Microsoft Corp. v. IRS, No. 15-1605, 2023 WL 255831 (W.D. Wash. Jan. 18, 2023) (Martinez, J.)

Microsoft Corp. v. IRS, No. 15-1605, 2023 WL 255831 (W.D. Wash. Jan. 18, 2023) (Martinez, J.)

Re:  Requests for records concerning IRS audit that began in 2007 for tax years 2004 through 2006

Disposition:  Granting defendant’s motion for summary judgment

• Litigation Considerations, Adequacy of Search:  “The Court agrees with the IRS that [the searches] were reasonable and adequate under the circumstances of this case and the above law.”  “[Plaintiff] has failed to introduce evidence of bad faith or to otherwise demonstrate that the IRS’s actions were unreasonable.”  “The search efforts . . . meet the standard of being ‘reasonably calculated to uncover all relevant records’ and were made in good faith.”  The court describes the IRS search process which included determining custodians, placing “a litigation hold . . . and [conducting] [electronically stored information (“ESI”)] procedures . . . [to] collect[] responsive records,” and allowing “[t]wo custodians [who] opted out of the ESI data capture process” to “conduct[] their own searches, with some level of review.”  The court finds that “[a]ny irregularities are adequately explained, and might be expected given the size and scope of the requests.”  “The hypothetical failure to find documents from individuals who left the IRS is speculative and does not speak to the adequacy of the search.”  “This is not a basis to deny summary judgment.”
   
• Litigation Considerations, Vaughn Index/Declaration:  “Considering the Vaughn index and the declarations filed in this case together, the Court finds that the information provided in that index was not inadequate for the general reasons argued by [plaintiff].”  “The use of repetitive entries does not reflect a lack of substantive information but rather the large number of documents at issue and, perhaps, the repetitive nature of work at the IRS.”  “While the IRS’s Vaughn index might be monotonous, or even less-than-helpful from the perspective of [plaintiff], courts have found that repetitive entries are efficient for the Court and certainly the producing agency.”  “[Plaintiff’s] ‘cursory and context-free’ criticism of the Vaughn index is adequately rebuffed by the IRS’s explanation of its procedure, perhaps more complicated than it needed to be, for reporting date, author, recipient, and subject information and document family data.”  “Cutting out nonresponsive records appears to be an appropriate use of agency discretion.”  “[Plaintiff’s] frustrations with the Vaughn index do not preclude summary judgment dismissal of this case.”
   
• Exemption 2:  The court relates that “[t]he IRS points to [its] declaration . . . to support the use of this exemption for withholding ‘security-related forms and communications used when hiring employees or contractors; and employee workloads forms and performance records used for determining work assignments.’”  The court finds that “[plaintiff] provides no evidence or argument to support the assertion that this document or similar documents relate to decisions regarding Plaintiff’s audit.”  “It is also not comparable to a roster including names and addresses.”  “It is described as a workload form, i.e. a form used to determining work assignments.”  “It appears to be exclusively ‘connected with’ the placement of employees and with personnel practices.”  “The IRS has met its burden of establishing that this exemption applies.”
   
• Exemption 3:  The court relates that “[a]t issue in this Motion are documents withheld under Sections 6103 of Title 26.”  “Section 6103(a) provides that tax ‘returns’ and ‘return information’ are to be kept confidential, unless disclosure is permitted by Title 26.”  “The IRS claims exemption 3 protection for 7,449 records: 1,266 are associated with 26 U.S.C. § 6103(a); 7,231 are associated with 26 U.S.C. § 6103(e)(7).”  “The first 7,449 records contain ‘the tax information of third parties, including:  names, taxpayer identification numbers, or other identifying information . . . the fact of whether a particular taxpayer’s return is being examined; and descriptions of examination or collection activity.’”  The court finds that “[plaintiff] lamely criticizes the Vaughn index for only providing general descriptions of these documents but fails to talk about any specifics.”  “[Plaintiff] argues the IRS has waived its withholding of documents under 26 U.S.C. § 6103(e)(7) by failing to argue that point in its Motion.”  “However, [plaintiff] again does not discuss any specific documents.”  “The Court is completely in the dark as to the actual dispute, or if there is one here.”  “[Plaintiff] argues that withholding such records could not impair Federal tax administration because ten years have passed; this is ironic, given that this case proves audits can last ten years.”  “Given the above, the Court cannot deny summary judgment based on this exemption or order the production of any documents.”  “[Defendant’s] declaration provides substantial detail justifying the IRS’s withholdings under § 6103(e)(7) and the IRS’s Vaughn index details the tax return information records withheld under these exemptions.”  “The IRS has met its burden of establishing that this exemption applies.”
   
• Exemption 4:  The court relates that “[t]he redacted information here includes information provided by various contractors before, during, or after the contract such as contractors’ proposed, prospective, or actual billing schedules, as well as information on invoice documents reflecting amounts billed, hours worked, and bank account numbers.”  “The Court finds that the withheld information is ‘commercial or financial information’ under the ordinary meaning of that phrase.”  “This is the type of information that would typically be confidential.”  “The IRS has met its burden.”
   
• Exemption 5, Deliberative Process Privilege:  “The Court finds that, given the scope and unusual nature of this case, the documents at issue are not related to a run-of-the-mill assessment of a company’s tax liability, but closer to a process by which governmental decisions and policies are formulated.”  The court relates that an earlier case in the same circuit, but issued by a different district court, Safeway, Inc. v. IRS, No. 05-3182, 2006 WL 3041079 (N.D. Cal. Oct. 24, 2006), held that “‘the IRS’[s] decisionmaking about the extent of [p]laintiff’s tax liability is not the sort of deliberative process meant to be addressed by the privilege.’”  “The IRS distinguishes [that case] by arguing that [the] court ‘assumed that the documents at issue lacked the subjective, personal thoughts of IRS employees in the absence of a sufficient description of the documents’ contents, which is not the situation here.’”  “The explanation for the use of this privilege is sufficient . . . .”  “The IRS has met its burden.”
   
• Exemption 5, Attorney-Client Privilege:  The court relates that “the IRS argues that the documents withheld under this privilege were communications ‘(1) among government attorneys reflecting the facts provided by the Service in order to obtain advice, or reflect the advice being developed by government attorneys to benefit the agency; (2) among Chief Counsel attorneys relating to legal advice requested on behalf of the Service; and (3) among Service employees and examiners and Chief Counsel for legal advice on Plaintiff’s examination.’”  “[Plaintiff’s] only argument related to this privilege is that ‘in many cases’ this privilege is involved ‘on purely factual information . . . including audit workpapers.’”  The court finds that “[w]hile facts alone are not protected, communications between an attorney and a client are, even if those communications contain facts, if the purpose of the communication is to enable the attorney to provide legal advice.”  “That is what we are talking about here.”  “The documents Microsoft objects to are apparently workpapers provided to IRS Chief Counsel attorneys as part of a request for advice on a particular issue, while others are workpapers containing handwritten notes or analysis that were sent to an attorney to solicit or inform legal advice.”
   
• Exemption 5, Attorney Work-Product Privilege:  The court relates that “[t]he IRS initially claimed work product privilege for 19 documents.”  “[Plaintiff] points out that, although this audit process has been lengthy, it was not clear when these documents were created that there would be litigation, and that the IRS has said as much previously.”  “In its Reply brief, the IRS concedes that point and withdraws its work-product claims for any materials pertaining solely to [Plaintiff].”  “The IRS has amended its Vaughn index . . . and submitted a supplemental declaration . . . to support the continued withholding of documents ‘for which the IRS asserts work-product claims relat[ing] to tax cases involving taxpayers other than Plaintiff.’”  “The Court is satisfied that this issue has been resolved and does not serve as a basis for precluding summary judgment.”
   
• Exemptions 6 & 7(C):  The court relates that “[t]he IRS claims exemption 6 and exemption 7(C) protection for 387 documents at issue.”  “The parties agree that the information withheld under this exemption includes personal phone numbers, personal email addresses, home addresses, credit card information, and details of personal matters pertaining to agency employees such as travel plans.”  “[Plaintiff] argues, without further analysis and in a single sentence, that ‘employee vacation time, phone numbers, travel plans, and leave plans’ are not intimate personal details.”  “The Court disagrees and finds that exemptions 6 and 7(C) were properly applied by the IRS.”
   
• Exemption 7, Threshold:  The court holds that “[t]he IRS is a law enforcement agency for purposes of exemption 7.”  “Courts have consistently held that records compiled for civil or criminal investigations by the IRS are ‘records or information compiled for law enforcement purposes.’”
   
• Exemption 7(A):  The court relates that “[t]he IRS claims exemption 7(A) protection for 7,220 records.”  The court finds that “[g]iven the nature of the audit against [plaintiff] and the obvious intent of [plaintiff] to inquire about that audit via these FOIA requests, it would appear that some use of this exemption is to be expected.”  “[Plaintiff] fails to argue, in a nonconclusory way, how the so-called boilerplate language fails to satisfy the above standards.”  “The Court gives credence to the IRS when it says that the material withheld here includes ‘information on the agency’s focus or interest in specific facts, transactions, individuals, evidence, or claims which would prematurely disclose the nature, scope, direction, and strategy of the audit’ and that this would naturally harm the IRS’s enforcement activities.”  “The use of this exemption does not preclude summary judgment.”