DC Circuit Case on IRS Use of Glomar FOIA Response Neither Admitting Nor Denying (7/26/22)

I was reading David Lat’s article, My Latest Theory About The SCOTUS Leaker (Original Jurisdiction 7/26/22), here.  Lat's theory is that the Politico authors publishing the original article about the Supreme Court draft opinion leak in Dobbs, with a link to the draft opinion, do not know the leaker (after the opening in Lat's article), he calls the person "The Leaker."  Lat offers the steps behind this theory, some of which sound cloak and dagger or even conspiracy theories. Nevertheless, it is a good read; well at least an interesting read.  

Among the steps Lat reports he took to confirm his theories

I contacted Gerstein and Ward [the Politico authors] with my theory that they don’t know the name of their source. I invited them to reassure me, even off the record, that they do know The Leaker’s name, in which case I wouldn’t float my theory. They didn’t do that; instead, they put me in touch with Politico spokesperson Brad Dayspring, who emailed me: “Given the sensitivity of the matter and the importance of protecting sources and methods, we are going to decline to comment—as I am sure that you can appreciate.”

This struck me as something like a so-called Glomar response when information is sought through a legal process (say FOIA), and there is an exemption from disclosure under circumstances that the law permits the agency to make a nonresponse.  That is on my mind because I am updating my Federal Tax Procedure Book editions for 2022 (hopefully will be published in early August), I just incorporated a recent case, Montgomery v. IRS, 40 F. 4th 702 (D.C. Cir. July 19, 2022), DCCir here and GS here.  In Montgomery, the taxpayers believe that someone was a whistleblower concerning their investment in a bullshit tax shelter long ago called out, with taxes and penalties visited on the Montgomerys.  The Montgomerys then pursued a long-running quixotic quest via FOIA to find out who the whistleblowers were.  (It is unclear what they would do with the identities, but I suspect it would not be good for the whistleblowers.)  I wrote on an earlier district court opinion in the ongoing saga, Bullshit Shelter Taxpayers Continuing FOIA Litigation to Identify Informants Turning Them In to IRS (Federal Tax Procedure Blog 3/30/20), here.  In relevant part, the IRS gave a Glomar response to the FOIA request.  I thought I would offer the portion of the FTPB as revised to include the new Montgomery case (I omit footnotes except for the Montgomery case which I quote from):

Bullshit Shelter Taxpayers Continuing FOIA Litigation to Identify Informants Turning Them In to IRS (3/30/20)

FOIA requests and litigation have not been featured prominently on this blog.  For this entry, FOIA litigation is front and center, but interesting for a tax crimes blog because of what the FOIA requesters (in the role of taxpayers in this case) seek from the IRS – the identity of the whistleblower, if one exists, who turned them in for attempting a raid on Treasury via a bullshit tax shelter.  In United States v. Montgomery (D. D.C. No. 17-918 (JEB) Memo Op. Dtd 3/25/20), here, the Court starts:

This Freedom of Information Act dispute represents the latest round in Plaintiffs Thomas and Beth Montgomery’s never-ending heavyweight bout with the Internal Revenue Service over their multi-billion-dollar tax-shelter scheme. After settling various financial disputes with the agency, Plaintiffs submitted FOIA requests to Defendant in order to discern whether a whistleblower had incited the agency’s investigation. The Service’s responses, however, did not bring Plaintiffs any closer to discovering the source of their woes. Frustrated in their pursuit of this information, they filed suit in this Court. 

In response to the previous round of summary-judgment motions, the Court held that Defendant had appropriately invoked Glomar with respect to one category of Plaintiffs’ requests but had failed to conduct an adequate search as to the other. History repeats itself here in regard to the current dispositive Motions. Once again, Defendant has justified its invocation of  Glomar as to certain potential documents, but it has otherwise not conducted an adequate search. The Court will therefore grant in part and deny in part the parties’ Motions for Summary Judgment and direct the IRS to renew its search.

A Glomar response a FOIA response that “neither confirms nor denies the existence of documents responsive to the request” because it would cause cognizable harm under a FOIA exception.  E.g., Ctr. for Constitutional Rights v. C.I.A., 765 F.3d 161, 164 (2d Cir. 2014).  Obviously, the IRS does not either want to disclose that there was an informant or the name of the informant if there was an informant.

Then the Court recounts the facts:

The Court has recounted the facts surrounding this prolonged tax saga in several of its prior Opinions, but it will provide a brief recap here. See, e.g., Montgomery v. IRS, 292 F. Supp. 3d 391, 393–94 (D.D.C. 2018). In the early 2000s, Plaintiff Thomas Montgomery helped form several partnerships that were structured so as to facilitate the reporting of tax losses without those entities’ experiencing any real economic loss. Id. at 393. These “tax-friendly investment vehicles” allowed Thomas and his wife Beth, filing jointly, to report the entities’ alleged losses as part of their individual tax returns. Id. (alteration omitted). In other words, Plaintiffs were able to enjoy the tax benefits of experiencing an investment loss without shouldering the consequent burdens of such a loss. Somehow — and the Montgomerys are determined to learn exactly how — the IRS caught wind of their use of these vehicles, setting into motion over a decade of litigation on the issue. 

After examining the structure of the partnerships, the IRS issued “final partnership administrative adjustments” (FPAAs) as to two of them, which resulted in the agency’s imposing certain penalties and disallowing some of the losses the Montgomerys had claimed on their individual returns. Id. at 393–94. Next, the partnerships sued the Service in several separate actions, seeking a readjustment of the FPAAs (for those keeping score at home, this would amount to a readjustment of the adjustments). See Bemont Invs., LLC v. United States, 679 F.3d 339 (5th Cir. 2012); Southgate Master Fund, LLC v. United States, 659 F.3d 466, 475 (5th Cir. 2011). Ultimately, the Fifth Circuit affirmed the IRS’s determination that the partnerships had substantially understated their taxable incomes, Bemont, 679 F.3d at 346, but held that one transaction by the Southgate partnership had a legitimate investment purpose. Southgate, 659 F.3d at 483. With these mixed verdicts in hand, the Montgomerys and the partnerships pursued thirteen separate suits against the IRS, seeking, inter alia, a refund of assessed taxes and penalties. Montgomery, 292 F. Supp. 3d at 394. The cases were ultimately consolidated, and the parties reached a global settlement agreement in November 2014 that entitled the Montgomerys to more than $485,000. Id.

Thus, while the Montgomerys did get a substantial refund, it appears that they lost their claims to even more substantial refunds.  The Montgomerys walked away from the settlement of their tax liabilities with an ax to grind--with an informant causing their woe, if there was an informant.

The Court then addresses the particular skirmish in this long running saga, calling it "Another turn of the hamster wheel."

I don’t know that there is anything more to say about this continuing saga other than that the bullshit tax shelter abusers must have more money than they apparently need.

Cross posted on Federal Tax Crimes Blog, here.

Public Interest Entity Fails in FOIA Attempt to Force IRS to Disclose President Trump's Tax Returns (8/29/17)

In Electronic Privacy Information Center, v IRS, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017), here, the court rejected the EPIC's attempt to obtain the tax returns of President Donald J. Trump.  I have added the following footnote to p. 144 of the Practitioner Edition after the sole paragraph in (there is no change to the Student Edition), but provide the entire text paragraph (for context) and the footnote:

Ch. 4.  Confidentiality and Disclosure of Return Information.
IV.  Exceptions–Must be Congressionally Approved.
H. Other Permitted Disclosures

Section 6103 contains a plethora of other permitted disclosures. All are grounded in some perception of national priority that trumps the general need for secrecy. I do not expect you to know these other exceptions for this class.  You should, however, know that, when you practice in this area, you simply have to slug through the various and many permitted disclosures to assess risks of disclosure for your client and remedies that may be available for wrongful disclosure.  Your intuition based on the foregoing examples should also give you a sense of when a national priority exists for which Congress might have provided an exception.  But you still must read the statute, because sometimes Congress' sense of national priorities may be different than what you think it is or should be. fn. 611a 

fn. 611a.  There is one disclosure authority within this general grouping that is worth a passing mention because of its topical interest in 2017 when this footnote was prepared.  Section 6103(k)(3) permits the IRS, upon approval of the JCT, to disclose return information “with respect to any specific taxpayer to the extent necessary for tax administration purposes to correct a misstatement of fact published or disclosed with respect to such taxpayer’s return or any transaction of the taxpayer with the Internal Revenue Service.”  Notice the qualifiers for this authority: (i) approval by the JCT; and (ii) necessity for tax administration.   See § 6103(b)(4) (defining tax administration).  Merely some national emergency does not fit this exception; rather the necessity must arise from tax administration and it is solely to correct a misstatement of fact.  It is hard to imagine this authority being invoked with these limitations, and so far as I am aware, it has never been invoked.  See for a failed attempt to require the IRS to exercise this authority to release President Donald J. Trump’s tax returns, Electronic Privacy Information Center, v IRS, ___, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017) (calling this exception a “rara avis” and also stating that the Court is aware of no instance of its actual use, but (i) noting two instances where preliminary moves were made to obtain the required permission but the permission from the JCT were not granted and (ii) other citings in cases appear to have been errors).  This case also held that, under the APA or otherwise, there is no requirement that the IRS seek the approval of the JCT to make the disclosures.

I also revised footnote 555 on p. 135 as follows and offer the sentence in the text and the footnote:

The IRS generally “may” also disclose return information to the taxpayer or his or her representative or designee unless it determines that the disclosure would “seriously impair Federal tax administration.” fn 555

fn. 555 § § 6103(c) (as to taxpayer’s representative) and § 6103(e)(7) (as to taxpayer and others otherwise having access).  Regs. § 601.702(c)(5)(iii)(C) (“In the case of an attorney-in-fact, or other person requesting records on behalf of or pertaining to other persons, the requester shall furnish a properly executed power of attorney, Privacy Act consent, or tax information authorization, as appropriate.”).  For an interesting application of this limitation where the FOIA suit was dismissed because the requester seeking the returns of President Donald J. Trump did not provide President Trump’s consent to the disclosure, see Electronic Privacy Information Center, v IRS, ___, 2017 U.S. Dist. LEXIS 131911 (D. D.C. 2017).