Freedom isn’t always as free as it sounds, particularly when the government is involved.

Montgomery vs. US began, as many enthralling cases do, with aggressive action by the IRS. The plaintiffs in this case, Thomas Montgomery and his wife, Beth, were suspected to be claiming sham partnership deductions for the purpose of reducing their tax liability. The IRS, who clearly disagreed with these actions, issued “final partnership administrative adjustments” for the years spanning from 2001 to 2010, in essence decrying the use of these pass-through entities solely for the purpose of tax savings. What followed was numerous attempts to fight back against the IRS’ assertions, followed by additional lawsuits to seek a refund and remittance of all fees and interest charges, and finally the culmination of 13 lawsuits in which the IRS was ordered to pay a refund of $485,588 plus interest to the Montgomerys. In achieving this outcome, a settlement was reached, which expressly stated that it was “intended to fully and finally resolve all ongoing disputes.”

This, however, is only the beginning of what is potentially a landmark case in the battle for transparency under the Freedom of Information Act.

What Is the Freedom of Information Act?

The Freedom of Information Act, also known as Section 552 of Title 5 of the United States Code, is a freedom of information law that allows for the release, whether full or partial, of previously undisclosed information held by the executive branch agencies of the U.S. government. Passed in 1966 by President Johnson, FOIA, as it is often known, exists to mandate relevant agencies to comply with public requests for information in an effort to promote transparency. In FY 2017, a record 818,271 requests were made under FOIA with a release rate of 91%.

Understanding Montgomery vs. US

Despite the hefty payday granted by the courts, the Montgomerys were not satisfied. In fact, they firmly believed that someone had blown the whistle on them, tipping the IRS off to their potentially shady partnership practices, and were determined to find out who. On May 6, 2016, the couple filed two separate but distinctly similar FOIA requests to the IRS, essentially demanding a list of evidence that would reveal the names of the person or persons who sold them out. The IRS claimed Exemption 7(D), or an exemption that serves to protect the identity of confidential sources, on several of the listed requests and claimed that no such documents existed on the remainder.

This, of course, did not satisfy the Montgomerys, who filed yet another a lawsuit in an effort to secure the information they so deeply craved. And thus began the proceedings of Montgomery vs. US.

Arguments and Judgments

In response to another legal action by the Montgomerys, the IRS filed a motion for Summary Judgment on the basis that the language included in the settlement should be enough to settle this lawsuit, too. The settlement agreement, the IRS argued, resolved all “ongoing disputes,” of which this related issue – the issue, ostensibly, of who brought about the disputes in the first place – is a part. The courts disagreed. Despite the exceptionally litigious nature of the Montgomerys, the court found that most reasonable parties would assume that the “ongoing disputes” addressed in the settlement only referenced the previous lawsuits, not any associated lawsuits in the future – which, to the credit of the Montgomerys, the settlement did not at all address. The IRS then attempted to circumvent the suit via collateral estoppel, arguing that the issue in the case had been previously decided and thus could not be brought up again. The courts again rejected this measure, stating correctly that access to the requested information had yet to be addressed. In a final effort, the IRS argued on the basis of res judicata, but this was denied as well, as the courts concluded that potential tax fraud and the correctness of exemptions in an FOIA request are largely unrelated.

With no additional defense, the IRS was forced to concede defeat; the court ruled on the side of the Montgomerys.

Understanding the Overarching Implications

In the most basic of summaries, the IRS lost their motion, and the taxpayer prevailed. However, the legal precedent potentially set here means much more. While the aftermath of the case has not settled – the IRS is still entrenched in a battle over the statutory basis for withholding documents as well as the relevance of a Glomar denial – the victory on behalf of the taxpayer throws a wrench into how FOIA requests are handled. In the future, the IRS may not be able to protect its whistleblowers from FOIA requests, potentially lessening the safety of those willing to come forward or reducing the revenue collected through the whistleblower program. The true outcome is still to come, but the nature of FOIA requests and possible use of government exemptions may very well be called into question.