A federal judge has ruled against an attempt by the Zale Corp., the nation's largest jeweler, to use the federal freedom of information act to pry loose Internal Revenue Service records relating to an ongoing IRS investigation of Zale.
U.S. District Court Judge Gerhard A. Gesell ruled yesterday that he found "no reason to disturb" an IRS conclusion that the agency was entitled withhold the information because disclosing it might impair the investigation.
The IRS has said in court documents that the investigation involves a possible tax liability for Zale of more that $100 million and possible criminal charges against officers or former officers of the corporation. A federal grand jury in Dallas, where Zale's headquarters are located, is investigating allegations against the corporation.
Gesell noted that the requests for documents by Zale had delayed the investigation, tying up the time and energy of Irs employees involved in the massive probe.
The investigation focuses on tax returns filed for fiscal 1970 to 1975 and involves allegations by the corporation's former treasurer of wrongdoing including false bookkeeping entries to evade taxes and illegal political contributions. The treasurer was fired by Zale in 1976, and has since been charged by Zale with stealing corporate funds and convicted of extorting money from Zale.
Gesell said the FOIA's preference for disclosure could not override the necessity for confidentiality when disclosure would impair federal tax administration, citing the Tax Reform Act, of 1976 which was passed shortly after the FOIA.
At issue before Gesell was a request for some 4,000 pages of tax return data. The IRS had already released approximently 55,000 pages of documents, and Zale had dropped other requests for information.
Having found that the IRS may withhold data under some circumstances, Gesell also found that the IRS had not been arbitrary or abused its discretion in deciding what to withhold.