Xanthopoulos v. IRS, No. 21-2502, 2022 WL 1814856 (8th Cir. June 3, 2022) (Grasz, J.)

Xanthopoulos v. IRS, No. 21-2502, 2022 WL 1814856 (8th Cir. June 3, 2022) (Grasz, J.)

Re:  Request for "the terms of a tax professional authentication process contained within the Internal Revenue Manual ('IRM')"

Disposition:  Reversing and remanding district court's grant of summary judgment

• Exemption 7, Threshold & Litigation Considerations, In Camera Inspection:  "The district court did not conduct an in camera inspection here."  "We are therefore limited to reviewing the adequacy of the IRS's evidence and affidavit."  "Although we find no evidence of bad faith by the IRS, the [government's] Declaration contains a legal error in at least one respect: it states 'the I.R.M. generally' is 'compiled for law enforcement purposes because the I.R.M. is an internal manual for the IRS, a law enforcement agency.'"  "The [government's] Declaration erroneously characterizes the IRS as only a law enforcement agency."  "The IRS is instead a federal agency with mixed law enforcement and administrative functions."  "[N]either was the entire IRM 'compiled for law enforcement purposes.'"  "We have said the 'distinction between law enforcement matters and administrative matters is not easily drawn,' . . . [] but the IRM contains several sections relating to solely administrative matters."  "Given that the [government's] affidavit fails to recognize that the IRS is both an administrative and law-enforcement agency, and that the IRM reflects that fact, we cannot be sure that this misunderstanding did not color the affidavit's conclusions."  "Although we have said in camera inspection 'should be limited' because 'it is contrary to the traditional judicial role of deciding issues in an adversarial context upon evidence produced openly in court,' this is such a case where in camera inspection is appropriate to determine 'whether the government's affidavits are accurate[.]'"  "Where, as here, the IRS's success in sustaining its action rests primarily on the adequacy of a single affidavit containing a legal error, the district court is well served to use in camera inspection 'as an aid' in determining whether the agency met its burden in establishing the exemption applies."  "We reverse and remand for in camera inspection."