Tax News

CCH (cch.taxgroup.com) reports:

  The IRS was not required to turn over to a law firm documents requested under the Freedom of Information Act (FOIA). The requested documents consisted of settlement strategies and objectives, assessments of litigating hazards and acceptable ranges of percentages for settlement with respect to lease-in/lease-out (LILO) arrangements. In 2004, Congress prospectively made such arrangements illegal, but the IRS continues to audit taxpayers that engaged in LILO transactions and disallows reported deductions.

  The IRS declined to turn over the requested documents based on FOIA exemption 7(E), which exempts from disclosure records or information compiled for law-enforcement purposes to the extent that production of such records or information would disclose guidelines for law-enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law. The issue under dispute was whether disclosure of the information "could reasonably be expected to risk circumvention of the law."

  While the exemption clearly protects information that would train potential violators to evade the law or instruct them on how to break the law, it goes further and exempts from disclosure information that could increase the risks that the law would be violated or that past violators would escape legal consequences. The fact that LILO transactions had been made illegal in 2004 did not eliminate the danger presented by disclosure of settlement guidelines. Information about settlement ranges for LILO transactions could enter into a cost-benefit analysis for other tax shelters and, in certain cases, could convince potential evaders that a questionable transaction is worth the risk. Since the disclosure of the information requested would be of great benefit to potential evaders and past violators hoping to escape punishment, such information was not subject to mandatory disclosure.

  Affirming DC D.C., 2007-1 USTC ¶50,132.

Mayer Brown LLP, CA-DC, 2009-1 USTC ¶50,338

Other References:

 
Code Sec. 6103

  CCH Reference - 2009FED ¶36,894.804

  CCH Reference - 2009FED ¶36,894.825

  Tax Research Consultant

  CCH Reference - TRC IRS: 9,502.15