Highland Capital Mgmt. v. IRS, No. 18-0181, 2019 WL 4748270 (N.D. Tex. Sept. 30, 2019) (Fish, S.D.J.)

Highland Capital Mgmt. v. IRS, No. 18-0181, 2019 WL 4748270 (N.D. Tex. Sept. 30, 2019) (Fish, S.D.J.)

Re:  Request for records concerning audit of plaintiff

Disposition:  Granting in part and denying in part defendant's motion for summary judgment

• Litigation Considerations, Adequacy of Search:  "[B]ecause the court concludes that the IRS's declarations show that it used reasonable search methodology, and because the court is unconvinced by [plaintiff's] arguments to the contrary, the court concludes that the IRS has satisfied its burden of showing it conducted an adequate search."  The court discusses in depth that "[t]he IRS uncovered a total of 15,858 pages of responsive documents by using varying search methods designed to accurately respond to [plaintiff's] request."  Turning plaintiff's "argu[ment] that the IRS's response to its FOIA request was 'obstructionist, time-consuming, and expensive,'" the court finds that "[t]he fact that the IRS conducted multiple searches and reviews indicates that the IRS was complying with FOIA obligations in good faith."  Additionally, the court finds that "[plaintiff] offers no theory or supporting evidence that additional sources of responsive records exist or that the IRS acted in bad faith in conducting its search."
   
• Exemption 3:  The court holds that "the information as described in [defendant's] declaration is confidential under the Internal Revenue Code and is exempt from disclosure by the IRS absent an exception under section 6103."  The court relates that the "'a tax compliance questionnaire'" was "'withheld in part because it contains [an] Employer Identification Number ('EIN').'"  "'The EIN is the return information of [a] third party . . . .'"  "[Defendant's] first declaration further provides that the IRS can only disclose return information with written consent or demonstrated material interest in the information, but that '[plaintiff] did not provide with its request either the written consent from [the third party] or information showing it had a material interest in the return information of [the third party].'"
   
  However, regarding other records, "the court concludes that the IRS's motion for summary judgment should be denied."  The court finds that, "[a]lthough the IRS has stated in its appendices and Vaughn index the nature and types of documents withheld under FOIA exemption 3 in conjunction with 26 U.S.C. § 6103(e)(7), . . . the IRS has done very little to explain to the court just exactly how disclosing any of these documents would seriously impair federal tax administration."  "Instead, in the IRS's appendices and its Vaughn index, the IRS simply repeats the conclusory assertions that disclosing these pages 'would reasonably be expected to interfere with IRS enforcement proceedings, thereby seriously impairing the ability of the government to ensure the collection of the proper tax and penalties from [the] plaintiff.'"  "Such conclusory allegations are not enough to withhold documents under FOIA, however."
   
• Exemption 7(A):  "[T]he court concludes that summary judgment should be granted in part with respect to the documents withheld under FOIA exemption 7(a)."  "First, the court concludes that the IRS has not met its summary judgment burden to withhold in part [certain pages] because "[t]hough the IRS provided a Vaughn index, the descriptions of these pages contained within said index do not show the court how the release of these records would interfere with the IRS's current enforcement proceedings."  "Nevertheless, the court concludes that the IRS has satisfied its summary judgment burden to withhold in part [certain other] pages," because, "[i]n contrast to the pages discussed in the preceding paragraph, the Vaughn index entries for [these] pages . . . are specific and show to the court why disclosing these pages would compromise the IRS's enforcement proceedings against [plaintiff]."  "The court is thus satisfied that revealing the IRS's analysis of certain facts, as well as its examination strategy would clearly reveal the scope, direction, and strategy of the IRS's enforcement proceedings against [plaintiff]."
   
• Exemption 5, Attorney-Client Privilege:  "The court concludes that the IRS has failed to satisfy its burden on summary judgment for the pages withheld in full and in part under the fifth FOIA exemption for attorney-client privilege."  The court finds that defendant's declaration "fails to provide the court with a description of the matters discussed in the withheld documents" and is "too vague to allow a court to determine if the attorney-client privilege applies."
   
• Exemption 5, Deliberative Process Privilege:  "[T]he court concludes that summary judgment should only be partially granted in favor of the IRS with respect to the records it withholds under the deliberative process privilege . . . ."  The court finds that "it is clear to the court that these pages are all pre-decisional, since they were generated prior to the IRS's final decision to adjust [plaintiff's] tax liability."  "Moreover, the court is satisfied that these documents are deliberative because the IRS's Vaughn index sufficiently describes the function and significance of the role these documents plays in the 'give-and-take of the consultative process.'"  "At the same time, however, the court concludes that the IRS has not satisfied its summary judgment burden to withhold in part [certain other] pages . . . ." The court finds that "the IRS's descriptions of these pages, both in its Vaughn index and in its appendices, are far too vague to show that these documents reflect the give-and-take of the consultative process."
   
• Exemption 6:  "Based on the substantial weight of the privacy interest individuals have in their personal information, and because [plaintiff] has failed to clearly articulate a compelling public interest that warrants disclosure of said information, . . . the court concludes that the IRS's withholdings under FOIA exemption 6 are proper."  The court relates that "[t]he information contained within the pages withheld under the sixth FOIA exemption include the social security numbers of contractors employed by [a third party contractor], their signatures, and the personal telephone number of one of the contractor's supervisors."
   
• Exemption 7(E):  The court holds that "the IRS has shown that . . . there is a chance of a reasonably expected risk that taxpayers would eavesdrop on law enforcement discussions, and use what is learned to circumvent the law, if the confidential conference line access number is disclosed."
   
• Procedural Requirements, "Reasonably Segregable" Obligation:  "Based on the detailed descriptions contained within the IRS's Vaughn index, the court concludes that the records the IRS withholds in full under FOIA exemption 5 for deliberative process and exemption 7(a) are not segregable, as the pages in question either fully fall within exemptions 5 or 7(a), or they contain nonexempt portions that are so intertwined with exempt material as to be nonsegregable."