In tax client representation work, there are a lot of Freedom Of Information Act (FOIA) requests.
FOIA allows you to see what information a government has regarding you. For instance, if you have a client that has been audited and the agent made changes you don’t agree with and your goal is to go to appeals, most times you can just politely ask the official for their notes regarding the audit. Usually, these are just given to you; however, from time to time, an overzealous agent will refuse the request. In this case, you simply file an FOIA request, and you receive the notes anyway. Similarly, if you want to see the clients who have an outstanding POA or Form 8821 on your CAF Number, you simply do an FOIA request to get the information and then eliminate from your CAF any clients you are no longer representing.
Under the FOIA and IRS regulations, upon any request for records which reasonably describes such records, the IRS must promptly make such records available. District courts are directed to conduct a de novo (new) review of the adequacy of an agency's response to an FOIA request.
The FOIA expressly places the burden on the defending agency to show that it acted in accordance with the statute. To meet a summary judgment burden, the agency must establish that: (1) its search for the requested material was adequate; and (2) each responsive document was either produced, unidentifiable or exempt from production.
FOIA Exemption 7(A) under 5 U.S.C. § 552(b)(7)(A) provides that records or information compiled for law enforcement purposes may be withheld by an agency in response to an FOIA request, but only to the extent that the production of such law enforcement records or information could reasonably be expected to interfere with enforcement proceedings. To satisfy its burden and withhold records under exemption 7(A), the agency must establish that (1) the documents were investigatory records compiled for law enforcement purposes and (2) production of the documents would interfere with pending enforcement proceedings.
Which brings us to Agrama v. U.S., which was decided by the Court of Appeals for the Federal Circuit. In October 2015, Jehan Agrama received two IRS notices asserting that, for the 1982 to 2004 tax years, she had failed to properly report her ownership interest in a foreign corporation by filing Forms 5471. Agrama disputed that she in fact had such an interest and in February 2016 filed a request under the Freedom of Information Act (FOIA) 5 U.S.C. § 552, seeking "each and every document... contained in the administrative files of the Internal Revenue Service relating to proposed Form 5471 penalty liabilities" for her case.
The IRS searched her files and provided some responsive documents but also withheld some, asserting that they fell under FOIA Exemption 7(A), 5 U.S.C. § 552(b)(7)(A), because their disclosure would interfere with an ongoing investigation.
In April 2016, Agrama filed suit in the district court, challenging the IRS's decision to withhold responsive documents. After the suit was filed, more responsive documents were discovered, and IRS produced some of the pages that had previously been withheld, including a translated copy of an 83-page report prepared for the Italian government by investigator Gabriella Chersicla (the Chersicla Report).
Relying on both the public and ex parte (i.e., where only one party was present) declarations, the district court granted IRS's motion for summary judgment and denied Agrama's cross-motion for summary judgment, concluding that IRS's search for responsive files was adequate and that the withheld documents were exempt from disclosure under the FOIA.
However, Agrama argued that IRS's search was inadequate, pointing to the fact that none of the records produced indicated how the agents in the U.S. received the Chersicla Report. She also challenged IRS's reliance on Exemption 7(A), arguing that the agency had not sufficiently explained how disclosure of the withheld documents would compromise any ongoing investigations.
The IRS submitted declarations from the officials who conducted the search for responsive documents, explaining what records systems had been searched, averring that they were unaware of any other records system likely to maintain records responsive to Agrama's request and asserting that the withheld documents contain information relevant to a law enforcement matter which was not yet concluded. Over Agrama's objection, the district court granted an IRS motion to submit ex parte a brief and a declaration from an agent describing the documents and the search that he conducted.
The Appellate Court found that IRS search for the sought-after documents was adequate. In order to demonstrate adequacy, an agency must show that it made a good faith effort to conduct a search for the requested records using methods which could be reasonably expected to produce the information requested. The IRS met its burden of showing such by a reasonably detailed affidavit, setting forth the search terms and the type of search performed, and averring that all files likely to contain responsive materials (if such records existed) were searched.
Agrama did not dispute that the IRS acted in good faith, but rather argued that they failed to follow through on obvious leads to discover requested documents. Specifically, she argued that the IRS should have searched the files of the Tax Attaché in Italy, which was charged with receiving tax records from the Italian government. She speculated that because the Chersicla Report was originally produced by the Italian government, the IRS office in Italy charged with requesting documents from the Italian government might have documents that explained how the Chersicla Report was received by IRS. However, the Court concluded that agencies were not required to speculate about potential leads. It and determined that no more was required; adequacy — not perfection — was the standard that the FOIA imposed.
Finally, the Court rejected Agrama's argument that the district court erred in holding that the IRS properly withheld four responsive documents under FOIA Exemption 7(A), which exempts certain law enforcement records from disclosure. Agrama claimed that the IRS failed to met its burden to demonstrate how disclosure of the withheld records would interfere with law enforcement proceedings. While conceding that agency's public disclosures on this matter was cursory, the Court determined that this was one of those occasions where extensive public justification would threaten to reveal the very information for which an FOIA exemption was claimed. Based on the IRS's public and ex parte disclosures, the Court was satisfied that the IRS met its burden of demonstrating that disclosure of the withheld records might reveal the scope and direction of the investigation and could allow the target to destroy or alter evidence, fabricate fraudulent alibis or intimidate witnesses.
Therefore, keep in mind that an FOIA request has exemptions to what has to be disclosed.
About Craig W. Smalley, EA
Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.