Memorandum of Tax Executives Institute, Inc. as Amicus Curiae in Opposition to Plaintiff Bureau of National Affairs, Inc.'s Motion for Summary Judgment.

• Position: Disclosing advance pricing agreements

On February 25, 1999, Tax Executives Institute filed the following brief amicus curiae with the United States District Court for the District of Columbia. The brief was filed in a lawsuit filed by the Bureau of National Affairs against the Internal Revenue Service to force the disclosure of advance pricing agreements, which are used to resolve transfer pricing agreements between taxpayers and the IRS and, in many instances, foreign governments. The Institute's brief was prepared by Donald C. Alexander, Michael Quigley, and C. Fairley Spillman, all of the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP, together with Timothy J. McCormally, Mary L. Fahey, and Jeffery P. Rasmussen of TEI's legal staff. As with all Institute submissions, the brief -- which was prepared under the aegis of the Institute's International and IRS Administrative Affairs Committee -- was approved by TEI's Executive Committee.

Tax Executives Institute, Inc. (hereinafter "TEI" or "amicus") respectfully submits this brief as amicus curiae in opposition to plaintiff Bureau of National Affairs, Inc.'s motion for summary judgment. TEI files this brief to assist the Court in consideration of BNA's motion by presenting compelling arguments against that motion that defendant Internal Revenue Service has not fully presented.

Statement of the Case

BNA seeks the release under the Freedom of Information Act, 5 U.S.C. [sections] 552, and Section 6110 of the Internal Revenue Code ("the Code") of Advance Pricing Agreements ("APAs") between taxpayers and the Internal Revenue Service (the "IRS"). Each APA specifies a methodology negotiated and settled between the specific taxpayer and the IRS (and, in the case of bilateral and multilateral APAs, foreign taxing authorities) for the taxpayer to use in determining its intercompany transfer pricing and thereby assure that the methodology complies with Section 482 of the Code. Transfer pricing is a very comp]ex application of a relatively simple provision of the tax law to a taxpayer's unique factual situation. The negotiation and settlement of transfer pricing are vital to the determination of the tax liabilities of many corporations and in assuring that multinational corporations are neither subject to double taxation nor able to avoid tax obligations.

The APAs at issue here were entered into pursuant to Rev. Proc. 91-22(1) or Rev. Proc. 96-53,(2) which provide, among other things, that the agreements themselves and the information the taxpayer supplies to the IRS in conjunction with their negotiation constitute "return information" under Section 6103 of the Code (26 U.S.C. [sections] 6103). Section 6103 mandates that "return information" may not be publicly disclosed by the IRS.

From the inception of this litigation until January 8, 1999, the IRS consistently asserted that APAs are subject to the protections of Section 6103. On that date, after BNA filed its motion for summary judgment, the IRS notified BNA that the agency now takes the position that APAs constitute "written determinations" under Section 6110 of the Code. Shortly thereafter, the IRS sent letters to taxpayers that were parties to APAs, informing them of this change in position and the IRS's intent to disclose the APAs pursuant to Section 6110 after redacting certain information. As a result of this unfounded concession made by the IRS, the Court now is considering a schedule for review and production of APAs under the terms of Section 6110. TEI respectfully suggests that, before this path is pursued, the Court should resolve whether the documents at issue, in fact, fall within the narrow bounds of Section 6110 or whether, as TEI contends, APAs consist entirely of return information protected from disclosure under Section 6103. Such a decision is necessary to preserve the privacy rights of taxpayers that are parties to APAs.

Interest of Amicus

TEI is a voluntary, non-profit association of corporate and other business executives, managers, and administrators who are responsible for the tax affairs of their employers. TEI was organized in 1944 and currently has approximately 5,000 members who are employed by 2,800 of the leading corporations in the United States and Canada. The members of TEI come from a cross-section of the business community in North America and represent companies that are vitally interested in the effective enforcement of the Code's transfer pricing rules.

TEI is dedicated to promoting the uniform, systematic, and equitable interpretation and enforcement of the tax laws. It is also dedicated to reducing the costs and burdens of tax administration and compliance to the benefit of both the government and taxpayers.

TEI has many members who are officers or employees of corporations that are parties to APAs. These corporations have found APAs to be very useful because they permit the negotiation and settlement of complex tax liability issues based upon the unique circumstances of each taxpayer through a means that can be fully relied upon by the taxpayer, the government, and, in many cases, foreign taxing authorities. TEI believes that the APA program represents the best way for many companies to resolve transfer pricing disputes and thereby avoid costly and time-consuming audits or litigation. TEI and its members fear that public disclosure of APAs would significantly decrease the desirability of entering into these agreements in the future and, therefore, would deprive both taxpayers and governments of this valuable method of settling tax liability issues. TEI members also believe that legitimate privacy interests and expectations will be compromised by the disclosure sought by BNA.

Argument

1. APAs Are Tax Return Information and May Not Be Publicly Disclosed

   1. Section 6103 Prohibits Public Disclosure of Tax Return Information

      In the aftermath of the Watergate scandal (and the Nixon Administration's attempted abuse of the IRS and taxpayers), Congress revised Section 6103 of the Code to assure that taxpayer information is kept confidential by the IRS. See Church of Scientology v. IRS, 484 U.S. 9, 16 (1987) ("One of the major purposes in [the 1976 revisions of] [sections] 6103 was to tighten the restrictions on the use of return information by entities other than [the IRS].") Although Congress has adopted certain exceptions to this general rule of privacy protection and non-disclosure, it is well-established that information subject to Section 6103 falls within FOIA Exemption 3 (5 U.S.C. [sections] 552(b)(3)) concerning matters "specifically exempted from disclosure by statute." See, e.g., Church of Scientology v. IRS, 792 F. 2d 146, 150 (D.C. Cir.), en banc review of separate issue, 792 F. 2d 153 (D.C. Cir. 1986), aff'd, 484 U.S. 9 (1987).

      Under Section 6103, both returns and "return information" are protected. See 26 U.S.C. [sections] 6103(a). Section 6103 defines "return information" in part, as follows:

      (A) a taxpayer's identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the...