Rifle Remedies, LLC v. IRS, No. 18-00949, 2021 WL 981317 (D. Colo. Mar. 16, 2021) (Brimmer, J.)

Rifle Remedies, LLC v. IRS, No. 18-00949, 2021 WL 981317 (D. Colo. Mar. 16, 2021) (Brimmer, J.)

Re:  Requests for certain tax records concerning plaintiffs, as well as other tax policy documents

Disposition:  Granting defendant's motion for summary judgment; denying plaintiffs' response and motion for discovery

• Litigation Considerations, Discovery:  The court holds that "[t]he agency submitted detailed declarations on the IRS's search that are adequate on their face."  Additionally, the court finds that "[t]aking the facts in the light most favorable to plaintiffs, the IRS may not have conducted any searches prior to the commencement of ligation."  "However, the Court finds this dispute to be immaterial, because even assuming the delay claimed by plaintiffs, it does not indicate bad faith that would 'impugn the agency's . . . declarations.'"  Also, the court finds that "[t]he allegedly missing documents were not produced as a result of the IRS's responsiveness review, which is an argument concerning the adequacy of the search."  "The Court will consider this argument when it considers the adequacy of the IRS's search, but finds that the allegedly missing documents are not evidence of bad faith."  "Because the Court finds that there is no evidence of bad faith, the Court denies plaintiffs' request for additional discovery pursuant to Rule 56(d)."
   
• Litigation Considerations, Adequacy of Search:  "The Court finds that the search conducted by the IRS was 'reasonable in scope and intensity.'"  The court relates that "[defendant's] Declaration states that any potentially responsive IRS high-level official correspondence regarding the 1996 inter-agency agreement would have either been destroyed or transferred to the physical and legal custody of NARA after ten years."  "[T]he IRS was not required to search NARA records."  "Accordingly, the IRS's failure to search NARA records does not make the search unreasonable."  Additionally, "[t]he Court finds that the search for administrative documents was adequate."  Also, responding to [plaintiff's counsel's] state[ment] that [one IRS agent] informed him that [one requested document] exists," the court finds that "[plaintiff's attorney] has narrowed down the possible informers, but similarly has not identified who told him of the existence of the [requested] manual."  "As a result, plaintiffs have not provided 'concrete evidence' of the existence of [the] manual."
   
• Exemption 3:  "[T]he Court finds that IRS has met its burden of showing that it properly withheld documents under Exemption 3."  The court relates that "Plaintiffs object to the IRS's redaction of third-party tax return information and 'feedback reports'."  At issue is 26 U.S.C. § 6103 used in conjunction with Exemption 3.  First, regarding "Plaintiffs' contention . . . that the IRS redacted plaintiffs' information, not third party information" the court finds that "[t]he IRS states that the redacted company names are third parties . . . and [defendant's] Declaration demonstrates that the information was properly withheld because it pertained to third parties."  Second, "Plaintiffs further argue that the IRS improperly redacted 'feedback reports' in their entirety, when the IRS should instead have redacted only taxpayer specific information."  The court finds that "the Supreme Court held that the phrase 'but such term does not include data in a form which cannot be associated with, or otherwise identify, directly or indirectly, a particular taxpayer' [§ 6103] does not mean that information that can be redacted of identifying information is no longer 'return information.'"  "The [Supreme Court] held that 'removal of identification from return information would not deprive it of protection under § 6103(b)."  "Since such deletion would not make otherwise protected return information discloseable, [the IRS] has no duty under the FOIA to undertake such redaction.'"  "Because the feedback reports were taxpayer specific, the IRS was under no duty to redact only the taxpayer specific information and instead was permitted to redact the documents in their entirety."
   
• Exemption 5, Deliberative Process Privilege:  The court relates that "[t]he IRS invokes the deliberative process privilege for documents regarding plaintiffs' pending civil audits, enforcement of the courts' decisions in ongoing cases to quash summonses, and the decision regarding the use of utilities as an indirect method of income estimation in audits of marijuana businesses."  "Plaintiffs argue that the IRS's description of the withheld documents is too generalized to meet the IRS's burden under Exemption 5."  The court finds that "[t]he Vaughn index provided by defendant contains a description of every document withheld under the deliberative process privilege."  Specifically, the court finds that "[b]ecause [certain] lead sheets are prepared to assist in an ongoing audit, they are pre-decisional and deliberative."  Additionally, regarding "letters regarding IRS counsel's recommendations to the Department of Justice regarding petitions to quash IRS summonses filed by certain plaintiffs," the court finds that "[b]ecause that litigation is ongoing and the pages reflect opinions and recommendation regarding legal theories, they are pre-decisional and deliberative."  Regarding "an email from an IRS attorney to a revenue agent regarding the appropriate course of action to take on an audit while a petition to quash the summons was pending in court," the court finds that "[t]he email is deliberative because it expresses the attorney's thoughts and is predecisional because it was meant to help the revenue agent decide whether to disallow expenses while the quash petition was pending."  Finally, regarding "part of the IRS's deliberations regarding the potential use of utilities as an indirect method of income estimation in marijuana business enforcement," the court finds that "[t]he IRS has not yet decided whether to employ this method of income estimation, making it pre-decisional."
   
• Exemption 7(A):  The court holds that "[t]he IRS withheld [certain] pages . . . in full because they contain information on ongoing audits that would reveal the IRS's thoughts on the strengths and weaknesses of the cases."  "Plaintiffs argue that the IRS's description of the withheld documents as 'internal communications, activity logs and other database entries that contain information regarding the ongoing tax audits of the Plaintiffs' is too vague of a description to allow the Court to ascertain how the disclosure of the documents would interfere with an investigation."  "Plaintiffs do not argue that the records were not comp[il]ed for law enforcement purposes."  "Instead, plaintiffs argue that, because plaintiffs seek the information in order to better comply with the law, the production of the records could not be reasonably expected to interfere with law enforcement proceedings."  The court finds that "[t]he records relate to specific entities under audit, making the likelihood of interference with law enforcement 'readily apparent.'"
   
• Exemption 7(C) and 7(E):  The court relates that "Plaintiffs do not contest the documents that the IRS withheld under these two exemption, but instead argue that neither exemption would permit the IRS to withhold the § 280E audit manual."  "However, the IRS did not claim to withhold the sought-after manual under an exemption – instead, the IRS states that its search did not locate any such manual."
   
• Litigation Considerations, In Camera Inspection:  The court relates that "[t]he IRS has provided specific information sufficient to place the documents within the exemption categories, plaintiffs' arguments to the contrary are unpersuasive, the information is not contradicted by the record, and the Court has found that there is no evidence of bad faith."  "Accordingly, the Court exercises its discretion to deny plaintiff's request for an in camera inspection of withheld documents."