustain its burden of establishing a reasonable search by means of reasonably detailed, non-conclusory affidavits or declarations submitted in good faith. Becker v. IRS, 34 F.3d 398, 406 (7th Cir. 1994); Zemansky, 767 F.2d at 571. Such affidavits are accorded “a presumption of good faith, which cannot be rebutted by purely speculative claims about the existence and discoverability of other records.” Muir, 1999 U.S. Dist. LEXIS 4269, at *3 (citing Safecard Servs., Inc. v. SEC, 926 F.2d 1197, 1200 (D.C. Cir. 1991)). Here, the Service has produced the detailed, non-conclusory declarations of Disclosure Specialists Shante Brown and Ocie Baker, describing their reasonable, good- faith searches for responsive records. First, DS Brown describes how she began her search for responsive records by searching in the Service’s Integrated Data Retrieval System (“IDRS”) for clues where responsive records might be located. (SOF ¶ 3). The Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 4 of 17 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 IDRS is the customary and most reasonable place to search.1 She inputted multiple command codes in search of indications that the Service was investigating the Plaintiff. (SOF ¶¶ 3-7). When the IDRS searches failed to provide any responsive documents or leads to where responsive documents were located, she reached out to her more senior colleagues to see if they had any ideas on where to search. (SOF ¶ 8). Senior Disclosure Specialist Beamon provided her with the information for a similar FOIA request relating to the same type of underlying subject, which was an investigation under 26 U.S.C §§ 6700/6701. (SOF ¶ 8). Using this information, DS Brown compared the results in the similar FOIA request to her results in this case. (SOF ¶ 8). She found that SDS Beamon’s IDRS searches showed freeze codes and other transactions codes that demonstrated an active investigation, while her IDRS searches showed no such result. (SOF ¶ 8). Thus, she reasonably concluded that it was unlikely that an investigation in her case was underway. (SOF ¶ 8). Despite this result, DS Brown searched the Records Retrieval Resource, which is an online resource for disclosure specialists that provides guidance on where to look for responsive records in particular types of cases. (SOF ¶ 9). The Records Retrieval Resource did not suggest any additional sources for her to search. (SOF ¶ 9). 1 Numerous courts have found that an IDRS search is adequate under the FOIA. See, e.g., Hysell v. IRS, 36 F. Supp. 3d 58, 64 (D.D.C. 2014); Stone v. IRS, No. 3:11-CV- 2263, 2012 U.S. Dist. LEXIS 186202 (N.D. Tex. July 16, 2012); Surgick v. Cirella, No. 09-3807, 2012 U.S. Dist. LEXIS 43426 (D.N.J. Mar. 29, 2012); Adamowicz v. IRS, 552 F. Supp. 2d 355, 361-62 (S.D.N.Y. 2008); Stuler v. IRS, No. 05-1717, 2006 U.S. Dist. LEXIS 15472 (W.D. Pa. Mar. 31, 2006). Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 5 of 17 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 DS Brown’s search was more than adequate. Based on the information that plaintiff provided in the First FOIA Request, DS Brown only had limited information regarding any possible investigation of the plaintiff. When the customary searches in IDRS failed to provide any leads, DS Brown took the extra steps of contacting her senior colleagues for their advice on where to search. (SOF ¶ 9). When these actions also failed to produce any leads, DS Brown did not stop searching, but instead continued her search by manually looking through an online resource for possible sources. After completing this search, DS Brown appropriately concluded that no investigation of the plaintiff was taking place, and thus, no records responsive to the First FOIA Request could be found. (SOF ¶ 10). Similarly, DS Baker’s search in response to the Second FOIA Request was adequate under the circumstances. DS Baker was able to track down RA Day because the plaintiff gave the Service RA Day’s name in an attachment to the Second FOIA Request; the plaintiff did not provide this information in its First FOIA Request. (SOF ¶ 14). RA Day provided her with his entire examination file, and told her that he believed that the file constituted all of the responsive records that he possessed. (SOF ¶ 15). Further, RA Day stated that he was unaware of any other responsive records or locations where responsive records might be found. (Id.) As RA Day was the only individual investigating the plaintiff, it was reasonable for DS Baker to conclude her search and determine that she had located all documents responsive to the Second FOIA Request once she had reviewed RA Day’s investigation file, spoken with RA Day, and found no other leads. (SOF ¶ 16). Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 6 of 17 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 III. THE WITHHELD RESPONSIVE RECORDS ARE EXEMPT FROM DISCLOSURE A. FOIA EXEMPTION 3 WAS PROPERLY ASSERTED The Service has properly withheld under 5 U.S.C. § 552(b)(3), in conjunction with 26 U.S.C. § 6103(a), certain records that are the tax return information of third- parties, and certain records that are outside the scope of plaintiff’s power of attorney. FOIA Exemption 3 allows the withholding of information prohibited from disclosure by another statute under certain circumstances. 5 U.S.C. § 552(b)(3). Under this exemption, if the Court determines that a qualifying statute exists and that any of the withheld information is within the statute’s scope, the material must be withheld no matter how unwise or self-protective the statute may be. See Fund for Constitutional Gov’t v. Nat’l Archives & Records Serv., 656 F.2d 856, 868 n.29 (D.C. Cir. 1981). Section 6103 of Title 26 is an exempting statute within the meaning of FOIA Exemption 3; thus, records protected under § 6103 are exempt from disclosure. Chamberlain v. Kurtz, 444 U.S. 842 (1979); Shannahan v. IRS, 672 F.3d 1142, 1145 (9th Cir. 2012); Lehrfeld v. Richardson, 132 F.3d 1463, 1466 (D.C. Cir. 1998). Section 6103’s prohibition against disclosure is clear: it provides that tax returns and return information are to be kept confidential, unless disclosure is otherwise permitted by Title 26. Church of Scientology of California v. IRS, 484 U.S. 9 (1987). The term “return information” is broadly defined.2 Absent an Internal Revenue Code permissible 2 26 U.S.C. §6103(b)(2)(A) provides, in pertinent part, that a “taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, (continued...) Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 7 of 17 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 disclosure, a person is not entitled to the tax return information of a third-party without authorization from that third-party. Stanbury Law Firm v. IRS, 221 F.3d 1059, 1062 (8th Cir. 2000); George v. IRS, No. 05-0955, 2007 WL 1450309, at *5 (N.D. Cal. May 14, 2007) (protecting third-parties’ return information in the plaintiff’s Service file). Here, much of the information withheld under § 6103(a) consists of tax return information related to third parties. (SOF ¶ 18; Baker Decl. ¶ 13; Ex. F). Specifically, a significant portion of this information was gathered by the IRS as part of an investigation of such third parties’ tax liabilities. (See id.) Records obtained from a third party’s Service investigation file constitute return information because they fall (… continued) credits assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over- assessments, or tax payments, whether the taxpayer’s return was, or is being 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.” (emphasis added). Moreover, the Code defines “person” as “an individual, a trust, estate, partnership, association, company or corporation.” 26 U.S.C. § 7701(a)(1). Internal agency memoranda, memoranda of interview of witnesses, information received from third parties relating to financial transactions, and the work papers of Service personnel pertaining to the Service’s investigation of a person’s tax liability are return information of that person. Currie v. IRS, 704 F.3d 523, 531 (11th Cir. 1983). Moreover, in the event the document is received or collected during an investigation of a person’s tax liability or a determination of whether such an investigation should be undertaken, the entire document is “return information”; the Service is not free to withhold only taxpayer identifying information and release the remainder. See Church of Scientology, 484 U.S. at 18; Landmark Legal Foundation v. IRS, 267 F.3d 1132, 1137 (D.C. Cir. 2001). Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 8 of 17 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 within the description of “any other data . . . collected by the Secretary . . . with respect to the determination of the existence, or possible existence of liability.” See 26 U.S.C. § 6103(b)(2)(A). Additionally, the withheld return information includes items such as third party names, addresses, amounts of income and income tax liability, addresses, social security numbers, and other information collected or prepared by the IRS with respect to the determination of tax liability for the third parties. (Id.) Thus, this information constitutes tax return information of third parties as defined in § 6103(b)(2)(A), and it was properly withheld pursuant to FOIA Exemption 3. Further, the Service withheld a total of two words on page 50 of the responsive records that constituted tax return information that fell outside the scope of plaintiff’s Power of Attorney. (Baker Decl. ¶ 18; Ex. F). While this information was the “return information” of the plaintiff rather than a third party, the representatives named in the Power of Attorney document were not given the authority to access such information, and so it was withheld pursuant to Exemption 3 in conjunction with § 6103(a). (Id.) B. FOIA EXEMPTION 5 WAS PROPERLY ASSERTED The Service has also justifiably claimed protection under FOIA Exemption 5 for withholding the records. Section 552(b)(5) protects from disclosure under the FOIA “inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.” 5 U.S.C. § 552(b)(5). The FOIA thus incorporates those privileges which the government enjoys in pretrial discovery under relevant statutes and case law. See United States v. Weber Aircraft Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 9 of 17 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Corp., 465 U.S. 792, 799 (1984). Three well-established common law privileges encompass FOIA Exemption 5: (1) the attorney work product doctrine; (2) the attorney- client privilege; and (3) the governmental deliberative process privilege. See Tax Analysts v. IRS, 294 F.3d 71, 76 (D.C. Cir. 2002). Here, the Service has withheld records under the governmental deliberative process privilege. The Deliberative Process Privilege Exemption 5 in conjunction with the deliberative process privilege protects “records reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated.” NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975). It also protects other subjective records reflecting the author’s personal opinions prior to agency adoption of a policy. Tax Analysts, 294 F.3d at 80. Disclosure of such records could inhibit “frank discussion of legal or policy matters,” leading to weaker decisions and policies. Sears, Roebuck & Co., 421 U.S. at 150; see also, Tax Analysts, 294 F.3d at 80. The scope of deliberative subjects extends beyond policies. See Adamowicz v. IRS, 402 Fed. Appx. 648, 652 (2d Cir. 2010) (holding that the exemption extended to “the consultative process underlying IRS decisions concerning the Examination, the FOIA requests, and related litigation”); Judicial Watch, Inc. v. DOJ, 306 F. Supp. 2d 58, 70 (D.D.C. 2004) (protecting “handwritten notes” on an invitation to the Attorney General, because disclosure “would reveal what the staff member who wrote the notes considered to be important . . . and how the decision to attend the event may have been reached”). In determining whether the governmental deliberative process privilege protects a particular document, that Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 10 of 17 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 document must be both predecisional and deliberative in nature. Mapother v. DOJ, 3 F.3d 1533, 1537 (D.C. Cir. 1993). As DS Baker describes, the Service withheld an intra-agency memorandum, a spreadsheet, and correspondence that would reveal the Service’s employees’ thoughts and mental impressions of actions to take in the ongoing civil investigation of the requesters. (Baker Decl. ¶ 17). These documents would also reveal the scope, direction, and nature of the Service’s investigation. (Id.) These documents clearly reflect the Service’s employees’ deliberative process because the investigation is ongoing. (Id.) The Records Are “Predecisional” The records the Service withheld here are certainly predecisional. Predecisional means antecedent to an agency’s adoption of its final action. Jordan v. DOJ, 591 F.2d 753, 774 (D.C. Cir. 1978). At the time the records in question were created, the Service had not yet (and still has not yet) adopted a position regarding its investigation of the plaintiff’s compliance with internal revenue laws. (Baker Decl. ¶ 17). Accordingly, these records have not been adopted or incorporated into a final decision document. (Id.) Thus, there can be no genuine dispute that the withheld records are predecisional. The Records Are “Deliberative in Nature” The material withheld under the deliberative process privilege must be deliberative in nature. The privilege protects from disclosure all communications which would expose publicly the agency’s deliberative process, including facts that are inexorably intertwined with the deliberations. Russell v. Dept. of the Air Force, 682 F.2d 1045, 1048 (D.C. Cir. 1982). The withheld information contains opinions and/or Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 11 of 17 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 recommendations reflecting the “give-and-take” of the agency’s deliberative processes leading to a decision regarding the plaintiff’s compliance with internal revenue laws. Hamilton Securities Group, Inc. v. HUD, 106 F. Supp. 2d 23, 31 (D.D.C. 2000). Moreover, the potential for the public to see the changes made from the draft version of a document to the final version could “stifle the creative thinking and candid exchange of ideas.” Dudman Comm. Corp. v. Dept. of the Air Force, 815 F.2d 1565, 1569 (D.C. Cir. 1987). In this case, disclosure of the withheld information would expose the decision-making processes of the agency and would discourage candid discussions within the agency. For example, records reflected in the pages bearing control numbers 001 through 007 would show the thought process of the Service regarding its recommendation to investigate the plaintiff more fully. Accordingly, records described in ¶¶ 15-17 of DS Baker’s declaration are deliberative in nature and properly withheld. C. FOIA EXEMPTIONS 6 AND 7(C) WERE PROPERLY ASSERTED FOIA Exemption 6 exempts from disclosure personnel, medical, and similar files where the disclosure of such information would constitute a clearly unwarranted invasion of personal privacy. 5 U.S.C. §552(b)(6); see Dep’t of State v. Washington Post Co., 456 U.S. 595, 599-603 (1982); Multi Ag Media LLC v. USDA, 515 F.3d 1224, 1228 (D.C. Cir. 2008). To qualify under Exemption 6, information must meet two criteria. Multi Ag Media, 515 F.3d at 1228. First, it must be personal information contained in personnel and medical files or similar files. Id. The Supreme Court has broadly interpreted “similar files” as any information that “applies to a particular person.” Washington Post, 456 U.S. at 602. Second, disclosure of the information at Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 12 of 17 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 issue must compromise a substantial privacy interest. Multi Ag Media, 515 F.3d at 1228. A court must balance the privacy of the individual identified in the files against the public interest in disclosure. Associated Press v. DOD, 554 F.3d 274, 291 (2d Cir. 2009). Courts have found that individuals have a sufficient interest in the privacy of their names, addresses, finances, etc., to justify withholding under Exemption 6. See, e.g., Associated Press, 549 F.3d at 65; Multi Ag Media, 515 F.3d at 1230. Similarly, FOIA exemption 7(C) authorizes the withholding of information compiled for law enforcement purposes, the release of which could reasonably be expected to constitute an unwarranted invasion of personal privacy. In applying the personal privacy exemptions under FOIA, the courts must balance the private and public interests involved. See, e.g., Johnson v. Comm’r, 239 F. Supp. 2d 1125, 1137 (W.D. Wash. 2002). Under the balancing test, a FOIA plaintiff is required to show that a “substantial public interest” in disclosure outweighs the privacy interests involved. Becker v. IRS, 34 F.3d 398, 404-05 (7th Cir. 1994). Where the plaintiff has failed to demonstrate any superior public interest that would be served by disclosure, the competing interest of avoiding an unwarranted invasion of personal privacy takes precedence, and the information is exempt from disclosure. See DOJ v. Reporters Comm. for Freedom of the Press, 489 U.S. 749, 762 (1989); Safecard Services, 926 F.2d at 1205; Antonelli v. FBI, 721 F.2d 615, 618-19 (7th Cir. 1983). The public’s interest is limited to the statutory purpose of FOIA, namely, to “shed light on an agency’s performance of its statutory duties.” See Reporters Comm., 489 U.S. at 773. The information withheld here is comprised of social security numbers. Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 13 of 17 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (Baker Decl. ¶ 20.) This information is of little, or no, interest to the general public, in that it does not shed any light on how the government operates. The information, if released, would constitute an unwarranted invasion of the privacy interests of the individuals involved with little or no benefit to the public. (Baker Decl. ¶ 20.) Accordingly, the Service is properly withholding third-parties’ social security numbers pursuant to Exemptions 6 and 7(C). D. FOIA EXEMPTION 7(A) WAS PROPERLY ASSERTED FOIA Exemption 7 exempts from disclosure “records or information compiled for law enforcement purposes.” 5 U.S.C. § 552(b)(7). The threshold determination under Exemption 7 is whether the documents at issue were (a) compiled by a law enforcement agency; and (b) compiled for a law enforcement purpose(s). Abramson v. FBI, 456 U.S. 615, 622 (1982). First, Courts have found that the Service is a law enforcement agency for purposes of Exemption 7. Church of Scientology v. IRS, 995 F.2d 916, 919 (9th Cir. 1993); Lewis v. IRS, 823 F.2d 375, 379 (9th Cir. 1987); Keys v. DOJ, 830 F.2d 337, 340 (D.C. Cir. 1987). Second, courts have consistently held that records compiled for civil or criminal investigations by the Service are “records or information compiled for law enforcement purposes.” Tax Analysts, 294 F.3d at 77. “A tax audit is certainly performed in aid of enforcement of our tax laws, civil and criminal, and there should be no distinction under FOIA Exemption 7 between monitoring activities and prosecutorial activities, both of which serve law enforcement purposes.” B. & C. Tire Co. v. IRS, 376 F. Supp. 708, 713 n.11 (N.D. Ala. 1974); see also Williams v. IRS, 479 F.2d 317 (3d Cir. Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 14 of 17 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1973), cert. denied, sub nom., Donlon v. IRS, 414 U.S. 1024 (1973) (audit files are compiled for law enforcement purposes). The documents at issue were compiled for law enforcement purposes. All of the responsive documents were obtained from RA Day’s examination file of the plaintiff. (See Baker Decl. ¶¶ 8-9.) The purpose of the Service’s examination of the plaintiff is to investigate and determine whether it participated in illegal tax avoidance transactions under the Internal Revenue Code, and if so, whether penalties and/or an injunction are appropriate. (See Ex. D, Letter from RA Day). These records were therefore used or created by the Service for law enforcement purposes. The Documents Are Exempt from Disclosure under Exemption 7(A) Exemption 7(A) authorizes the withholding of records or information compiled for law enforcement purposes to the extent that production of such information could reasonably be expected to interfere with enforcement proceedings. 5 U.S.C. § 552(b)(7)(A). The Supreme Court has held that it is not necessary for an agency claiming this exemption to demonstrate on a line-by-line or a document-by-document basis how disclosure of certain documents would interfere with enforcement proceedings. Robbins Tire & Rubber, 437 U.S. at 223-24. Instead, a court may make generic determinations that, with respect to certain kinds of enforcement proceedings, disclosure of certain types of investigatory records would generally interfere with enforcement proceedings. Id.; see also Spannaus v. DOJ, 813 F.2d 1285, 1288 (4th Cir. 1987). Courts have interpreted “interference” broadly. For example, in Robbins Tire, the Supreme Court Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 15 of 17 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 found that permitting a plaintiff earlier and greater access to documents or other information collected by the agency than it would normally be entitled, constitutes the type of interference Exemption 7(A) was enacted to prevent. Id. at 236. Other courts have found that interference with enforcement proceedings constitutes revealing the identities of potential witnesses, the nature, scope, direction, and limits of the investigation, the transactions being investigated, information concerning third-party contacts, the evidence obtained to date, the reliance the agency places on the evidence, and the Government’s strategies and theories. Curran v. DOJ, 813 F.2d 473, 474 (1st Cir. 1987); Barney v. IRS, 618 F.2d 1268, 1273 (8th Cir. 1980); Lewis, 823 F.2d at 379. In upholding this exemption, the cases add that FOIA was not intended to be used as a discovery tool. See United States v. Murdock, 548 F.2d 599, 602 (5th Cir. 1977). The Service is withholding 112 pages in full under Exemption 7(A). (Baker Decl. ¶ 21). As the Baker declaration and Exhibit D make clear, there is an ongoing civil investigation of the plaintiff. The Service relies on exemption 7(A) because release of the responsive documents would interfere with the government’s proceedings. (Baker Decl. ¶ 22). The declaration of DS Baker specifically describes how release of the documents would interfere with the ongoing criminal investigation. (Baker Decl. ¶ 22). The authorization memorandum and other withheld documents describe the nature, direction, scope, and limits of the civil investigation, the transactions being investigated, and the strategies and theories being employed by the government. (Id.) These documents, if released, could enable the plaintiff to craft explanations or defenses based upon the government’s analysis. (Id.) Further, release could enable the plaintiff to conceal or Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 16 of 17 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 disguise transactions that have not yet been identified, or to take other steps to avoid additional penalties. Clearly, disclosing the records gathered or created by the Service in examining any taxpayer’s culpability in a potentially illegal tax avoidance scheme could skew and undermine the examination, and thus “could reasonably be expected to interfere with enforcement proceedings.” Accordingly, the Service is properly withholding these records pursuant to Exemption 7(A). CONCLUSION For the reasons stated above, the IRS’ search was adequate, and its withholdings justified. Accordingly, based upon the undisputed facts, the defendant is entitled to judgment as a matter of law. The defendant therefore respectfully requests that this Court grant its motion for summary judgment, and dismiss the FOIA claim with prejudice. DATED: August 26, 2016 CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General /s/ Kieran O. Carter Kieran O. Carter Attorney for Defendant Internal Revenue Service U.S. Department of Justice, Tax Division P.O. Box 227 Washington, D.C. 20044 Telephone: (202) 616-1920 Facsimile: (202) 514-6866 Email: Kieran.O.Carter@usdoj.gov Case 2:16-cv-00005-SMM Document 16-1 Filed 08/26/16 Page 17 of 17 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Retained Risk Managers LLC, ) ) Plaintiff, ) ) v. ) ) Internal Revenue Service, ) ) Defendant. ) _________________________________ ) Case No. CV-16-0005-PHX-SMM ORDER This matter comes before the Court on Defendant’s motion for summary judgment. Having considered defendant’s motion, plaintiff’s opposition thereto, and the entire record of the case, it is ORDERED that the defendant’s motion for summary judgment is GRANTED; and it is further ORDERED that the Clerk shall enter judgment in favor of the defendant. DATED this ______ day of ________________, 201__. __________________________________ HONORABLE STEPHEN M. MCNAMEE United States Senior District Judge Case 2:16-cv-00005-SMM Document 16-2 Filed 08/26/16 Page 1 of 1