The IRS is rightly concerned about protecting taxpayers from data breaches and unauthorized disclosures, and it takes tremendous precautions to defend against them.
At the same time, taxpayers and their representatives have a right to understand how the IRS is using the personal information it collects in administering the tax laws.
A recent decision from the Eighth Circuit indicates that the courts are willing to put on the brakes when the IRS tries to stretch its law enforcement function too far in the direction of preventing taxpayers and their representatives from gaining that understanding. It’s an excellent development for taxpayers, tax professionals, and the tax system as a whole.
In Fogg v. IRS, No. 21-2502 (8th Cir. 2022), T. Keith Fogg, director of the Harvard Law School Federal Tax Clinic, sought to understand what the IRS was doing with tax practitioners’ Social Security numbers collected on phone calls with the agency while they were representing clients.
Around four years ago, the IRS introduced new and more extensive identity verification requirements for when tax practitioners call the agency on behalf of clients. The IRS didn’t consult practitioners first and didn’t explain how the information collected on calls was being protected.
Fogg filed a Freedom of Information Act request for the redacted portions of the Internal Revenue Manual that appear to describe what is done with practitioner information. The IRS denied the request, claiming that the information was exempt from disclosure under a FOIA exemption for documents that “disclose techniques and procedures for law enforcement investigations or prosecutions.”
When Fogg and his previous co-plaintiff, attorney Nicholas Xanthopoulos, filed suit in federal district court, the IRS submitted a declaration from an official saying that the redacted portion described law enforcement techniques and procedures. The declaration described the IRS as only a law enforcement agency. On appeal, a panel of Eighth Circuit judges thought that claim was taking things too far. They were right.
The IRS’s conception of itself as only a law enforcement agency in the declaration points to a potentially broader problem for the tax system, because the agency also has a crucial administrative function.
In other contexts, the IRS is clear on its administrative role, including in its formal mission statement, which leads with the IRS’s intention to “provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities.” In the second half of the mission statement, the IRS says it will enforce the law.
Allowing the IRS’s law enforcement function to provide a universal shield for information on administrative functions and decisions would be a bad result as a matter of fundamental transparency. Taxpayers and their representatives should be able to find out how their information is being protected and used by the agency, except in the narrow situation in which revealing the use would disclose actual techniques and procedures for law enforcement investigations or prosecutions.
It’s possible that the redacted IRM portions include techniques and procedures, but the district court should have confirmed through an in camera inspection that the rest of the declaration was accurate.
The district court’s reluctance to conduct an in camera review of the redacted portion of the IRM was attributable to an overbroad reading of a prior Eighth Circuit case warning that “the role of in camera inspection should be limited” to ensure that issues raised in court cases are decided based on publicly produced evidence (Cox v. Department of Justice, 576 F.2d 1302 (1978)).
But the point of limited in camera review of redacted material in FOIA cases is not to foreclose that review generally. The purpose is that nonpublic review should be limited to the court double-checking that the publicly available description of the redacted information is accurate.
Taxpayers and professionals owe a debt of gratitude to Fogg and Xanthopoulos for pursuing this litigation. The IRS ought to be open to telling tax practitioners what happens to their personal information collected in the course of phone calls with the agency, or at least provide greater assurance that that information is properly protected from disclosure, just as it ought to be able to clearly explain to taxpayers what it does with their information.
A well-functioning system of voluntary compliance is built on trust, and trust goes two ways.