LINSTEADT v. I.R.S., 729 F.2d 998 (5th Cir. 1984)

L.A. LINSTEADT AND WANNELLE LINSTEADT, PLAINTIFFS-APPELLANTS, v. INTERNAL REVENUE SERVICE AND ROSCOE L. EGGER, COMMISSIONER, DEFENDANTS-APPELLEES.

No. 83-1462. Summary Calendar.United States Court of Appeals, Fifth Circuit.
April 16, 1984.

Tarlton, Douglas, Kressler Wuester, William O. Wuester, Fort Worth, Tex., for plaintiffs-appellants.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Chief, Appellate Section, Richard W. Perkins, Atty., Stephen Gray, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before BROWN, TATE and HIGGINBOTHAM, Circuit Judges.

TATE, Circuit Judge:

[1] The plaintiffs, L.A. Linsteadt and his wife, sue under the Freedom of Information Act (“the Information Act”),

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5 U.S.C. § 552, to require the Internal Revenue Service (“IRS”) to permit them access to certain agency records. They appeal from summary judgment rejecting their demand insofar as an agency-prepared memorandum that reported only the facts stated by the Linsteadts themselves in an interview between them and an IRS special agent.

[2] I. Overview
[3] The principal legal issue, as will be stated below in more detail, is whether — as the defendant agency contends, and as the district court held — the agency’s duty to disclose “return information” is entirely measured by a provision of the Internal Revenue Code, 26 U.S.C. § 6103; or whether, as the plaintiffs contend, that provision is an exempting statute under the Information Act, 5 U.S.C. § 553(b)(3), that furnishes the criteria for the duty to disclose, but which duty is nevertheless subject to the provisions of the Information Act. The difference is more than theoretical. If § 6103 provides the sole measure of the duty, on judicial review the claimant has the burden of proving an abuse of the agency’s discretion in nondisclosure. If, however, the Information Act applies and merely incorporates the criteria of § 6103 as an exempting statute, on judicial review the district court determines the matter de novo, 5 U.S.C. § 552(a)(4)(B), with the agency bearing the burden of showing that nondisclosure was warranted, id., by one of the nine specific exemptions listed in § 552(b) of the Act. Following prior precedent of this court — and rejecting, as contrary to circuit panel practice, the suggestion of the IRS that we ignore this decision by a prior panel — we hold that, although § 6103 may furnish the criteria for the agency’s duty to disclose return information, judicial review of the agency’s nondisclosure is governed by the Information Act.

[4] This legal issue resolved, then the principal factual issue remaining is whether, in its alternative holding posited should this court find that the Information Act applies, the district court erred in determining that disclosure of a memorandum of the plaintiffs’ own admissions to an IRS agent would “seriously impair Federal tax administration”, 26 U.S.C. § 6103(e)(7), or would “seriously interfere with enforcement proceedings,”5 U.S.C. § 552(b)(7), two of the statutory criteria justifying agency nondisclosure. Applying the accepted principles that under the Information Act the agency has the burden to justify nondisclosure, we affirm the district court’s factual determinations that the agency’s refusal to disclose the memorandum was justified by these statutory exemptions from the disclosure requirements.

II.
[5] On this appeal, the merit-issue concerns the denial of the Linsteadts’ Information Act request for portions of an IRS memorandum that contained only their own factual statements as summarized by an IRS agent who interviewed them, as will be detailed more fully later. We will here discuss the interrelationship between the Information Act and 26 U.S.C. § 6103, the factual context in which this issue arises, as well as the applicable jurisprudential principles.

[6] A. The Freedom of Information Act, 5 U.S.C. § 552
[7] The Information Act provides that an “agency shall make available to the public,” § 552(a), its records upon request, § 552(a)(3), except for nine specified exemptions, § 552(b) (two of which are claimed by the IRS here to apply). On judicial review of an agency’s failure to disclose its records, “the court shall determine the matter de novo . . ., and the burden is upon the agency to sustain its action.” § 552(a)(4)(B).[1] [8] In resisting the Linsteadts’ request for disclosure, the IRS relies upon Exemption 3 (the “exempting statute” exception) and upon Exemption 7(A) (the “investigatory

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records” exception) of § 552(b).[2] In this portion of the opinion, we will discuss the application of Exemption 3 to the present facts, reaching Exemption 7(A) in part IV below.

[9] As set out in the margin, with regard to Exemption 3, the Information Act provides that it “does not apply to matters that are . . . specifically exempted from disclosure by statute,” provided that the statute meets certain requirements. The crux of the present disputed legal issue is whether agency records subject to an “exempting statute”, such as the one upon which the IRS now relies, are completely exempted from any application whatsoever of the Information Act, or whether, instead, the Information Act’s requirements of de novo judicial review and agency burden of proof for nondisclosure apply with regard to matters that the agency has statutory discretion not to disclose under the exempting statute.[3] [10] B. 26 U.S.C. § 6103
[11] In refusing disclosure of the memorandum at issue to the Linsteadts, the IRS relies upon 26 U.S.C. § 6103. This statute, in general, provides that a taxpayer’s tax returns or tax “return information” (defined, as is conceded, to include the memorandum of information furnished by the taxpayer to the IRS with respect to his tax liability) is confidential and may not be disclosed to the public (nor to governmental agencies, except as authorized by the statute). These nondisclosure provisions of § 6103 meet the requirement of proviso A to Exemption 3 — requiring “that the matters be withheld from the public in such a manner as to leav no discretion on the issue,” 5 U.S.C. § 552(b)(3)(A) quoted note 2 supra (emphasis added) — so that a person (a “member of the public,” insofar as another person’s tax information is concerned) is not entitled to access to the tax return or return information of other taxpayers. Fruehauf Corporation v. Internal Revenue Service, 566 F.2d 574, 578, 580 (6th Cir. 1980) (but specifically noting that the issue of discretionary release to a taxpayer himself, infra, was not at issue, 566 F.2d at 578 n. 6). [12] However, § 6103 also provides that the taxpayer himself or his designee may have access to his own return and return information unless the Secretary determines that disclosure “would seriously impair

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Federal tax administration.” 26 U.S.C. § 6103(c), (e)(7).[4]

[13] The IRS contends that, by virtue of these provisions of § 6103, the Information Act is not applicable to a taxpayer’s request for access to his own tax return or tax return information. The tax return or return information of a taxpayer is protected therefore (it argues) from access even by the taxpayer himself, when the Secretary determines that federal tax administration would thereby be impaired. [14] C. Interrelationship of § 6103 and the Information Act
[15] In so contending, the IRS relies upon the construction of §§ 6103(c) and (e)(7), and the interrelationship between these statutory provisions and the Information Act, declared by Zale Corporation v. United States Internal Revenue Service, 481 F. Supp. 486 (D.C.D.C. 1979). Zale held that § 6103(e)(7) (then (e)(6)) was intended to provide the sole standard governing disclosure or nondisclosure of tax return information, rather than being merely support for a claim of exemption under the Information Act’s § 552(b)(3) exemption. Construing § 6103’s particularized regulation of release of return information as a self-contained statutory scheme, Zale concluded that the generalized disclosure requirements of the Information Act were not applicable at all to regulation of the disclosure/nondisclosure of tax return information. Zale held, therefore, that judicial review of the agency’s nondisclosure of tax return information was limited by the Administrative Procedure Act, 5 U.S.C. § 701 et seq., to determining whether the Secretary’s action was arbitrary or an abuse of his discretion in his impairment determination upon which nondisclosure was based. 481 F. Supp. at 490. The Zale court found no such abuse and upheld nondisclosure. 481 F. Supp. at 491. [16] Whatever the merits of the Zale interpretation, this circuit has held to the contrary. Chamberlain v. Kurtz, 589 F.2d 827
(5th Cir.), cert. denied, 444 U.S. 842, 100 S.Ct. 82, 62 L.Ed.2d 54 (1979). In Chamberlain, we held that 26 U.S.C. §§ 6103(c) and (e)(7) (then, (e)(6)), indeed met the requirement of an exempting statute under Exemption 3(B), 5 U.S.C. §§ 552(b)(3)(B) (quoted in note 2 supra) — as establishing sufficiently “particular criteria” on “particular types” of records to be withheld — so as “to avoid the evils of unfettered agency discretion with which Congress was trying to deal when [in 1977] it [more restrictively] amended Exemption 3.”589 F.2d at 839. Therefore, § 6103(c), (e)(7) “permits the Secretary to withhold return information if he determines that such disclosure would `seriously impair Federal tax administration.'”589 F.2d at 843. [17] However, we also held that, under the Information Act, the IRS has “the burden of sustaining a decision to withhold information” from the taxpayer. 589 F.2d at 841.[5] Thus, contrary to the subsequent

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construction of Zale, supra, we held in Chamberlain that § 6103(c), (e)(7) provide criteria for nondisclosure under Exemption 3, but that on judicial review the agency bears the burden of justifying its nondisclosure under the Information Act.

[18] The distinction between this circuit’s approach i Chamberlain and that taken by the Zale court is brought into sharp focus by the decision of our sister Eleventh Circuit i Currie v. Internal Revenue Service, 704 F.2d 523 (11th Cir. 1983). There, similarly to the present case, the IRS argued that Zale provided the correct statutory interpretation of the statutory provisions at issue and that Chamberlain should not be followed. Rejecting the IRS’s contentions,[6] the court concluded itself bound by the Chamberlain precedent of its predecessor court, which it construed as holding that “the nondisclosure of the requested information” of tax return information relating to the taxpayer alleged to be protected from disclosure by § 6103 must be viewed “as an exemption from the normal policy of full disclosure under the FOIA [Information Act]”, 704 F.2d at 527, subject to de novo judicial review, with the agency bearing “the burden of proving [that] the withheld materials are within one of the exemptions of the `tougher’ FOIA [Information Act]”, 704 F.2d at 530.[7] (The court also held that, once a court “has analyzed a case under the strictures of FOIA [the Information Act] it is unnecessary for it to engage in the Zale analysis; a nondisclosure decision that passes muster under the `tougher’ FOIA requirements [the agency bearing the burden of proof to justify nondisclosure] will have a rational basis. Such needless use of scarce judicial resources is not to be encouraged.” 704 F.2d at 528.) [19] The IRS frankly admits that Zale’s interpretation is contrary to that of this court in Chamberlain and to the Eleventh Circuit’s in Currie (following Chamberlain), but it argues that this panel is nevertheless free to decide in accordance wit Zale “because Chamberlain antedated Zale and no Zale
-type argument was made to this Court in Chamberlain.” IRS brief, p. 13. However, “[u]nder the precedent theory of this court, one panel may not overrule the decision of another panel of this court squarely on point and in the absence of intervening and overruling Supreme Court decisions.” White v. Estelle, 720 F.2d 415, 417 (5th Cir. 1983).[8]

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[20] To summarize: The present facts before us concern a request by the taxpayers that the IRS furnish them access to a memorandum of factual statements made by them to an IRS agent. The IRS denied disclosure on the basis of its power to withhold release to the taxpayer himself of his tax return information when it determines that such disclosure would seriously impair tax administration, relying on 26 U.S.C. §§ 6103(c) and (e)(7). It now contends that its denial may be reviewed solely under that statute for an abuse of its discretion. We hold, however, that while 26 U.S.C. § 6103
provides the criteria for nondisclosure under Exemption 3 of the Information Act, the agency’s denial of disclosure is reviewable under the Information Act, with the government bearing the burden of demonstrating that one of the specific exemptions of the Information Act justifies its nondisclosure.

III.
[21] The district court alternatively held that, if the Information Act does apply, then the IRS had borne its burden of demonstrating that the requested portions of the memorandum fell under Exemption 3 as (incorporating the § 6103 criteria) a disclosure likely to seriously impair federal tax administration, and under Exemption 7(A) (see note 2 supra) as an investigatory record compiled for law enforcement purposes, release of which would interfere with enforcement proceedings.

[22] With regard to our standard of review, it is settled that an appellate court reviewing district court determinations under the Information Act “(1) must determine whether the district court had an adequate factual basis for the decision rendered and (2) whether upon this basis the decision reached was clearly erroneous.” Stephenson v. Internal Revenue Service, 629 F.2d 1140, 1144 (5th Cir. 1980). Accord, Currie v. Internal Revenue Service, supra, 704 F.2d at 528; Chilivis v. Securities and Exchange Commission, 673 F.2d 1205, 1210 (11th Cir. 1982) an Church of Scientology v. United States Department of the Army et al., 611 F.2d 738, 742 (9th Cir. 1979) (full discussion of the standard of appellate review of Information Act determinations). “A finding is `clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire record is left with the definite and firm conviction that a mistake has been committed.” United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). [23] The Linsteadts contend on appeal that the district court’s factual findings are clearly erroneous and should be reversed. Before reaching the merits of this contention, we deem it advisable to explicate the present facts more fully. [24] The Linsteadts are presently the subject of a joint criminal/civil tax investigation for the 1978, 1979, and 1980 tax years. On June 30, 1982, the Linsteadts filed a Freedom of Information Act request seeking copies of any statements made by the Linsteadts to Internal Revenue Service agents.[9] The IRS identified four memoranda of interviews in its files that were responsive to the request. The IRS District Director for the Dallas District released three of the memoranda in their entirety, but disclosed only part of the fourth memorandum. In his letter to the plaintiffs partially denying their request, District Director

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Cagle explained that parts of the fourth document were being withheld pursuant to Exemptions (b)(3) and (b)(7)(A) of the Information Act, 5 U.S.C. §§ 552(b)(3) and 552(b)(7)(A). After exhausting their administrative remedies, the plaintiffs brought the present action.

[25] In the proceeding below, the government introduced affidavits from the IRS District Director for the Dallas District and the IRS Special Agent assigned to the Linsteadts’ case to support the claim that the withheld document was within one of the exemptions of the Freedom of Information Act. In a hearing on the government’s motion for summary judgment, the government conceded that the portions of the fourth memorandum of interview being withheld contained only a factual summary of the Linsteadts’ statements, and did not include any conclusions or opinions of the Special Agent who took the statements. [26] As previously noted, the district court upheld the agency’s nondisclosure primarily on the basis that it was not an abuse of the allowable discretion under 26 U.S.C. § 6103, a ruling we have reversed as contrary to Chamberlain. Alternatively, the district court held that the government had borne its burden of demonstrating that the memorandum of the taxpayers’ factual statements fell within two of the specified exemptions of the Information Act; a ruling we now review.

IV.
[27] The IRS contends that nondisclosure is justified by two specific exemptions of the Information Act: (1) Exemption 3, incorporating the criterion of § 6103 as an exempting statute, under which disclosure of a taxpayers’ return information to him is exempted if it would “seriously impair Federal tax administration”; and (2) Exemption 7(A), exempting from disclosure an investigatory record compiled for law enforcement purposes (as the sought document is conceded to be), “but only to the extent that the production of such records would (A) interfere with law enforcement proceedings,”5 U.S.C. § 552(b)(7)(A).

[28] The Linsteadts’ Information Act request was limited to any statements made by the Linsteadts during the course of the tax investigation, including written statements, oral statements recorded by a recording device, and oral statements which had been reduced to writing. The Linsteadts stress that their request does not include any demand for any conclusion or opinion of the Special Agent who recorded their statements. Nonetheless, the government contends that the release of the information would have several ill effects. The IRS claims that disclosure would allow the Linsteadts “to fabricate excuses or evidence to frustrate the investigation or to address those facts which the Government unearths.” IRS Brief, p. 17.[10]

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[29] Internal Revenue Service directives require that memoranda of interviews include only a summarized recitation of the statements made by the interviewees. See Part IX — Intelligence, Internal Revenue Manual, § 346.55. As the government forthrightly admits, the memorandum at issue contains no opinions or conclusions of the Special Agent, but merely a factual recitation of the Linsteadts’ own statements. Moreover, as did the district court, this court has reviewed in camera the portions of the memorandum that the IRS seeks to withhold. [30] Our review of the interview memorandum has generated a division of opinion among the members of this panel. Judge Brown and Judge Higginbotham conclude that the district court did not err in finding that the IRS bore its burden of establishing that release of this document would seriously impair the Service’s administration of the federal tax laws and would significantly interfere with the present law enforcement proceedings. Though — or perhaps because — the question is not free from doubt, Judges Brown and Higginbotham defer to the district court’s finding of fact. In their view, the affidavits of the IRS officials, see
note 10, supra, must be given due weight despite our holding that an abuse of discretion standard does not apply, and if the district judge upon conducting his own in camera inspection concludes that the contents of the contested document justify the government’s concern, this court should be particularly loathe to second-guess that judgment absent manifest error. No such error appears here, and the judgment must accordingly be affirmed. [31] Judge Tate dissents from this disposition, as he cannot agree that the evils cited by the government to justify nondisclosure could reasonably come to pass, given the contents of the withheld document. The remainder of this opinion comprises Judge Tate’s explanation of why he would reverse the judgment and order the release of the withheld portions of the interview memorandum.