Xanthopoulos v. Internal Revenue Serv.

538 F.Supp.3d 871

Nicholas XANTHOPOULOS and T. Keith Fogg, Plaintiffs,

v.INTERNAL REVENUE SERVICE, Defendant.

Case No. 19-cv-03006 (SRN/ECW)

United States District Court, D. Minnesota.

Signed May 11, 2021

Nicholas Xanthopoulos, 1726 Grand Ave., Apt. 3, St. Paul, MN 55105, and Tuan N. Samahon and Shawn M. Rogers, Goldstein Law Partners, LLC, 11 Church Road, Hatfield, PA 19440, for Plaintiffs.

Joseph E. Hunsader, U.S. Department of Justice, P.O. Box 227 – Ben Franklin Station, Washington, DC 20044, for Defendant.

AMENDED MEMORANDUM OPINION AND ORDER^*

SUSAN RICHARD NELSON, United States District Judge This matter comes before the Court on Defendant Internal Revenue Service's ("IRS") Motion for Summary Judgment [Doc. No. 28] and Plaintiffs Nicholas Xanthopoulos and T. Keith Fogg's Cross Motion for Summary Judgment [Doc. No. 34]. For the reasons set forth below, Defendant's Motion for Summary Judgment is GRANTED , and Plaintiffs’ Cross Motion for Summary Judgment is DENIED .

I. BACKGROUND

A. The Parties

Plaintiff Xanthopoulos, a tax attorney, and Plaintiff Fogg, a tax law professor, jointly submitted to the IRS a request under the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, seeking the disclosure of certain redacted portions of the Internal Revenue Manual ("IRM").¹ (Jt. Stipulation of Facts Not in Dispute ("Jt. Stip.") [Doc. No. 33] ¶ 2.)

Defendant IRS is a bureau of the U.S. Department of the Treasury and subject to the FOIA. (See Jt. Stip. ¶ 1.)

B. The Relevant Portions of the Internal Revenue Manual

IRS employees are required to authenticate the identities of third-party representatives who contact the IRS on behalf of a taxpayer to request sensitive taxpayer information. (Jt. Stip. ¶ 21.) Before 2018, the IRS accomplished this by requesting and then verifying the third-party representative's Centralized Authorization File ("CAF") number. The CAF "is a computerized system of records which houses authorization information from both powers of attorney [("POA")] and tax information authorizations [("TIA")]." IRM § 21.3.7.1.1(1). The CAF "assigns a unique identifying number to the taxpayer's authorized representative(s) ... or the taxpayer's appointee(s) ... and maintains the data in relation to the appropriate taxpayer accounts and tax modules." IRM § 21.3.7.1.7(1). The assigned "CAF numbers" are "unique numbers" that are "different from the third-party's Taxpayer Identification Number (TIN) or Preparer Tax Identification Number (PTIN)." IRM § 21.3.7.3(1).

However, in January 2018, the IRS changed its authentication procedures. In addition to the information it previously requested, the IRS now generally requires third-party representatives to provide their own Social Security Numbers to the IRS for authentication when third-parties contact the IRS on behalf of a taxpayer. (See Barnes Decl., Ex. F at 9 (noting this change).)

Section 21.1.3.3 of the IRM governs this authentication process, and this action centers on the redacted portions of text within this Section. Under § 21.1.3.3(1), IRS personnel must "complete the appropriate research" when responding to a third-party who represents that they have a third-party authorization on file. For third-parties who claim to have a POA or TIA, the IRM directs IRS personnel to research the CAF "before providing any tax account information." See IRM § 21.1.3.3(1).

Section 21.1.3.3(2) then provides that "[t]o verify that the caller is an authorized third party of the taxpayer, research the CAF." IRM § 21.1.3.3(2). "In order to research the CAF, you need the following information: Taxpayer's Name; Taxpayer's TIN; Third Party's Name; Third Party's Number (also known as: Rep number, CAF number) see (11) below for exception; Tax Period(s) in Question; and Tax Form(s) in Question." Id.

Section 21.1.3.3(3) then explains that, "to combat identity theft, the IRS is requesting some personal information, in addition to the CAF number, from tax professionals. The purpose is to confirm the identification of the person calling prior to releasing sensitive information. The intent is to enhance protections for tax professionals and their clients." IRM § 21.1.3.3(3).²

The IRS has redacted most of the rest of § 21.1.3.3(3). (See Jt. Stip., Ex. F.) In addition, six other portions of text were redacted under subsections (4), (5), (6), and (8). (See id. )³

C. Plaintiffs’ FOIA Request and IRS's Review of the Request

Plaintiffs sought to discover what the IRS had redacted under IRM § 21.1.3.3 through a FOIA request. On June 19, 2019, Plaintiffs submitted their FOIA request to the IRS, requesting, inter alia , "[a]n unredacted version of § 21.1.3.3 of the current Internal Revenue Manual ("IRM")." (Jt. Stip. ¶ 2; see id. , Ex. A.) On July 23, 2019, the IRS issued an initial response to Plaintiffs’ FOIA request, stating that it would be unable to provide the requested information by the 20-day statutory deadline. (Id. , Ex. B.) Then, on August 29, 2019, the IRS issued a final response to Plaintiffs’ FOIA request, denying Plaintiffs’ request for an unredacted version of IRM § 21.1.3.3. (Id. , Ex. C.) The IRS advised that it was continuing to withhold the redacted portions of IRM § 21.1.3.3 under 5 U.S.C. § 552(b)(7)(E) ("Exemption 7(E)"), which exempts from disclosure certain records compiled for law enforcement purposes. (Id. )

On October 1, 2019, Plaintiffs timely filed an administrative appeal of the IRS's denial of their FOIA request. (Id. , Ex. D; see id. ¶¶ 9-10.) The IRS denied Plaintiffs’ appeal on October 25, 2019. (Id. , Ex. E.)

D. IRM Revisions, Record Releases, and Text Still Redacted

The IRS has revised IRM § 21.1.3.3 several times since Plaintiffs submitted their initial FOIA request. (Compare Jt. Stip., Ex. F (effective as of March 4, 2019, before Plaintiffs submitted their initial FOIA request), with Ex. G (effective as of March 11, 2020), and Ex. I (effective as of July 9, 2020).) In the revised March 2020 version of § 21.1.3.3, the IRS publicly disclosed two sections of the text that it had previously redacted. (See id. , Ex. H (showing in red text the previously redacted material).) First, the IRS released the second half of the first paragraph under § 21.1.3.3(3). It provides that:

After establishing the third party authorization is valid for the account, you must validate the POA/TIA by performing an abbreviated authentication process on the caller's SSN following procedures in paragraph 5, (a) and (d) in the IRM 21.1.3.2.3, Required Taxpayer Authentication. The POA/TIA must pass authentication on their SSN to be validated as an authorized third party.

(Id. , Ex. G.) Second, it released the entirety of § 21.1.3.3(6), which provides that "[u]nprocessed authorizations containing a CAF number received via fax or in person will also need to be manually researched for CAF status. See paragraph 7 below." (Id. ) After these disclosures, the IRS again revised IRM § 21.1.3.3, effective as of July 9, 2020, but this round of revisions resulted in neither additional redactions nor additional disclosures. (See id. , Ex. I.)

Consequently, after the IRS's various revisions and disclosures, five redactions remain in IRM § 21.1.3.3: (1) a "note" under § 21.1.3.3(3); (2) an "exception" under § 21.1.3.3(3); (3) all of § 21.1.3.3(4); (4) all of § 21.1.3.3(5)⁴ ; and (5) approximately two lines of text under § 21.1.3.3(8). (See Jt. Stip., Exs. G, H, I.) These are the redactions that Plaintiffs dispute.

II. PROCEDURAL HISTORY

On November 29, 2019, Plaintiffs filed their complaint in the instant action, alleging that the IRS is improperly withholding the redacted portions of IRM § 21.1.3.3 under FOIA Exemption 7(E), in violation of 5 U.S.C. § 552(a)(4)(B). (See Compl. [Doc. No. 1] ¶¶ 54-64.) Plaintiffs request an order requiring the IRS to produce the redacted portions of IRM § 21.1.3.3, as well as an award of attorney's fees and costs under 5 U.S.C. § 552(a)(4)(E). (See id. , Request for Relief.)

III. DISCUSSION

A. Legal Standard for Review of FOIA Agency Decisions at Summary Judgment

Summary judgment is appropriate if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In the FOIA context, district courts have jurisdiction to enjoin an agency from withholding agency records and order production of any agency records improperly withheld. 5 U.S.C. § 552(a)(4)(B). District courts review agencies’ decisions to withhold records de novo , and the agency bears the burden of sustaining its action. Id. Indeed, "[a] government agency is not entitled to summary judgment in a FOIA case unless ‘the agency proves that it has fully discharged its obligations under FOIA, after the underlying facts and the inferences to be drawn from them are construed in the light most favorable to the FOIA requester.’ " Argus Leader Media v. U.S. Dep't of Agric. , 740 F.3d 1172, 1175 (8th Cir. 2014) (quoting Miller v. U.S. Dep't of State , 779 F.2d 1378, 1382 (8th Cir. 1985) ). To meet its burden, the agency "must prove that each document that falls within the class requested either has been produced, is unidentifiable, or is wholly exempt from the Act's inspection requirements." Id. (quoting Miller , 779 F.2d at 1382-83 ). Even when the requester and agency both move for summary judgment, the agency continues to bear the burden of proving that a particular FOIA exemption applies. See Pub. Citizen Health Rsch. Grp. v. Food & Drug Admin. , 185 F.3d 898, 904 (D.C. Cir. 1999) ("Even when the requester files a motion for summary judgment, the Government ‘ultimately [has] the onus of proving that the [documents] are exempt from disclosure.’ " (quoting National Ass'n of Gov't Employees v. Campbell , 593 F.2d 1023, 1027 (D.C. Cir. 1978) )). The requester's burden "is merely ‘to establish the absence of material factual issues before a summary disposition of the case could permissibly occur.’ " Id. (citing Campbell , 593 F.2d at 1027 ).

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