Menu
Tax Notes logo

District Court Pokes Facebook FOIA Request

Posted on July 5, 2017

Like many social media and tech companies, Facebook has drawn IRS scrutiny over its licensing of technology to low tax offshore affiliates. That dispute is in Tax Court. Seeking to obtain information about the IRS audit, Facebook filed a FOIA request seeking documents related to the dispute. The FOIA request has now generated its own separate litigation.

Not surprisingly, the files IRS has on the Facebook exam are voluminous and it asked Facebook to extend the time to respond to the request. While the IRS served up thousands of pages of records, it did not provide all Facebook wanted. Facebook sought to compel the IRS to issue responsive documents in electronic format. Last month’s district court opinion held that Facebook was not entitled to the records in that format.

While we do not discuss FOIA frequently in PT, we have recently revised our FOIA discussion in the Saltzman and Book treatise. FOIA is an important tool for practitioners seeking information relating to tax disputes. There are some interesting procedural aspects of the Facebook FOIA case.

Facebook emphasizes that if a requester wants documents in electronic format, the request itself must clearly say so. The original Facebook request did not indeed indicate the format that the company wanted the documents. As the opinion notes, [i]t asked for all records ‘whether maintained in electronic or hardcopy format,’ but did not specify the format for production.”

While the Facebook opinion stated that “metadata is an important part of electronic records in today’s world…” the opinion emphasized that without a specific request for a document in a particular form the courts have no basis to order production because there was no valid FOIA request in the first instance:

With respect to its request for electronic-format documents, then, Facebook did not submit a valid FOIA request in compliance with the IRS’s regulations. The request did not trigger the IRS’s FOIA obligations, the IRS did not have an opportunity to exercise its discretion in analyzing the request, and so Facebook has not exhausted its administrative remedies.

A separate and somewhat academic discussion in the opinion considered whether the exhaustion requirement was jurisdictional. There is a split on that issue; some courts have concluded that the exhaustion requirement is a prudential consideration rather than a jurisdictional prerequisite. Facebook argued that even in fact it was a jurisdictional requirement the court could find that ordering Facebook to submit a revised FOIA request was futile (thus allowing the court to compel production in electronic format).

The court declined to resolve the jurisdictional versus prudential dispute, emphasizing that even if the request were not jurisdictional courts waive the exhaustion requirement only if the waiver was consistent with the purpose of the exhaustion requirement:

Whether analyzed prudentially or jurisdictionally (with a futility exception), the ultimate question is the same: does the failure to exhaust undermine the purposes and policies of FOIA exhaustion — i.e. to give the IRS a chance to exercise its discretion and to review its decisionmaking process before judicial intervention? Put another way: would dismissal promote that purpose?

The answer here is yes. Judicial intervention now would deprive the IRS the opportunity to exercise its discretion and analyze Facebook’s (now clarified) request for electronic documents and metadata, and dismissal would give the IRS the chance to do so. The court is not convinced that Facebook’s refiling of a revised FOIA request to specify the format (and content) of the records it seeks would be futile.

Conclusion

The opinion is a careful reminder that what often takes the form of boilerplate requests for information in fact can have practical significance if a FOIA dispute winds up in court. As some disputes can relate to administrative files with millions of documents, and as the world increasingly becomes digital, litigants seeking information from the IRS must be careful and precise when seeking information.

DOCUMENT ATTRIBUTES
Subject Areas / Tax Topics
Authors
Copy RID