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Microsoft Corp. v. IRS, No. 15-369, No. 15-850, 2023 WL 255801 (W.D. Wash. Jan. 18, 2023) (Martinez, J.)


Microsoft Corp. v. IRS, No. 15-369, No. 15-850, 2023 WL 255801 (W.D. Wash. Jan. 18, 2023) (Martinez, J.)

Re:  Requests for records concerning outside contractors

Disposition:  Granting defendant’s motion for summary judgment

  • Litigation Considerations, Adequacy of Search:  “The Court has thoroughly reviewed the steps taken by the IRS to conduct the FOIA searches at issue here.”  “The Court agrees with the IRS that they were reasonable and adequate under the circumstances of this case and . . . controlling law.”  “[Plaintiff] has failed to introduce evidence of bad faith or to otherwise demonstrate that the IRS’s actions were unreasonable.”  “The search efforts, as described above, meet the standard of being ‘reasonably calculated to uncover all relevant records’ and were made in good faith.”  “The Court has no reason to conclude otherwise.”  “Any irregularities are adequately explained, and might be expected given the size and scope of the requests.”  The court relates defendant’s search efforts which included contacting custodians, instructing them on how to conduct a search of their records, and searching for “electronically stored information (“ESI”) . . . collected through the Service’s electronic discovery request (“EDR”) process.”  Of note, the court also noted that defendant searched a hard drive of a custodian which “should have been erased when he retired.”  “[T]he IRS found his hard drive.”  “The IRS also searched the magnetic backup tapes, which was apparently an ‘extremely time-consuming, burdensome, and labor-intensive process.’”

    Additionally, the court finds that “[t]he IRS was not required to search records outside its possession or those originating from [the outside contractors] under controlling case law.”  “Those records are not ‘agency records’ for purposes of the FOIA.”  “An agency’s contractual ‘right of access’ to materials held by a private party is not dispositive as to whether such materials are ‘agency records.’”  “The FOIA excludes ‘government contractor’ from the definition of ‘agency.’”  “For contractor-created materials to be transformed into ‘agency records,’ they must have been received by the agency.”  “The Court declines to apply the test from [Burka v. United States HHS, 87 F.3d 508 (D.C. Cir. 1996)] . . . to find that the IRS constructively controlled these records.”
  • Litigation Considerations, Vaughn Index/Declaration:  “Considering the Vaughn index and the declarations filed in this case together, the Court finds that the information provided in that index was not inadequate for the general reasons argued by [plaintiff].”  “The use of repetitive entries does not reflect a lack of substantive information but rather the large number of documents at issue and, perhaps, the repetitive nature of work at the IRS.”  “While the IRS’s Vaughn index might be monotonous, or even less-than-helpful from the perspective of [plaintiff], courts have found that repetitive entries are efficient for the Court and certainly the producing agency.”  “[Plaintiff’s] ‘cursory and context-free’ criticism of the Vaughn index is adequately rebuffed by the IRS’s explanation of its procedure, perhaps more complicated than it needed to be, for reporting date, author, recipient, and subject information and document family data.”  “Cutting out nonresponsive records appears to be an appropriate use of agency discretion.”  “[Plaintiff’s] frustrations with the Vaughn index do not preclude summary judgment dismissal of this case.”
  • Exemption 2:  The court relates that “[t]he IRS points to [its] declaration . . . to support the use of this exemption for withholding ‘information relates solely to agency personnel matters, such as the placement of employees for certain assignments.’”  The court finds that “[plaintiff] provides no evidence or argument to support the assertion that these documents relate to decisions regarding Plaintiff’s audit.”  “They are not comparable to a roster including names and addresses.”  “These documents appear to be exclusively ‘connected with’ the placement of employees and with personnel practices.”  “The IRS has met its burden of establishing that this exemption applies.”
  • Exemption 3:  The court relates that “[a]t issue in this Motion are documents withheld under Sections 6103 of Title 26.”  “Section 6103(a) provides that tax ‘returns’ and ‘return information’ are to be kept confidential, unless disclosure is permitted by Title 26.”  “The records withheld under § 6103(a) contain ‘the tax information of third parties, including: names, taxpayer identification numbers, or other identifying information; the fact of whether a particular taxpayer's return is being examined; and descriptions of examination or collection activity.’”  “The records withheld under § 6103(e)(7) contain ‘communications and activities involved in the Service’s examination of Plaintiff, or, communications and activities related to its examinations or other enforcement activities pertaining to other taxpayers.’”  “[Defendant’s declaration] states that releasing these records to [plaintiff] now could provide it ‘with much earlier and greater access to information about the Service’s examination than plaintiff would otherwise be entitled to receive in administrative or litigation proceedings, whereas the Government is not entitled to a corresponding degree of discovery in these proceedings’ current posture.’”  “[T]he Court will not deny summary judgment based on this exemption or order the production of any documents.”  “The IRS’s cited declarations provide adequate detail justifying the IRS’s withholdings under § 6103(e)(7) and the IRS’s Vaughn index details the tax return information records withheld under these exemptions.”  “Given the length and nature of these proceedings, it is clear to the Court without further argument from the IRS that [plaintiff] would very likely benefit from the withheld information in future administrative or litigation proceedings.”  “The IRS has met its burden of establishing that this exemption applies.”
  • Exemption 4:  The court relates that “[t]he redacted information here includes information provided by various contractors before, during, or after the contract such as contractors’ proposed, prospective, or actual billing schedules, as well as information on invoice documents reflecting amounts billed, hours worked, and bank account numbers.”  “The Court finds that the withheld information is ‘commercial or financial information’ under the ordinary meaning of that phrase.”  “This is the type of information that would typically be confidential.”  “The IRS has met its burden.”
  • Exemption 5, Deliberative Process Privilege:  “The Court finds that, given the scope and unusual nature of this case, the documents at issue are not related to a run-of-the-mill assessment of a company’s tax liability, but closer to a process by which governmental decisions and policies are formulated.”  The court relates that an earlier case in the same circuit, but issued by a different district court, Safeway, Inc. v. IRS, No. 05-3182, 2006 WL 3041079 (N.D. Cal. Oct. 24, 2006), held that “‘the IRS’[s] decisionmaking about the extent of [p]laintiff’s tax liability is not the sort of deliberative process meant to be addressed by the privilege.’”  “The IRS distinguishes [that case] by arguing that court ‘assumed that the documents at issue lacked the subjective, personal thoughts of IRS employees in the absence of a sufficient description of the documents’ contents, which is not the situation here.’”  “The explanation for the use of this privilege is sufficient . . . .”  “The IRS has met its burden.”
  • Exemption 5, Attorney-Client Privilege:  The court relates that “the IRS argues that the documents withheld under this privilege were communications ‘(1) among government attorneys reflecting the facts provided by the Service in order to obtain advice, or reflect the advice being developed by government attorneys to benefit the agency; (2) among Chief Counsel attorneys relating to legal advice requested on behalf of the Service; and (3) among Service employees and examiners and Chief Counsel for legal advice on Plaintiff’s examination.’”  Responding to plaintiff’s arguments, the court finds that “[w]hile facts alone are not protected by this privilege, communications between an attorney and a client are, even if those communications contain facts, if the purpose of the communication is to enable the attorney to provide legal advice.”  “The documents [plaintiff] objects to for being just facts are apparently workpapers provided to IRS Chief Counsel attorneys as part of a request for advice on a particular issue, while others are workpapers containing handwritten notes or analysis that were sent to an attorney to solicit or inform legal advice.”  “[Plaintiff’s] problem with attorney client documents related to the temporary regulations fail to point to specific documents or deal with the evidence submitted by the IRS in declarations related to the use of attorneys to craft those regulations.”  “[Plaintiff’s] first and third points are insufficiently argued and will not serve as a basis for denying summary judgment.”  “[Plaintiff’s] second argument[, “that this privilege cannot apply to documents created by [the] contractors because the record shows that these attorneys ‘provided audit support, not legal counsel,’”] certainly gives the Court pause.”  “At times the IRS has portrayed its use of [the] contractors differently.”  “However, the Court is convinced that a careful, close reading of the record demonstrates that these attorney contractors were hired in part for legal analysis and that a rebuttable presumption applies here.”  “This was not a routine examination where contractors could be assumed to be doing routine auditing work rather than providing legal advice.”  “[Plaintiff] has not successfully rebutted that presumption.”
  • Exemption 5, Attorney Work-Product:  First, the court relates that “[plaintiff] points out that, although this audit process has been lengthy, it was not clear when [the documents at issue] were created that there would be litigation, and that the IRS has said as much previously.”  “In its Reply brief, the IRS concedes that point and withdraws its work-product claims for any materials pertaining solely to [plaintiff’s] audit.”  “The IRS has amended its Vaughn index . . . and submitted a supplemental declaration . . . to support the continued withholding of documents that relate to:  ‘(1) tax cases involving taxpayers other than Plaintiff which were anticipated or currently being litigated; or (2) the enforcement/anticipated litigation of a summons enforcement matter involving Plaintiff.’”  “The record demonstrates that these remaining documents were prepared by attorneys or by an IRS employee at the supervision of an attorney.”  “The Court is satisfied that this issue has been resolved and does not serve as a basis for precluding summary judgment.”
  • Exemption 6:  The court relates that “[t]he parties agree that the information withheld under this exemption includes personal phone numbers, personal email addresses, home addresses, credit card information, and details of personal matters pertaining to agency employees such as travel plans.”  “[Plaintiff] argues, without further analysis and in a single sentence, that ‘employee vacation time, phone numbers, mealtime plans, last name, address, and leave plans,’ are not intimate personal details.”  “The Court disagrees and finds that exemption 6 was properly applied by the IRS.”
  • Exemption 7, Threshold:  The court holds that “[t]he IRS is a law enforcement agency for purposes of exemption 7.”  “Courts have consistently held that records compiled for civil or criminal investigations by the IRS are ‘records or information compiled for law enforcement purposes.’”
  • Exemption 7(A):  The court relates that “[t]he IRS claims exemption 7(A) protection for 2,365 records.”  “Given the nature of the audit against [plaintiff] and the obvious intent of [plaintiff] to inquire about that audit via these FOIA requests, it would appear that some use of this exemption is to be expected.”  The court finds that “case law supports the IRS’s use of boilerplate language applying this exemption to categories of documents.”  “[Plaintiff] fails to argue, in a nonconclusory way, how the so-called boilerplate language fails to satisfy the above standards.”  “The Court gives credence to the IRS that the material withheld here includes ‘information on the agency’s focus or interest in specific facts, transactions, individuals, evidence, or claims which would prematurely disclose the nature, scope, direction, and strategy of the audit’ and that this would naturally harm the IRS’s enforcement activities.”  “The use of this exemption does not preclude summary judgment.”
Court Decision Topic(s)
District Court opinions
Exemption 2
Exemption 3
Exemption 4
Exemption 5
Exemption 5, Attorney-Client Privilege
Exemption 5, Attorney Work-Product Privilege
Exemption 5, Deliberative Process Privilege
Exemption 6
Exemption 7
Exemption 7(A)
Exemption 7, Threshold
Litigation Considerations, Adequacy of Search
Litigation Considerations, Vaughn Index/Declarations
Updated February 7, 2023