The IRS Has A Long Memory

A tax controversy attorney sued the Internal Revenue Service under FOIA for disclosure of documents relating to an investigation of him by the agency’s Office of Professional Responsibility.

The United States Court of Appeals for the District of Columbia Circuit affirmed and reversed in part the denial of disclosure.

Waterman is a tax controversy attorney who regularly represents clients before the IRS. In 2012, Waterman’s client approached the Tax Exempt Bonds office of the IRS to resolve its potential liability under Treasury regulations resulting from the use of a tax-accounting method known as “loan swapping.” When no settlement was reached, the office began an audit of the bonds issued by Waterman’s client. Internal Revenue Agent Michael Marchetti conducted the audit. Marchetti prepared a Suspected Practitioner Misconduct Report, which was filed with the OPR on March 17, 2014. The Report alleged that Waterman had unreasonably delayed the prompt disposition of the client’s case before the IRS in violation of its rules of practice. Two memoranda — one authored by Marchetti and the other by his supervisor, Chelsea Kelly — were attached to the Report in support of Marchetti’s allegations.

On September 10, 2014, Waterman was notified by the OPR that it had received allegations that his conduct had violated the IRS’s rules of practice and that, upon review, the OPR had determined that the Report did not “warrant further investigation or action.”

But

The letter also advised him that the OPR would retain the administrative file containing the allegations against him for 25 years and that those allegations could be considered as “cumulative conduct” in any future investigation.

While some documents were disclosed, the district court granted summary judgment as the others. 

This appeal followed.

The court found that the deliberate privilege shielded some of the documents from disclosure

the court affirms in part the district court’s grant of summary judgment to the IRS and reverses in part as to the Marchetti Memo and the Kelly Memo.

Circuit Judge Wilkins dissented from the majority’s decision to allow disclosure

Today the court concludes that the IRS was entitled to withhold two of those documents. I concur with that part of its opinion.

But I respectfully disagree with the court’s decision regarding the Marchetti and Kelly memos. FOIA allows the IRS to withhold them in their entirety.

Reasoning

Marchetti and Kelly wrote their memos before the IRS decided whether to charge Waterman. The memos are deliberative because (1) their purpose was to help the IRS make that decision and (2) the selection of facts within them reveals how the agents exercised their judgment.

…FOIA allows the IRS to withhold both memos because (1) their purpose was to assist in a discretionary decision (whether to further investigate Waterman) and (2) their authors selected facts that reflected a point of view (that Waterman should be investigated)

It’s easy to understand Waterman’s desire for the memos he has requested. They include details of allegations against
him by employees of an agency that wields considerable power over tax lawyers — and over the rest of us, for that matter. But FOIA does not require disclosure of the records Waterman wants to see. I therefore respectfully concur in part and dissent in part.

(Mike Frisch)