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Appendix A LEGISLATIVE OVERVIEW TlIE PRIVACY ACT OF 1974 (5 U.S.C. Section 552) The Privacy Act of 1974 was passed to safeguard individual privacy from the misuse of federal records and to grant individuals access to federal records concern- ing themselves. The Act provides that, in most cases, information gathered for one purpose cannot be used for another without the consent of the subject of the record. In addition, individuals have the right to request changes of records they believe are inaccurate, irrelevant, untimely, or incomplete. The Privacy Act is the only one of the three described in this appendix that circumscribes the information that can be collected and establishes criteria for its use. Specifically, the most important provisions of the Act relating to "privacy" would, with certain exceptions, require each agency to: 1. Limit disclosure of information to those persons designated by the subject of the record or as otherwise provided by statute. The agency must maintain a record of all disclosures; with certain exceptions, it must be available to the individual. 2. Allow the individual, upon request, to gain access to any information pertaining to him and allow the individual to request amendment of any record.2 If the agency refuses to amend a record, the individual may request a review of the decision. If unsuccessful, he can file a statement of disagreement which requires the agency to annotate any disputed por- tions. 3. Maintain only inforrr~ation that is relevant and necessary to accomplish a purpose mandated by statute or executive order and maintain any infor- mation used to make determinations with such accuracy, relevance, timeliness, and completeness as to assure fairness in the ciecisionmakir~g. Publish annually a description of the system of records on individuals maintained by the agency. Establish appropriate safeguards to ensure record security and establish rules of conduct for agency personnel involved in recor~keeping. 4. The Privacy Act also establishes a system whereby the head of an agency can exempt an entire system of records from disclosure where the information relates ~ The statute provides for eleven situations in which disclosure can be made without the consent of the individual in question. Among them are: a. To employees within the agency which maintains the records, or the General Accounting Once, in order to perform their duties. b. As required by the Freedom of Information Act. c. For a routine use. d. For certain census, statistical, or historical purposes. e. For civil or criminal law enforcement activities if authorized by law. f. Due to compelling health or safety needs. g. To Congress. h. Pursuant to court order. 2 An exception to this section is made for information gathered in anticipation of a civil action. 41

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42 to criminal law enforcement, national security, foreign policy, or qualifications for federal employment; or is used for statistical or archival purposes. Finally, the Act prescribes civil and criminal penalties for failure to comply with its provisions. THE TAX REFORM ACT OF 1976 (I.R.C. Sections 6103, 6110) The Tax Reform Act of 1976, notably Sections 6103 and 6110, reflects Congres- sional balancing of the needs of particular agencies for tax information against the citizen's right to privacy, plus the effect disclosure would have on our voluntary tax assessment system. A. Section 6103 Under the Privacy Act and the former Section 6103, government agencies could receive tax information from the TRS by simply showing an official need for the information. The Tax Reform Act, recognizing the uniquely private nature of tax information, makes access to information more difficult by declaring that "returns and return information" (as defined in the statute)3 are confidential and can be disclosed only as provided by statute. i Disclosure or returns and return Information is permitted under Section 6103 n the following circumstances: 4 1. To Congressional committees or the President upon written request by specified committee officials or by the President. 2. For tax administration purposes: to Treasury and Justice Department employees, to judicial or administrative proceedings, and to others in specifically prescribed circumstances. 3. For state tax administration purposes: to state but not local agencies, following a showing that the information is needed for tax purposes and will be used during the year received. 4. For nontax criminal investigations: information obtained directly from the taxpayer or his representative is disclosable to another a~encv only ~ ,~ ~ , ~ ~ ~~ ~ v ~ ~ ~ ~ ate ~ ~ ~ ~^'~ ~ . . . . alter obtaining an ex parse order from a federal id Tnfr~rm~t.ion ~~t.h- ~ ~ . ~ TAT ~ ~ . . _ _ ~ _ _ ~ _ A ~ ~ = ~ _ _ _ _ ~ ~ ereu oy line 'no' curing an examination or investigation may be disclosed to another agency when the information is necessary to pursue a federal criminal investigation and the request comes from the agency head (in the case of the Justice Department, the Attorney General, Deputy Attorney General, or an Assistant Attorney General). The Secretary is also autho- rized to disclose return information, other than taxpayer return informa- tion,5 which is evidence of a violation of federal crime to the extent neces- sary to inform the head of the agency charged with enforcing such laws.6 3 Return and return information are defined supra. Note that within the term "return information" is "any part of any written determination or any background file document . . . which is not open to public inspection under section 6110." In addition, return information does not include data in a form that "cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer." 4 This list describes the major situations in which disclosures are permitted but is not exhaustive. 5 Taxpayer return information is defined as return information "filed with or furnished to the Secretary by or on behalf of the taxpayer." ~ _ ., , . ~ _ i (currently pending before Congress are several bills that would amend Section 6103 insofar as it relates to IRS disclosure of returns and return information to other federal agencies for use in nontax

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43 5. For statistical use: to the Departments of Commerce, Treasury, and the Federal Trade Commission. 6. For nontax civil purposes: to specified government agencies and bodies to aid in the administration of their programs. 7. Pursuant to taxpayer authorization: to the taxpayer himself or as pro- vided by a written designation unless the Secretary determines that such disclosure would seriously impair federal tax administration. The Act specifically prohibits redisclosure of information by recipient agencies, and the {RS is charged with assuring that these agencies safeguard tax information to prevent unauthorized disclosure. The IRS must report each quarter to Congress the safeguards used by such recipient agencies. Section 6103 also requires that after using the information, the recipient agency must either return it to the TRS or render it undisclosable. In addition, Section 6103 requires the {RS to maintain a record of information disclosure and report this information to the Congress annually. B. Section 6110 Section 6110 establishes the general rule that any "written determination,"7 along with its "background file documents," are to be available for public inspec- tion.8 Under Section 6110 certain information is required to be deleted from these publicly available documents including: identifying details of the person to whom the document pertains and of most other persons; information specifically autho- rized to be kept secret in the interest of national security or foreign policy; informa- tion specifically exempted by statute from disclosure; privileged or confidential trade secret, commercial, or financial information; and disclosure of information which would constitute a "clearly unwarranted invasion of personal privacy." Dis- closure of the identity of the subject of a written determination is limited to specific cases and can be made only pursuant to a court order. Section 6110 also provides for notice to the subject of a "written determination" of any intention to disclose the written determination or background documents. Any person who has an interest in maintaining the confidentiality of such informa- tion may contest disclosure, nondisclosure, or nondeletion of portions of such docu- ments prior to disclosure. The statute also provides for procedures to obtain addi- tional disclosures. Section 6110 specifically states that the Internal Revenue Code shall provide the exclusive means by which the IRS shall be required to make available, or to refrain from disclosing, any written determination or background file documents.9 . investigations. These bills, if enacted, would allow for greater disclosure in certain circumstances. Some of these proposals would maintain the requirement of a court order for the disclosure of actual tax returns but eliminate the requirement for other tax information; permit disclosure without a court order for tax information relating to entities that are not individuals (e.g., corporations); limit the penalties for unauthorized disclosures due to a good faith but erroneous interpretation of Section 6103; clarify and limit the standards for the issuance of the court orders currently required for disclosure; require mandatory disclosure to the Justice Department of tax information that may constitute evidence of a federal crime; expand the group of agency personnel authorized to request and make disclosures; or authorize the Justice Department or a U.S. attorney to disclose to state officials, pursuant to court order, information relevant to the violation of a state felony statute. 7 A "written determination" is defined by statute to be a "ruling, determination letter, or technical advice memorandum." B Certain of this information is to be made generally available in a public reading room, while other information is disclosable only pursuant to a written request. 9 An exception to this general rule is made for a discovery order granted in connection with a judicial proceeding.

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44 THE FREEDOM OF INFORMATION ACT (5 U.S.C. Section 552) The Freedom of Information Act requires federal agencies to make available to the public certain types of information maintained by the agencies. Specifically, the information which must be disclosed includes:~ 1. Descriptions of each agency's organization, general methods of operation, and policies. This includes substantive and procedural rules, statements of policy, administrative stab manuals, and stab instructions that might affect a member of the public, and information describing how the public can gain access to the agencies for information or submittals. Final opinions, including concurring and dissenting opinions, as well as orders made in the adjudication of cases. To prevent a "clearly unwarranted invasion of personal privacy," an agency may delete identifying details or statements of policy, opinions, interpretations, or staff manuals. The Freedom of Information Act specifically exempts from its disclosure re- quirements information that is in the Agency's opinion: 1. Information authorized by executive order to be kept secret in the interest of national security or foreign policy, or is specifically exempted by a statute that either forecloses without discretion public disclosure or estab- lishes particular criteria for withholding information; Trade secret and commercial or financial information that is privileged or confidential; 3. Information related solely to internal personnel rules, or consisting of interagency or intraagency memorandums or letters that would generally not be available to a party in litigation with the agency; 4. Personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy; Certain investigative records compiled for law enforcement purposes where disclosure would, inter atia, interfere with enforcement proceed- ings or investigations, constitute an unwarranted invasion of personal privacy, or endanger the life or safety of law enforcement personnel; or 6. Information related to financial institutions or geological or geophysical information. The Act also requires each agency to submit an annual report to Congress on compliance. The Tax Reform Act does not conflict with access to data under the Freedom of Information Act because section (b) (3) of the latter permits withholding informa- tion that is specifically exempted from disclosure by statute. To the extent that Section 6103 specifically exempts disclosure of returns and return information, such information need not be disclosed pursuant to the Freedom of Information Act, Section 6110.~t With respect to written determinations and background file is Some of this information is required to be published in the Federal Register while other informa- tion must simply be made available for public inspection and copying. The Act applies to computer tapes to the same extent as other documents. U.S. v. Garber, 589 F.2d 843 (5th Cir. 1979). I' There still remains some question of what information will be considered "return and return information." See the decision of Lorlg AIRS in footnote 13.

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45 documents, Section 6110 preempts the Freedom of Information Act and provides that Section 6110 is the exclusive means for obtaining disclosure of such documents. COURT RESOLUTION OF CONFLICTS AND OVERLAPS IN THE STATUTORY AUTHORITY The three federal acts dealing with privacy and access to federal records clearly overlap in several respects. Most obviously, the Privacy Act, which generally limits disclosure of records concerning individuals, has a specific exemption for informa- tion required to be disclosed under the Freedom of Information Act. In addition, the Freedom of Information Act, which was enacted to provide greater public access to information maintained by federal agencies, permits agencies to deny access where, ironer alia, the information is specifically exempted from disclosure by another statute; consists of personnel or similar files the disclosure of which would constitute a "clearly unwarranted invasion of personal privacy"; or contains trade secrets and commercial information obtained from a person; or is privileged or confidential. Finally, the Internal Revenue Code, Section 6110, states that it is the exclusive disclosure provision applicable to written determinations and back- ground file documents. A. The Tax Reform Act and the Freedom of Information Act In enacting the 1976 Tax Reform Act, Congress displaced, for the most part, the Freedom of Information Act with respect to disclosure of tax returns, return infor- mation, written determinations and background file documents. The federal courts have attempted to reconcile the two by stating that Section 6103 falls within the latter's exception for a statute which "(A) requires that 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."~2 Therefore, any information that falls under the definition of"return and return information" as defined in the Tax Reform Act falls into a Freedom of Information Act disclosure exception.~3 The cases reaching this conclusion all involved an attempt by an agency to withhold information under some relevant exception. The Supreme Court recently held that such exceptions are permissive.~4 Therefore, while the disclosure provi- |2 Breahaus v. I.R.S., 609 F.2d 80, 82 (2d Cir. 1979); Chamberlain v. Kurtz, 589 F.3d 827, 839 (5th Cir. 1979); Freahauf Corp. v. I.R.S., 566 F.2d 574, 578 (6th Cir. 1978); Kanter v. I.R.S., 478 F.Supp. 552, 556 (N.D. Ill, 1979); Grenier v. U.S. I.R.S. 449 F.Supp 834, 840 (D. Md. 1978). 13 A recent decision indicates that "return and return information" may be interpreted narrowly. In Long v. IRS, 596 F.2d 362 (9th Cir. 1979), the court held that the source materials for the IRS Tax Compliance Measurement Program may be disclosable under the FOIA if such disclosure would not entail a "significant risk of indirect identification." The source material requested under the FOIA included check sheets and computer tapes derived from each individual tax return, but with all informa- tion identifying individual taxpayers deleted. The court sent the case back to the trial court for a determination of whether the disclosure would risk indirect identification. The Internal Revenue Service has stated that the Long decision could have a severe negative impact on the Service's ability to electively administer the tax laws and could also have an adverse impact on the confidentiality and privacy protections of the code. The exemption could also work to bar a tax- payer's access to his own files where the IRS makes a determination under Section 6103 that disclosure would impair federal tax administration. Chamberlain v. Kurtz, 589 F.2d 827, 840 (5th Cir. 1979). 14 Chrysler Corp. v. Brown, 441 U.S. 281 (1978).

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46 signs of the Act are mandatory, each agency has discretion in deciding whether to release information that falls under a Freedom of Information Act exception. The Supreme Court in a footnote points out that the Act is distinguishable from the Privacy Act, which mandatorily restricts disclosure of certain records. However, the mandatory restrictions of Section 6103 would presumably be analogous to the Privacy Act and despite the FOlA's permissive exceptions, TRC Section 6103 would bar disclosure under the Freedom of Information Act of those returns and return information the agency was in favor of disclosing. In fact, while there has been no case directly involving a situation in which an agency was in favor of disclosure of materials which qualified for a Section 6103 exemption, several decisions indicate that "returns and return information" would be barred from disclosure even if the agency favored such disclosure. One court attempted to reconcile Section 6103 and the Act in light of the fact that the latter's exceptions were passed by Congress three weeks before Section 6103. It held that the more specific statute should govern the general statute and therefore Section 6103 must be the sole standard governing the release of tax return information.~5 Another court held that return and return information must not be disclosed under the Freedom of Information Act leaving no discretion to the agency. The most recent decision in this area stated that "access to tax materials is governed solely by the dictates of the Internal Revenue Code." Once a return or return information has been made public (i.e., released to a court for judicial proceedings), neither regains its confidential nature upon return to the I.R.S.~7 since information made public no longer can fall under a Freedom of Information Act exception. This is consistent with the general policy to construe its exceptions narrowly. It is clear that with respect to written determinations and background file documents, Congress intended that Internal Revenue Code Section 6110 provide the exclusive means of public access, other than through pretrial discovery. Writ- ten determinations that are exempted from public disclosure under Section 6110 are confidential and nondisclosable under Section 6103, and, as a result, are exempt from the Freedom of Information Act.~9 Therefore, Congress effectively foreclosed resort to the latter's procedures for those documents within the Section 6110 defini- tion of"written determinations" and "background file documents." B. The Privacy Act and the Freedom of Information Act There is also an apparent conflict between the protections against disclosure in the Privacy Act and the policy in favor of disclosure permitted by the Freedom of Information Act. However, the Privacy Act expressly defers to the mandatory disclosure requirements of the latter. The Privacy Act states that agencies can disclose records without the consent of the individual involved where so required t5 Zale Corporation v. U.S. I.R.S., 481 F.Supp. 486, 490 (D.D.C. 1979). t6 Anheuser Busch, Inc. v. IRS, 481 F.Supp. 486 (D.D.C. 1980 C.A. No. 78-1326 July 24, 1980). t7 Cooper v. IRS, 450 F.Supp. 752, 754 (D.D.C. 1977). ~8 Freahauf Corp. v. IRS, 566 F.2d 574, 576-77 (6th Cir. 1977); Grenier v. U.S. I.R.S., 449 F.Supp. 834, 839 (D. Md. 1978); Conway v. U.S. I.R.S., 447 F.Supp. 1128, 1131 (D.D.C. 1978). Section 6110 was passed by Congress in response to several cases in which plaintiffs sought the release under the Freedom of Information Act of certain written determinations and related documents. t9 Grenier, 449 F.Supp. at 840.

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47 by the Act. Several courts have noted that where information must be disclosed under it, that information can be made public even though otherwise protected by the Privacy Act, but where the Act allows for agency discretion in disclosing the information, the Privacy Act would prevent disclosure unless the agency complies with the Privacy Act consent requirements.20 It is therefore fairly clear that the Privacy Act will not protect against disclosure of information required to be dis- closed under the Freedom of Information Act.2i With respect to information which an individual seeks to have released under the Privacy Act, one court has noted that the Act exemptions from disclosure do not provide grounds for withholding material available under the Privacy Act.22 However another court stated that material actually withheld by an agency pursu- ant to an exception under the Act is appropriately withheld under the Privacy Act as well.23 Thus, there appears to be an unresolved conflict with respect to information that falls within an exemption-from-disclosure provision of the Freedom of Infor- mation Act but which an individual wants released under the Privacy Act. The issue will probably not arise with respect to tax returns, return information, written determinations, or background file documents, since the Internal Revenue Code sections will almost always be held to provide the sole standards of disclosure for such tax materials. 20 Florida Med. Assoc. v. Dept. of Health, Ed., and Welfare, 479 F.Supp. 1291, 1306 (M.D. Fla. 1979); Plain Dealer Publishing Co. v. U.S. Dept. of Labor, 471 F.Supp. 1013 (D.D.C. 1979), Providence Journal Co. v. FBI, 460 F.Supp. 762, 767 (D. R.I. 1978). 2t It should be noted that another court recently stated that the Freedom of Information Act cannot compel disclosure of information the Privacy Act clearly contemplates to be exempt. In that case an agency exempted from disclosure an entire system of records as permitted under the Privacy Act. Terkel v. Kelly, 599 F.2d 214, 216 (7th Cir. 1979). 22 Irons v. Bell, 596 F.2d 468, 470 (1st Cir. 1979). 23 Providence Journal Co. v. FBI, 460 F.Supp. 762, 767 (D. R.I. 1978).