Page 2 - Making FOIA Requests To The IRS: Overview Of The Basic Procedures And Exemptions, And Issues For Partnerships

TAX CONTROVERSY CORNER
statute; (2) inter-agency or intra-agency memoranda; and (3) investigatory records.7
The Relationship Between FOIA and Taxpayer Con dentiality Rules
In FOIA requests to the IRS, information speci cally exempted by statute usually means Code Sec. 6103.8 Be- cause of taxpayer privacy and con dentiality protections of Code Sec. 6103, taxpayer “returns” and “return informa- tion” are not generally available to the public. “Return” means any tax return, information return, declaration of estimated tax, claim for refund, or any amendments or supplements, including supporting schedules led under the Code on behalf of, or with respect to, any person.9 “Return information” includes:
a taxpayer’s identity, the nature, source, or amount of his income, payments, receipts, deductions, exemp- tions, credits, assets, liabilities, net worth, tax liability, tax withheld, de ciencies, overassessments, or tax pay- ments, whether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the deter- mination of the existence, or possible existence, of liability (or the amount thereof ) of any person under this title for any tax, penalty, interest, ne, forfeiture, or other imposition, or o ense.10
Courts broadly construe “return information” to cover any information that the IRS has gathered with regard to a taxpayer’s liability under the Code.11 Indeed, the mere fact that a taxpayer is under audit or has been audited is “return information.”12
One example of a broad reading of Code Sec. 6103 can be found in 3K Investment Partners.13 A partnership formed to engage in the listed transaction known as “Son-of-BOSS”14 led a Tax Court petition to challenge the notice of nal partnership administrative adjustment (“FPAA”). In dis- covery, the partnership requested from the IRS redacted copies of all tax opinions collected by the IRS for Son-of- BOSS transactions and a list of the names and addresses of all law rms and accounting rms that the IRS knew to have issued tax opinion letters. e IRS refused to produce these materials under Code Sec. 6103, and the partnership moved to compel. e Tax Court found that the opinion letters and the list constituted “return information,” and even if the identifying information in the opinion letters
was redacted, the disclosure of the information was still not permitted. e Tax Court explained that “correspondence and memoranda, among other materials, contained within the investigative les of the [IRS] were nondisclosable return information, even if redacted of identifying data.” e list of practitioners was also nondisclosable “return information” and because it was collected by the IRS in determining other taxpayers’ tax liabilities.
ere are exceptions to Code Sec. 6103, the most common being that the IRS may make disclosure to the taxpayer itself, or persons designated by the taxpayer as authorized to receive such information.15 Questions often arise as to the right of certain taxpayers, like partners of a partnership, to obtain information from the IRS through FOIA and otherwise. Code Sec. 6103(e) provides that “returns” and “return information” may be disclosed to persons having a “material interest.” As noted, the taxpayer and the taxpayer’s designee are entitled to the “returns” and “return information,” but the issues become more complicated when return information supplied by one taxpayer with respect to his own tax liability a ects the liability of another taxpayer.
For partnerships and LLCs, any person who was a member of the entity during any part of the period cov- ered by the return is entitled to disclosure of the entity’s return.16 e IRS will verify that the person making the request was, in fact, a partner or member during the time period that the request relates.17 And, the person making the request must be a direct partner in the partnership in order to have access to the information.18
Partners are not entitled to any return information regarding another partner.19 As stated in Code Sec. 6103(e)(10), “[i]n the case of an inspection or disclosure under this subsection relating to the return of a partnership ... , the information inspected or disclosed shall not include any supporting schedule, attachment, or list which includes the taxpayer identity information of a person other than the entity making the return or the person conducting the inspection or to whom the disclosure is made.”
Code Sec. 6103(h)(4) allows the IRS to disclose to partners information that relates to an administrative proceeding in one of the circumstances described in that section, the three most common of which being:
(A) If the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, de- termining the taxpayer’s civil or criminal liability, or the collection of such civil liability, in respect of any tax imposed under this title;
50 JOURNAL OF PASSTHROUGH ENTITIES CCH Draft
JANUARY–FEBRUARY 2018
(B)
If the treatment of an item re ected on such return is directly related to the resolution of an issue in the proceeding; and