The Internal Revenue Service may have to live with the Freedom of Information Act, just like the rest of the government.
In 1976, Congress passed specific legislation restricting the disclosure of tax-return information. Since then, the Treasury Department has argued, with varied success, that it could reject any FOIA request for tax-return information -- which means not just a person's tax return, but virtually anything the IRS knows that could influence the amount of tax owed -- because its disclosure policies were governed by another statute.
That position was accepted by a U.S. District Court ruling in the District in 1979 and by a number of courts since then, including appellate courts in Chicago and Cincinnati.
But the federal judges ruling on the issue have been far from unanimous. The IRS stance was rejected by five other circuit courts, including the three that have most recently ruled on the issue. The freshest pronouncement came earlier this month, on March 4, from the U.S. Court of Appeals in Philadelphia.
In that opinion, Grasso v. IRS, Judge Dolores Korman Sloviter pointed out that Congress was working on toughening the FOIA at the same time it was deciding on the final language of the IRA disclosure statute; she reasoned that, if the lawmakers had meant for the specific law to supersede the general one, they would have said so in unequivocal language.
That doesn't mean that the IRS has to turn over any file that anyone asks for. It can -- and undoubtedly will -- still often reply that one of the exceptions written into the Freedom of Information Act itself allows it to keep a requested document secret. But the big difference is how a court is instructed to handle such a claim.
If the IRS is interpreting the antidisclosure provisions added to the Tax Code in 1976, the courts must presume that the agency is bringing expert analysis to bear. Under the Administrative Procedures Act, a judge hearing a challenge to a denial of an information request must side with the tax collectors unless their decision is manifestly wrong.
But in looking at a denial under FOIA, a judge shifts the burden to the other side. A refusal to disclose requested information must be overturned unless the agency can show convincingly that to hand over the documents would interfere with a government investigation. In the Philadelphia ruling, the judges could not see any way that disclosing what Paul Grasso asked for would give a potential defendant advance notice of a government prosecution or interfere with the privacy of witnesses.
In other cases, courts ruled that:
* Companies will not be punished under federal law for ignoring their warranties. The U.S. District Court here in Washington ruled that class-action plaintiffs could not ask for punitive damages when they charged that Ford Motor Co. breached its warranty in the controversy over cars built in the late 1970s that allegedly had slipping transmissions.
The federal law under which the suit was brought classifies a breach of warranty more as a contract violation than a tort, and so punitive damages would not be appropriate, Judge June Green decided. But she noted that similar suits can garner punitive damages if brought under the laws of some states. (Walsh v. Ford Motor, Feb. 13)
* Courts can tap the personal fortunes of company officers and directors to repay persons injured by corporate actions. The appellate division of the New York Supreme Court approved an order holding a husband and wife personally liable for fraudulent business practices of a franchising outfit with which they were associated, even though they argued that they had never done anything in the business except in their corporate capacities.
That is no defense, the appellate judges argued, if the trial court believes that they knew of the corporate wrongdoings. (New York v. Wiley, Feb. 13)
* A state may not impose tougher regulations on out-of-state land sales than it uses for developments within its borders. The U.S. District Court in Buffalo threw out New York state rules that required subdividers of property in other states to file offering statements with Albany and to submit in advance every advertisement they planned to run aimed at New York prospects.
For in-state property, similar rules apply only to land being sold on the installment plan, not to property with conventional mortgage financing. That is unconstitutionally discriminatory, Judge Neal P. McCurn ruled, noting that the state could enforce existing antifraud statutes. (Cranberry Hill v. Shaffer, March 4)
* It will cost lawyers money if they don't gather at least the basic facts about their client's business. The U.S. Court of Appeals in Chicago approved a fine lodged against the lawyer for a roofing company that sued two fiberglass producers, alleging that their price-fixing scheme forced the roofer to pay too much for the insulation they sold.
The problem: The company never had made a single purchase from one of the defendants. The case was tossed out, but in addition, the judge imposed the sanction on the lawyer who drew up the complaint. The levy comes to a mere $2,000, but it stands as a warning to lawyers. (RPS v. Owens-Corning, March 4)