In In re United States (United States v. NorCal Tea Party Patriots, et al.),1 the U.S. Court of Appeals for the Sixth Circuit resolved a discovery dispute by holding that the names, addresses, and taxpayer-identification numbers of applicants for tax-exempt status are not “return information” and so are not protected from discovery by section 6103, even if their applications are pending, withdrawn, or denied. (Section 6103 generally protects the confidentiality of returns and return information.) Faced not only with the IRS conduct that gave rise to this litigation but also apparent government foot-dragging with respect to discovery, the court adopted a relatively narrow interpretation of section 6103’s scope. What remains unclear, however, is whether this relatively minor crack in the taxpayer privacy protections provided by section 6103 could be used to reach a broader range of information held by the IRS.
The NorCal Tea Party Patriots litigation arose out of the now well-known controversy involving the IRS Exempt Organizations Division’s decision to subject certain applications for recognition of exemption under section 501(c)(4) to greater scrutiny based on applicant names, which had the effect of disproportionately targeting conservative-leaning organizations, including the named plaintiffs in this case, although organizations with progressive and other liberal indicators in their names were also scrutinized.2 In 2015 the U.S. District Court for the Southern District of Ohio ordered the government to produce various documents listing the organizations that had been targeted for increased scrutiny, concluding that section 6103 did not protect those documents from discovery.3 The plaintiffs sought this information because those organizations make up the class that the district court later agreed to certify.4 The government objected to this discovery order and so petitioned the Sixth Circuit for a writ of mandamus to reverse it.
The Sixth Circuit began its opinion by highlighting both the seriousness of the allegations that form the basis for the litigation (“[a]mong the most serious allegations a federal court can address are that an Executive agency has targeted citizens for mistreatment based on their political views”) and the apparent foot-dragging of the government with respect to discovery (“at every turn the IRS has resisted the plaintiffs’ request for information regarding the IRS’s treatment of the plaintiff class”).5 The court then discussed the general rules regarding disclosure of applications for recognition of exemption, noting that successful applications are open to public inspection under section 6104 and that denied applications (with identifying information removed) are similarly open to public inspection under section 6110.6 This discovery dispute, therefore, boiled down to whether the IRS was correct to treat identifying information with respect to both denied applications and pending, withdrawn, or other applications for which the IRS has not made a determination as “return information,” which section 6103 protects from disclosure.
The heart of the opinion is the Sixth Circuit’s parsing of section 6103 and how that section’s protections for “returns” and “return information” apply to applications for recognition of exemption. First, at the urging of the government the court rejected the basis on which the district court had found section 6103 protection to be unavailable for the requested documents. The district court had agreed with the parties that the requested documents were “return information” covered by section 6103. The district court found, however, that an exception to section 6103’s protection for return information applied under section 6103(h)(4)(B).7 That provision permits disclosure “in a Federal or State judicial or administrative proceeding pertaining to tax administration, but only . . . if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding” (emphasis added). The Sixth Circuit focused on the “on such return” language and concluded that this exception was not available because the parties correctly agreed that the applications for recognition of exemption are not “returns” within the meaning of section 6103.8
The Sixth Circuit did not end its analysis there, however. It further noted that the names and other identifying information of successful applicants for tax-exempt status are a matter of public record under section 6104 and so to the extent the government was trying to deny access to that information it was clearly in the wrong. With respect to the names and other identifying information for applicants with pending, withdrawn, or denied applications, the court acknowledged that the applicable Treasury regulations treat information submitted as part of those applications as not subject to disclosure, presumably because they are deemed to be “return information.”9 But the court then focused on the fact that under section 6103(b)(2)(A) “return information” includes “a taxpayer’s identity,” and that “taxpayer’s identity” is in turn defined by section 6103(b)(6) as “the name of a person with respect to whom a return is filed, his mailing address, his taxpayer identifying number . . . , or a combination thereof” (emphasis added). Focusing on the “a return is filed” language, the court concluded that since an application for recognition is not a “return,” information identifying an applicant could not be considered “taxpayer’s identity” and therefore “return information.”10 In reaching this conclusion it rejected a contrary decision of the U.S. Court of Appeals for the District of Columbia Circuit because that court had not considered the definition of “taxpayer’s identity.”11
The government argued in response that applicant identifying information should be considered “other data, received by, recorded by, furnished to, or collected by the Secretary . . . with respect to the determination of the existence, or possible existence, of liability . . . for any tax,” which section 6103(b)(2)(A) also includes in the definition of “return information.” The Sixth Circuit rejected this argument on the basis that it would make Congress’s decision to list “taxpayer’s identity” separately and to provide a separate definition for that term unnecessary. The court also noted that section 6104(c)(2) separately authorizes the disclosure to state authorities of “names, addresses, and taxpayer identification numbers” (section 6104(c)(2)(A)(iii)) and of “returns and return information” (section 6104(c)(2)(B)), indicating that return information does not automatically include the former information. The Sixth Circuit therefore concluded that “the names, addresses, and taxpayer-identification numbers of applicants for tax-exempt status are not ‘return information’ under section 6103(b)(2)(A)” and so denied the government’s petition for a writ of mandamus.12
The Sixth Circuit’s conclusion with respect to whether section 6103 protects the identifying information of unsuccessful applicants for recognition of exemption is questionable for several reasons. First, the fact that Congress chose in section 6103(b) and section 6104(c)(2) to specifically list “taxpayer’s identity” and “names, addresses, and taxpayer identification numbers,” respectively, as well as including broader terms such as “other data” and “return information” may indicate an intent to be clear about the treatment of the former type of information rather than relying solely on the broader terms even though those terms could be read as including that specific information. Second, the text of section 6110, its legislative history, and a federal appellate court ruling applying it make it clear that denied applications for recognition of exemption are within the scope of section 6110, which bars the disclosure of identifying information for written determinations unless otherwise explicitly authorized by statute and so prohibits the release of such information when the IRS denies such an application.13 Section 6103(b)(2)(B) underlines this point when it includes in the definition of “return information” “any part of any written determination or any background file document relating to such written determination . . . which is not open to public inspection under 6110” (emphasis added). Third, Congress intended section 6103 to broadly protect information provided to the IRS, and the court’s narrow interpretation of “taxpayer information” runs counter to that intent. Nevertheless, the Sixth Circuit’s decision is now the law within that circuit and so its possible effect needs to be addressed.
What the Decision Means
On its face, the decision by the Sixth Circuit is relatively narrow. It only applies to the names, addresses, and taxpayer-identification numbers of applicants for recognition of exemption, not to other information included in their applications. The IRS grants most such applications, and relatively quickly these days, so only the identifying information for the several thousands of applicants annually that do not pursue their application to completion and the handful of applicants that the IRS denies annually is at stake.14 And, as former IRS Exempt Organizations Division Director Marcus Owens has suggested, it could be argued that the decision should not reach identifying information for applicants under section 501(c)(3) because such applicants are required to file to claim tax-exempt status, unlike the applicants under section 501(c)(4) at issue in this litigation for which an application is not required to claim that status (although the Sixth Circuit did not distinguish between these two types of applicants).15
Disclosure also would only extend to documents already held by the IRS that include this information. This is because the Freedom of Information Act (FOIA)16 —the main vehicle for seeking federal agency-controlled information, including information controlled by the IRS—does not require an agency to create new documents, only to disclose existing ones to the extent not covered by a FOIA exemption (including the exemption for when disclosure is prohibited by another statute, such as section 6103).17 Even in this litigation, the district court is only requiring the disclosure of pre-existing documents containing the identifying information sought by plaintiffs.18 Finally, as a policy matter such disclosure may not be all that problematic and may even be desirable—the Joint Committee on Taxation in fact called for the public disclosure of all pending applications for recognition of exemption (not just the identifying information of the applicants) in 2000.19
The bigger issue is whether the Sixth Circuit’s reasoning extends to other information previously thought to be protected from disclosure by section 6103, whether that disclosure is sought in litigation or through a FOIA request. Section 6103(b)(1) defines a “return” as “any tax or information return, declaration of estimated tax, or claim for refund,” including supporting documents. Courts have tended to read this definition broadly (raising a question whether the parties and the courts in this case were correct that applications for recognition of exemption are not “returns”).20 Nevertheless, in the wake of the decision IRS Commissioner John Koskinen raised concerns that identifying information on some other types of IRS filings, such as for requests for private-letter rulings and identification PINs, might not be protected by section 6103.21 Additional filings with the IRS that may not be returns under section 6103 include requests for taxpayer advocate service assistance (Form 911) and applications for filing extensions, although the latter might be considered a supporting document for a return.
Is Commissioner Koskinen correct about the possible implications of this opinion? Maybe, but there are at least three important limitations to the Sixth Circuit’s decision. First, on its face it only applies to applications for recognition of exemption and indeed might not reach all such applications for the reasons already discussed. Second, it only applies to identifying information for the applicant, not to the rest of the information contained in the application. Third, the decision of course only applies in the Sixth Circuit, which is where the IRS Service Center that processes applications for recognition of exemption is located; many IRS filings are made in other jurisdictions that may not follow Sixth Circuit precedents. For example, private letter ruling requests are generally filed in Washington, DC, where the D.C. Circuit previously reached the opposite conclusion. That said, a person contesting a denied FOIA request can bring suit in a federal district court located not only in the District of Columbia or in the district where the agency records are located, but also in the district where that person resides or has a principal place of business. Therefore anyone who resides or has their principal place of business in the Sixth Circuit could take advantage of the precedent established by this decision even if the records they seek are not located in that circuit.
It therefore appears that the decision does open the door for interested parties to seek disclosure, both in litigation and through FOIA requests, of documents listing applicants for recognition of exemption. But whether it will have any effect on taxpayer privacy outside of this narrow context, even within the Sixth Circuit, remains to be seen. ■
5 In re United States, supra note 1, at 955.
6 In re United States, supra note 1, at 956(citing I.R.C. §§ 6104(a)(1)(A), (d)(1)(A)(iii), 6110(a), (b)(1)(A), (b)(2), (c)(1)).
7 NorCal Tea Party Patriots, supra note 3, at *4-*7.
8 In re United States, supra note 1, at 961-62.
10 In re United States, supra note 1, at 963-64.
11 In re United States, supra note 1, at 964-65 (citing but rejecting Landmark Legal Foundation v. IRS, 267 F.3d 1132, 1135 (D.C. Cir. 2001)).
12 In re United States, supra note 1, at 965.
14 See 2015 IRS Data Book 57 (2016).
15 See Fred Stokheld, IRS Court Loss Opens More Info to Discovery in Tea Party Case, 150 Tax Notes (TA) 1536 (Mar. 28, 2016).
18 NorCal Tea Party Patriots, supra note 3, at *4, *7.
19 Joint Committee on Taxation, Study of Present-Law Taxpayer Confidentiality and Disclosure Provisions As Required by Section 3802 of the Internal Revenue Service Restructuring and Reform Act of 1998, vol. II, at 86-87 (JCS-1-00, 2000).
20 See, e.g., Ryan v. Bureau of Alcohol, Tobacco, and Firearms, 715 F.2d 644, 646-47 (D.C. Cir. 1983).
21 Naomi Jagoda, IRS Commissioner: Court Ruling Raises Privacy Concerns for Taxpayers, The Hill (Mar. 24, 2016); Richard Rubin, Court Ruling Potentially Opens Taxpayer Information to Public, Wall St. J. (Mar. 24, 2016).