Appeal from an order of the United States District Court for the Western District of New York, John T. Curtin, Chief Judge, granting summary judgment for defendant against plaintiff who seeks to compel disclosure of a letter written by the Commissioner of the Internal Revenue Service to the Chairman of the House Ways and Means Committee. Held that appellant is not entitled to disclosure under provisions of the Internal Revenue Code, 26 U.S.C. § 6104(a), or the Freedom of Information Act, 5 U.S.C. § 552. AFFIRMED.
Before Feinberg, Mansfield and Timbers, Circuit Judges.
Waldemar Breuhaus appeals from a summary judgment entered on March 13, 1979, by Chief Judge John T. Curtin of the District Court for the Western District of New York, denying appellant's request for disclosure by the Internal Revenue Service of a letter dated January 28, 1976, from Donald C. Alexander, former Commissioner of the Internal Revenue Service (IRS), to Congressman Charles A. Vanik, Chairman of the House Ways and Means Committee. We affirm the judgment below.
The Internal Revenue Code of 1954 divides tax exempt foundations into two classifications for tax purposes: private foundations (the activities of which are closely regulated) and all others (which are less closely regulated). The latter category includes such groups as charities, alumni organizations, and the Boy Scouts. See H.Rep.No. 91-413, 91st Cong. 1st Sess., reprinted in (1969) U.S.Code Cong. & Admin.News, pp. 1645, 1685-86. If a private foundation, defined in § 509 of the Code, chooses to give up its tax exempt status, it must first pay a "termination tax" under § 507 of the Code, returning all of the tax benefits it received by virtue of that status. The purpose of § 507 is to prevent organizations from accumulating their endowments while sheltered from taxes, then giving up their exemption and spending their money in ways previously forbidden them. Id. at 1683.
Cornell Aeronautical Laboratory Inc. (CAL) was for many years exempt from taxation under § 501(c)(3) of the Code. In 1972 it sought to terminate that status. The IRS, upon application, determined that CAL was not a private foundation and therefore was not liable for a termination tax. In 1976, long after these events had concluded, the Commissioner of the IRS, responding to an inquiry, wrote a letter to Congressman Charles A. Vanik explaining the 1972 determination. In September 1977 appellant Breuhaus requested a copy of his letter from the IRS. His request was refused on the basis of Code § 6103(a), which provides that "(returns) and return information shall be confidential."*fn1 Thereafter appellant brought the present action to compel the IRS to disclose the letter and on March 13, 1979, Judge Curtin filed a decision and order upholding the decision of the IRS. It is from that holding that Breuhaus now appeals.
Breuhaus does not question the classification of the letter as "return information" which the IRS would ordinarily be required by § 6103(a) to keep confidential. However, he claims that disclosure is required by § 6104 of the Code and the Freedom of Information Act (FOIA), 5 U.S.C. § 552. The IRS denies the applicability of § 6104 and argues that the letter is exempted from the disclosure requirements of FOIA by an exception, 5 U.S.C. § 552(b)(3), the language of which incorporates § 6103(a) of the Code.
Disclosure under I.R.C. § 6104
Section 6104(a)(1)(A) of the Code, upon which appellant relies, states:
If an organization described in section 501(c) or (d) is exempt from taxation under section 501(a) for any taxable year, the application filed by the organization with respect to which the Secretary made his determination that such organization was entitled to exemption under section 501(a), together with . . . any letter or other document issued by the Internal Revenue Service with respect to such application shall be open to public inspection. . . .
CAL is undisputedly an organization described in § 501(c). Section 501(a) provides that any "organization described in subsection (c) . . . shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503."
Appellant argues that § 6104(a)(1)(A) requires disclosure not only of documents pertaining to a "determination that such organization was entitled to exemption under section 501(a)" but also of documents relating to whether an organization granted exemption under § 501(a) is exempt from payment of a termination tax under § 507 of the Code. We disagree. In our view § 6104(a) (1)(A) applies only to documents dealing with whether the organization is to be granted a tax exempt status and not whether it must pay a termination tax, which is a different matter.
Appellant rests his contention principally on that language of § 501(a), Supra, which exempts the organization from taxation "under this subtitle," arguing that the termination tax, as well as normal taxes, is imposed under the subtitle. The fault with this logic is that although § 501(a) states that it grants an exemption from taxation "under this subtitle," it is not referring to the termination tax. If we interpreted the § 501(a) exemption to include exemption from the termination tax, that would mean that Every tax exempt organization would be exempt from that tax. But the very purpose of the termination tax is to recover tax benefits accorded certain exempt organizations prior to their losing their tax exempt status. Under appellant's reading of § 501(a), no organization could ever be liable for a termination tax. This absurd result is certainly not what Congress intended when it created the termination tax in 1969.
We therefore conclude that the § 501(a) exemption does not include exemption from the termination tax. Thus, the disclosure requirement of § 6104(a)(1)(A) does not reach ...