Page 3 - Making FOIA Requests To The IRS: Overview Of The Basic Procedures And Exemptions, And Issues For Partnerships

(C) If such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly a ects the resolution of an issue in the pro- ceeding ... .
is provision allows the IRS to send FPAAs to the partners of a partnership, and the IRS will not be liable for wrongful disclosure if it turns out that the person who receives the notice is later determined in the proceeding to not actually be a partner.20
In Mid-South Music Corp.,21 the court considered the disclosure of information about the partnership before the partners’ own returns had even been led. In that case, the IRS sent letters to the investors in a partnership that the IRS suspected to be an abusive tax shelter. e letter advised the investors that it was aware of the partner’s in- vestment and that “the indications are that the purported tax deductions are not allowable,” and warning the taxpay- ers that if they claim such deductions on their income tax returns, the returns will be examined and the deductions disallowed, and the partners subjected to penalties.22 e court held that the IRS had not violated Code Sec. 6103 in sending this letter, nding that it did not directly state that the partnership was under examination or investiga- tion by the IRS.23 e court explained, “[w]e are unable to divine a public policy undergirding the statute which would prevent the IRS from advising a taxpayer-investor in advance of his ling of his income tax return, that a deduction will be disallowed, as opposed to advising him of the disallowance after he has led his return and claimed the deduction.”24
Another important exception to Code Sec. 6103 is dis- closure of information in the trust fund recovery penalty context. Under Code Sec. 6672, the IRS can assess penal- ties for failure to collect and pay over employment taxes against multiple individuals as responsible persons.25 e responsible persons have joint and several liabilities for the penalty, but the IRS may only collect once. Accordingly, the responsible persons may have a material interest in information related to the IRS’s collection e orts against other responsible persons. Code Sec. 6103(e)(9) allows disclosure to any of the responsible persons of the returns and return information of the business to the extent they relate to the facts and circumstances forming the basis of the assessment. us, for example, a responsible per- son is entitled to the Forms 941 (Quarterly Employment Tax Returns) for the quarters that the IRS is asserting the penalty, but not for other quarters. In addition, the IRS must provide the responsible person with a written statement of the names of other targets and whether the IRS has attempted to collect the penalty from them,
the general nature of such collection activities, and any amounts collected.26
Other Common Exemptions to IRS FOIA Requests
Another common exemption claimed by the IRS is the 552(b)(5) exemption for “inter-agency or intra-agency memoranda or letters which would not be available by law to a party other than an agency in litigation with the agency.” e IRS can refuse to disclose under this exemp- tion if the materials would normally be privileged in the civil discovery context.27 ree privileges are incorporated into exemption 5 USC 552(b)(5): (1) the governmental privilege (or deliberative process privilege); (2) the attor- ney-client privilege28; and (3) the attorney work-product privilege under of Fed. R. Civ. P. 26(b)(3).29
e governmental privilege protects material re ective of the deliberative or policy-making process of government agencies. More speci cally, the privilege protects internal agency documents containing the opinions, deliberations, and recommendations reached by governmental o cials in connection with their o cial duties.30 Facts are gener- ally not protected unless inextricably intertwined with the deliberative process.31
Solers, Inc.32 provides an example of this exemption. In that case, the taxpayer made a broad FOIA request for the documentation related to his IRS audit and notice of pro- posed adjustment, and the guidance that the IRS received regarding his case. e IRS produced some documents but withheld others under various exemptions from FOIA. One item that the IRS withheld was the handwritten notes from the Revenue Agent of a conversation that he had with the taxpayer’s accountant on the ground that the notes re ected his “thoughts, impressions and [indicate] the possible direction of the examination.” e Court agreed that the notes re ected the mental processes of the
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Practitioners should consider making an FOIA request to the IRS after the conclusion of an examination, or
even during an examination if the IRS has not provided the taxpayer with information in its possession that may be relevant to the proper resolution.