Third-party tax settlements are protected return information

Plain-English summary

A FOIA requester sought settlement documents involving third parties in related transactions without obtaining those parties' consent. Chief Counsel advised that section 6103, together with FOIA exemption 3, controls regardless of the requester's arguments about other FOIA exemptions. Closing agreements and related materials are expressly included in return information, and other settlement documents also qualify because the IRS created them while determining tax liability. Unless the requester has a qualifying relationship with the third parties, the IRS may disclose the documents only with their consent. Without consent, the documents are exempt from disclosure.

Ruling snapshot

• Question: May the IRS disclose third-party settlement documents in response to the FOIA request?
• Outcome: Advice given: no, absent statutory authorization or the third parties' consent.
• Key authorities: IRC § 6103(b)(2); 5 U.S.C. § 552(b)(3); Church of Scientology v. IRS, 484 U.S. 9 (1987).

Full text (IRS public release)

ID: CCA_2015031711171007 [Third Party Communication:

UILC: 6103.02-00, 6103.02-02, 9999.92- Date of Communication: Month DD, YYYY]

      01

Number: 201515028
Release Date: 4/10/2015
From:
Sent: Tuesday, March 17, 2015 11:17:10 AM
To:
Cc:
Bcc:
Subject: RE: need advice for FOIA on case you handled

Hi -------------,

I have been assigned to your question regarding the disclosure of third party
settlements to a requestor in a FOIA case. In this case, the requestor is seeking
settlement documents for third parties in related transactions. The requestor has not
obtained the consent of the third parties. The requestor has provided a letter in which he
states that FOIA exemptions (b)(6) and (b)(5) are inapplicable to the settlement
documents and cites the case of Norwood v. FAA. However, the requestor fails to
address section 6103 (and FOIA exemption (b)(3) in conjunction with section 6103)
which is controlling in this case and which prohibits the disclosure of third party
settlement documents based on the facts you have presented.

FOIA exemption 3 exempts material specifically exempted from disclosure by statute
other than 5 U.S.C. § 552(b), provided that such statute: (A) requires that the matters be
withheld from the public in such a manner as to leave no discretion on the issue; or (B)
establishes particular criteria for withholding or refers to particular types of matters to be
withheld. 5 U.S.C. § 552(b)(3). Section 6103 of the Internal Revenue Code, which
consists of detailed provisions that concern the disclosure of returns and return
information, has been held to be a statute meeting the criteria of FOIA subsection
(b)(3). See Church of Scientology v. IRS, 484 U.S. 9, 11 (1987); Chamberlain v. Kurtz,
589 F.2d 827 (5th Cir. 1979).

Section 6103 provides that returns and return information are confidential and may only
be disclosed as authorized by Title 26. Return information is defined as any information
received, prepared, collected, etc by the IRS with respect to a return or with respect to
the determination of the existence, or possible existence, of liability under the
Code. I.R.C. § 6103(b)(2)(A). The definition of return information also includes closing
agreements, similar agreements, and any background information related to the
agreement or request for the agreement. Id. § 6103(b)(2)(D).
2

In this case, it is our understanding that the requestor is seeking settlement documents
(unclear whether these are closing agreements or not) entered into between the IRS
and third parties, and the documents surrounding those settlements. These documents
are return information as defined in the Code. If they are closing or similar agreements,
they are return information as defined in section 6103(b)(2)(D). If they are not, they are
still return information as they were created by the IRS as part of a determination of a
taxpayer’s liability under the Code and are therefore return information under section
6103(b)(2)(A). Accordingly, they may only be disclosed as authorized by the Code.

Unless the requestor has some covered relationship with the third parties (partner in a
partnership, corporate officer, etc) then the requestor may only receive third party return
information if the third parties consent. Absent the consent, the information is exempt
from disclosure under FOIA exemption (b)(3) in conjunction with section 6103.

Thanks,

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