  Department of Justice Participation on the Internal Revenue
           Service Undercover Review Committee

Disclosure o f tax return information to a Department o f Justice attorney serving on the Undercover
   Review Com mittee o f the Internal Revenue Service is permissible under §6103 o f title 26 of
   the United States Code as a limited referral for legal advice.

                                                                                                  October 8, 1996

             M e m o r a n d u m O pin io n   for the    A s s is t a n t A t t o r n e y G e n e r a l
                                               T a x D iv is io n


   This memorandum responds to your request for our legal opinion on what limi­
tations, if any, are imposed by the provisions of §6103 of the Internal Revenue
Code on the participation by Department of Justice (“ DOJ” ) attorneys on the
Undercover Review Committee of the Internal Revenue Service (“ IRS” ). Letter
for Walter Dellinger, Assistant Attorney General, Office of Legal Counsel, from
Loretta C. Argrett, Assistant Attorney General, Tax Division (July 6, 1995) (“ DOJ
July 6, 1995 Letter” ). Specifically, we have been asked to determine whether
tax return information can be disclosed to DOJ attorneys sitting on the IRS Under­
cover Review Committee (“ Committee” ) in investigations that have not been for­
mally referred to DOJ by the IRS. As set forth below, we conclude that disclosure
of tax return information to a DOJ attorney serving on the Committee is permis­
sible under section 6103 as a limited referral for legal advice.

                                              I. B ackground

A. Section 6103

   Section 6103 of title 26 of the United States Code imposes restrictions on the
disclosure of tax returns or tax return information. Only if authorized by statute
can such information be disclosed. 26 U.S.C. § 6103(a). In pertinent part,
§ 6103(h)(2) and (3) provides for disclosure of tax returns or return information
to DOJ attorneys. Section 6103(h)(2) states:

         (2) D epartm ent of Justice. — In a matter involving tax administra­
         tion, a return or return information shall be open to inspection by
         or disclosure to officers and employees of the Department of Justice
         (including United States attorneys) personally and directly engaged
         in, and solely for their use in, any proceeding before a Federal
         grand jury or preparation for any proceeding (or investigation which
         may result in such a proceeding) before a Federal grand jury or
         any Federal or State court, but only if—

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 Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee


                   (A) the taxpayer is or may be a party to the proceeding,
                or the proceeding arose out of, or in connection with, deter­
                mining the taxpayer’s civil or criminal liability, or the col­
                lection of such civil liability in respect of any tax imposed
                under this title;

                  (B) the treatment of an item reflected on such return is
                or may be related to the resolution of an issue in the pro­
                ceeding or investigation; or

                   (C) such return or return information relates or may relate
                to a transactional relationship between a person who is or
                may be a party to the proceeding and the taxpayer which
                affects, or may affect, the resolution of an issue in such pro­
                ceeding or investigation.

Section 6103(h)(3) provides:

       (3) Form of request.— In any case in which the Secretary is au­
       thorized to disclose a return or return information to the Department
       of Justice pursuant to the provisions of this subsection —

                   (A) if the Secretary has referred the case to the Depart­
                ment of Justice, or if the proceeding is authorized by sub-
                chapter B of chapter 76, the Secretary may make such dis­
                closure on his own motion, or

                   (B) if the Secretary receives a written request from the
                Attorney General, the Deputy Attorney General, or an As­
                sistant Attorney General for a return of, or return informa­
                tion relating to, a person named in such request and setting
                forth the need for the disclosure, the Secretary shall disclose
                return or return information so requested.

   A disagreement has arisen between the IRS and the Tax Division of DOJ as
to what limitations, if any, are imposed by § 6103(h)(2) and (3) on the participa­
tion by a DOJ attorney on the Committee.

B. The U ndercover R eview Com m ittee

  The IRS has promulgated, in the form of guidelines, specific procedures for
the review, approval, conduct, and oversight of undercover operations. As set forth
in these guidelines, the IRS recognizes that although the undercover technique

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                     Opinions o f the Office o f Legal Counsel in Volume 20


is lawful and valuable as an investigative tool, undercover operations can create
legal problems. Internal Revenue M anual 910 at 9781-551 (“ IRM” ).
   Undercover operations conducted by the IRS are classified into two groups.
Group I operations are deemed more sensitive in nature, and the approval of the
Assistant Commissioner (Criminal Investigation) of the IRS must be obtained.
These operations include those that exceed six months in duration and/or exceed
the Director of Investigations’ level of approval for confidential expenditures. IRM
922 at 9781-551. Group I operations also include any operation in which there
is a reasonable chance that one or more of fourteen specified sensitive factors
will arise. These factors include, inter alia, operations that will: result in significant
civil claims against the United States; have an impact on investigations in numer­
ous regions; involve public corruption crimes; involve an undercover person run­
ning the risk of being arrested or being required to give sworn testimony or attend­
ing a meeting where the subject understood a privilege would exist. Id. at 9781—
551 to 552.
   Group II operations are those undercover activities that do not meet the Group
I requirements. The IRS Director of Investigations is authorized to approve re­
quests for Group II operations. Id. at 9781-552.
   Requests for undercover operations must be submitted in writing, setting forth
information necessary to evaluate the particular request. Each request must include
in narrative form the evidence obtained to date that would lead a reasonable person
to believe a violation of law has occurred. Not all undercover operations involve
tax or tax-related crimes. Some investigations involve crimes such as money laun­
dering.
   The request must also establish that the undercover operation is the only effi­
cient investigative alternative available. IRM 931 at 9781-553. We have been ad­
vised by the IRS that every submission to the Committee for a tax or tax-related
investigation includes all information generated or collected by the IRS regarding
the investigation, the identity of the taxpayer and the nature and plan of investiga­
tion and the potential charges, and tax return information for purposes of §6103.
Letter for Richard L. Shiffrin, Deputy Assistant Attorney General, Office of Legal
Counsel, from Eliot D. Fielding, Associate Chief Counsel, Enforcement Litigation,
Internal Revenue Service (Jan. 22, 1996) (“ IRS Jan. 22, 1996 Letter” ).
   All requests for Group I operations are reviewed by the Committee. The Com­
mittee also reviews significant deviations in ongoing Group I operations and all
requests for recoverable funds which exceed an aggregate of $50,000 in Group
II operations. The Committee is advisory in nature and makes recommendations
to the Assistant Commissioner (Criminal Division).
   The Attorney General and the IRS Commissioner have agreed in a Memo­
randum of Understanding (“ MOU” ), signed in August 1995, on following speci­
fied procedures for the review and approval of certain undercover operations con­
ducted by the IRS. According to the MOU, an attorney from either the Criminal
Division or Tax Division of the Department of Justice will serve on the Committee

                                             354
 Department o f Justice Participation on the Internal Revenue Service Undercover R eview Committee


in assessing Group I operations that exceed one year in duration and/or require
approval of more than $40,000 in confidential funds.
   With the exception of the DOJ attorney, the Committee is comprised of IRS
officials: the Director, National Operations Division; the Assistant Chief Counsel
(Criminal Tax); and the Chief, Office of Special Investigative Techniques; or their
designees. The Assistant Commissioner (Criminal Investigation) may invite other
individuals to participate in the Committee. IRM 932 at 9781-554(2); MOU at
3.
   According to the MOU, the Committee shall meet on a regular basis to consider
initial requests for qualifying Group I undercover operations or significant devi­
ations to previously approved plans of action. No more than four operations will
be scheduled for each meeting. Prior to each meeting, Committee members are
to receive a sealed packet containing the undercover requests. The materials must
be securely maintained and may not be copied. The materials must be returned
after the Committee meeting. MOU at 3-4.
   The IRS National Operations Division, Office of Special Investigative Tech­
niques, is responsible for the presentation of the undercover request packets to
the Committee. Prior to the Office of the Special Investigative Techniques’ receipt
of the requests, however, each request has been reviewed and approved by the
respective IRS Division Chief, District Director and Area Director of Investiga­
tions. MOU at 3.
   After consideration of each request is completed, the Committee makes a rec­
ommendation to the Assistant Commissioner (Criminal Investigation) that the op­
eration be approved, approved with conditions, or disapproved. The recommenda­
tion is based upon a majority vote of the Committee members. The Committee’s
recommendation, minutes from the Committee meeting and the undercover request
is then sent to the Assistant Commissioner (Criminal Investigation) for final ac­
tion. MOU at 4.
   In the event the DOJ attorney disagrees with the Committee’s recommendation
for approval because of legal, ethical, prosecutive, or departmental policy consid­
erations, the appropriate Assistant Attorney General shall consult with the Assist­
ant Commissioner (Criminal Investigation). If the disagreement is not resolved,
no further action shall be taken on the undercover request without the approval
of the IRS Chief Compliance Officer.
   The MOU states that the “ undercover technique is a valuable law enforcement
investigative tool” and is essential to the enforcement of tax and tax related stat­
utes. MOU at 1. The MOU acknowledges that because the undercover tool is
sensitive and potentially intrusive, care must be exercised to ensure that the tech­
nique is used properly. The parties agree that the participation of a DOJ attorney
in the approval process for the sensitive operations is necessary “ to ensure legal,
ethical, and prosecutorial uniformity in the application of the undercover technique
for Federal law enforcement.” MOU at 2. The IRS has informed us that the “ DOJ
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attorney would necessarily require access to tax data in order to permit a meaning­
ful review of the details” of the operation. IRS Jan. 22, 1996 Letter at 10.

C. The Positions o f the IRS and the Tax Division

   The IRS and the Tax Division have informed us of their respective positions
in several letter submissions, all of which we have reviewed and considered in
reaching the conclusions set forth herein. Letter for Walter Dellinger, Assistant
Attorney General, Office of Legal Counsel, from Stuart L. Brown, Chief Counsel,
Internal Revenue Service (Aug. 21, 1995) (“ IRS Aug. 21, 1995 Letter” ); Letter
for Walter Dellinger, Assistant Attorney General, Office of Legal Counsel, from
Eliot D. Fielding, Associate Chief Counsel, Enforcement Litigation, Internal Rev­
enue Service (Sept. 11, 1995); IRS Jan. 22, 1996 Letter; DOJ July 6, 1995 Letter;
Letter for Walter Dellinger, Assistant Attorney General, Office of Legal Counsel,
from Loretta C. Argrett, Assistant Attorney General, Tax Division (Aug. 25, 1995)
(“ DOJ Aug. 25, 1995 Letter” ); Letter for Richard L. Shiffrin, Deputy Assistant
Attorney General, Office of Legal Counsel, from Mark E. Matthews, Deputy As­
sistant Attorney General, Tax Division (Jan. 24, 1996) (“ DOJ Jan. 24, 1996 Let­
ter” ).
   The IRS takes the position that the disclosure of tax information to a DOJ attor­
ney serving on the Committee is not permissible under §6103. The IRS believes
that § 6103(h)(2) and (3) must be read in conjunction with one another because
§ 6103(h)(2) alone does not provide independent disclosure authorization. Accord­
ing to the IRS, even where the requirements of § 6103(h)(2) are satisfied, a disclo­
sure is authorized only where the Secretary or his designee has referred a case
to DOJ, the proceeding falls under subchapter B of chapter 76 or a written request
is submitted by a DOJ official listed in § 6103(h)(3)(B).
   In construing what constitutes a “ referral” for purposes of §6103(h)(3), the
IRS asserts that an “ institutional decision” must first be made by the IRS to
request that DOJ provide advice or assistance. Once that decision has been made,
a “ referral” is appropriate in one of three forms. First, a “ formal” referral (also
known as a referral of “ the case on the merits” ) is where the IRS requests that
DOJ conduct a grand jury investigation, or prosecute, defend, or take some other
affirmative action in court with respect to a case. IRS Aug. 21, 1995 Letter, at­
tached memorandum at 15; IRS Jan. 22, 1996 Letter at 1-2.
   Another type of referral is where a limited aspect of the case is referred by
the IRS to DOJ for purposes o f DOJ representing the IRS in court for a specific
purpose, such as to obtain approval for an immunity order, to enforce a summons,
or to obtain a search or arrest warrant or writ of entry. IRS Jan. 22, 1996 Letter
at 2-4.
   The third type of referral, and the one most relevant to the issue herein, is
where the IRS makes tax return information disclosures to DOJ in seeking advice

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  Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee


on issues arising during the investigative stage and prior to a formal referral of
the case. IRS Jan. 22, 1996 Letter at 4-6. In this type of referral, the IRS asserts
that DOJ advice may be sought only on a case-by-case basis by those officers
with authority to make the referral. According to the IRS, the solicitation must
be made of the DOJ division to which a formal referral would be submitted, and
only after the IRS has made a preliminary determination that a formal referral
may be appropriate.1 In addition, the disclosures must be limited to the informa­
tion necessary to obtain the legal advice sought on the specific case. Id. at 4 -
5.
   The IRS relies upon the “ Blue Book” 2 on the Tax Reform Act of 1976 and
various IRS publications as authority for its practice of referring a limited aspect
of the case to DOJ or seeking advice prior to a formal referral. Id. at 3-4, n.4
& 7. The Blue Book states in relevant part:

          For purposes of [6103(h)(3)], the referral of a tax matter by the
          IRS to the Justice Department would include those disclosures
          made by the IRS to the Justice Department in connection with the
          necessary solicitation of advice and assistance with respect to a case
          prior to formal referral of the entire case to the Justice Department
          for defense, prosecution, or other affirmative action.

Staff of Joint Comm, on Taxation, 94th Cong., 2d Sess., General Explanation
o f the Tax Reform A ct o f 1976, at 322 (Comm. Print 1976) (“ Blue Book” ).
   The IRS rejects the notion that DOJ’s participation on the Committee would
constitute any of the referral types permitted by §6103. The IRS argues that the
disclosures to the DOJ attorney would not qualify as the type of pre-formal referral
“ advice” contemplated by the Blue Book because certain prerequisites to solic­
iting advice from DOJ are not satisfied. Specifically, the IRS claims that an “ insti­
tutional decision” to seek DOJ advice is lacking and that no decision has been
made on a “ case-by-case” basis after a preliminary determination that a formal
referral may thereafter be appropriate. In addition, IRS officials submitting re­
quests to the Committee are not necessarily authorized to “ refer” matters to DOJ
for purposes of §6103 and the DOJ attorney serving on the Committee would
not necessarily be from the division to which a formal referral would be made.
   The Tax Division agrees with the IRS that §6103(h)(2) and (3) must be read
in conjunction with one another. The Tax Division characterizes the only issue
in dispute as centering on what constitutes a “ referral” under § 6103(h)(3). The
Tax Division agrees with the IRS that a §6103 referral includes a formal referral
   1 According to the IRS, the question o f which officials have authority to refer matters to DOJ depends upon
the type of investigation involved. IRS documents specify who these officials are. Disclosures to DOJ are generally
made by IRS District and Regional Counsel, and the Assistant Commissioner o f Criminal Investigation. IRM (22)55.1,
at 1272-298.2; see also IRS Jan. 22, 1996 Letter at 4-5, Tabs C & L.
   2 For further discussion o f the Blue Book see infra pp. 360-61.


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of the case and a limited referral for the purpose of seeking DOJ assistance in
court or advice during the investigative stages of cases. The Tax Division ac­
knowledges that a limited referral terminates once the advice or assistance has
been rendered. The Tax Division disagrees, however, with the IRS as to whether
disclosures to the DOJ attorney serving on the Committee constitute the type of
limited referrals permitted by §6103. Relying upon the plain meaning of the stat­
ute, the Blue Book, and the practices of the IRS, the Tax Division claims that
the disclosures to the DOJ attorney are permissible under the statute as a limited
referral for purposes of seeking advice. See DOJ Aug. 25, 1995 Letter; DOJ Jan.
24, 1996 Letter.

                                       II. Analysis

  We believe that the IRS and the Tax Division are correct that § 6103(h)(2) and
(3) must be read in conjunction with one another. Section 6103(h)(3) provides
in relevant part that “ [i]n any case in which the Secretary is authorized to disclose
a return or return information to the Department of Justice pursuant to the provi­
sions of this subsection,” the Secretary may make such disclosure if the Secretary
has referred a case to DOJ, the proceeding falls under subchapter B of chapter
76, or a written request is submitted by an authorized DOJ official. In its plain
meaning, the quoted language refers to a disclosure authorized by § 6103(h)(2).
  The primary guide to statutory interpretation is the plain meaning of the text.
As stated by the Supreme Court in U nited States v. Ron P air Enterprises, Inc.,
489 U.S. 235, 242 (1989):

          The plain meaning of legislation should be conclusive, except
       in the “ rare cases [in which] the literal application of a statute will
       produce a result demonstrably at odds with the intentions of its
       drafters.” Griffin v. O ceanic Contractors, Inc., 458 U.S. 564, 571
       (1982). In such cases, the intention of the drafters, rather than the
       strict language, controls.

This is not the “ rare case[]” where the result that follows from the statute’s
text is “ demonstrably at odds” with its underlying congressional purpose. See
Griffin v. O ceanic Contractors, Inc., 458 U.S. 564, 571 (1982). The legislative
history supports the conclusion we have reached from a plain reading of the stat­
ute.
  In explaining the provisions relating to disclosures to DOJ representatives in
tax cases, the Senate Committee on Finance stated:

          The Justice Department would continue to receive returns and
       return information with respect to the taxpayer whose civil or crimi­
       nal tax liability was at issue.

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 Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee




       Except in those instances where a tax matter was referred by the
       IRS to the Department of Justice, and tax refund cases under Sub­
       chapter B of Chapter 76, the Department of Justice would be re­
       quired to make a written request (by the Attorney General, the Dep­
       uty Attorney General, or an Assistant Attorney General) for the in­
       spection or disclosure of returns and return information, setting
       forth the reasons for such disclosure or inspection.

S. Rep. No. 94-938, at 325-26 (1976). The conference agreement adopted a short­
ened version of this explanation in its report. “ The Justice Department will con­
tinue to receive returns and return information with respect to the taxpayer whose
civil or criminal tax liability is at issue. Written request is required in cases other
than refund cases and cases referred by the IRS.” Staff of House Comm, on Ways
and Means, 94th Cong., 2d Sess., Summary o f Conference Agreement on the Tax
Reform Act o f 1976, at 44 (Comm. Print 1976). See also H.R. Conf. Rep. No.
94-1515, at 477 (1976); S. Conf. Rep. No. 94-1236, at 477 (1976).
   Courts addressing the issue have adopted the same plain meaning of
§ 6103(h)(2) and (3). In United States v. Chemical Bank, 593 F.2d 451, 457 (2d
Cir. 1979), the Second Circuit found that DOJ attorneys may obtain tax returns
and return information pursuant to § 6103(h)(2) “ only on compliance with”
§ 6103(h)(3). Similarly, the Third Circuit found that in tax cases “ there are two
possible routes under which disclosure of tax returns and return information can
be made” to DOJ attorneys— compliance with either § 6103(h)(3)(A) or
§ 6103(h)(3)(B). United States v. Bacheler, 611 F.2d 443 , 447 (3d Cir. 1979).
See also United States v. Robertson, 634 F. Supp. 1020, 1027 n.9 (E.D. Cal. 1986)
(“ Section 6103(h)(3) sets forth two alternative procedures by which the Depart­
ment of Justice may inspect return information when [§ 6103(h)(2)] is satisfied
. . . •” ), a ffd , 815 F.2d 714 (9th Cir.), cert, denied, 484 U.S. 912 (1987).
   We now turn to the issue in dispute, whether disclosure of tax return information
to a DOJ attorney serving on the Committee is permissible under §6103 as a
limited referral for advice. Section 6103 provides that the IRS may make disclo­
sures of tax information to DOJ attorneys if the case has been “ referred” to DOJ.
We agree with the IRS and the Tax Division that referrals under §6103 include
a formal referral of the entire case, as well as a limited referral for purposes of
seeking DOJ assistance in court or advice during the investigative stages.
   Nothing in the plain meaning of the statute or in its legislative history suggest
that Congress intended that the term “ referred” be narrowly construed. Section
6103 states, in relevant part, that tax information may be disclosed to DOJ em­
ployees for use in the grand jury or other proceeding, or in an “ investigation
which may result in such a proceeding.” 26 U.S.C. §6103(h)(2). This language

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clearly contemplates disclosures to DOJ not only when a tax matter is far enough
along for presentment to the grand jury or in some court proceeding, but where
disclosures are needed at the investigative stage. We know from the practices
of the IRS and DOJ, as discussed below, that disclosures at the investigative stage
are often made in seeking legal advice from DOJ attorneys prior to a formal refer­
ral of the entire case. These pre-formal referral practices play a critical role in
the effective enforcement of tax statutes.
   The legislative history confirms that pre-formal referral disclosure is permissible
as a § 6103 referral. As the IRS has stated:

       the legislative history of [Section] 6103 indicates that Congress in­
       tended a broad interpretation of the term [referred] and acceptance
       of the defmition traditionally used by the Service and the Depart­
       ment of Justice.

IRM, (22)53, at 1272-298.2. The legislative history reveals that Congress did not
intend to limit DOJ’s access to tax information that was necessary in enforcing
criminal tax statutes. See S. Rep. No. 94-938, at 324-25; Staff of House Comm,
on Ways and Means, 94th Cong., 2d Sess., Summary o f Conference Agreement
on the Tax Reform A ct o f 1976, at 44—45 (Comm. Print 1976); see also United
States v. Bacheler, 611 F.2d at 449 (“ Section 6103 recognized the need of the
Justice Department for continued access to tax returns and return information in
carrying out its statutory responsibility in the civil and criminal tax areas and
did not seek to change the rules pertaining to the disclosure of returns and return
information of the taxpayer whose civil and criminal tax liability is at issue.” ).
And, we know from the agencies’ practices that disclosures prior to formal referral
are essential to prosecuting tax crimes. The legislative history reveals that in
adopting the statute, Congress was concerned with protecting individuals against
misuses of tax information by the government. See Beresford v. United States,
123 F.R.D. 232 (E.D. Mich. 1988); McSurely v. M cAdams, 502 F. Supp. 52
(D.D.C. 1980). For example, Congress sought to address DOJ’s use of tax infor­
mation in nontax cases. See S. Rep. No. 94-938, at 316-17; Staff of House Comm,
on Ways and Means, 94th Cong., 2d Sess., Summary o f Conference Agreement
on the Tax Reform A ct of 1976, at 45 (Comm. Print 1976); see also McLarty
v. United States, 741 F. Supp. 751, 755 (D. Minn. 1990), reconsideration granted
on other grounds, 784 F.Supp. 1401 (D. Minn. 1991).
   In addition, the Blue Book specifically states that a referral includes disclosures
made in connection with “ the necessary solicitation of advice and assistance with
respect to a case prior to formal referral of the entire case to the Justice Depart­
ment for defense, prosecution, or other affirmative action.” Blue Book at 322.
Although some courts have held that the Blue Book is not part of the statute’s
“ legislative history” per se, see, Flood v. United States, 33 F.3d 1174, 1178 (9th

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  Department o f Justice Participation on the Internal Revenue Service Undercover R eview Committee


Cir. 1994); Estate o f Wallace v. Commissioner, 965 F.2d 1038, 1050 n.15 (11th
Cir. 1992); Todd v. Commissioner, 862 F.2d 540, 541—42 (5th Cir. 1988); Hutch­
inson v. Commissioner, 765 F.2d 665, 669-70 (7th Cir. 1985); Redlark v. Commis­
sioner, 141 F.3d 936 (9th Cir. 1998); Zinniel v. Commissioner, 89 T.C. 357, 365-
66 (1987), courts agree that the Blue Book is a valuable aid in understanding
and interpreting the federal tax code, see Condor Int’l, Inc. v. Commissioner, 98
T.C. 203, 227 (1992), a j f d in p a rt and rev’d in part, 78 F.3d 1355 (9th Cir.
1996); Estate o f Wallace, 965 F.2d at 1050 n.15; Todd, 862 F.2d at 542-43;
M cDonald v. Commissioner, 764 F.2d 322, 336 n.25 (5th Cir. 1985); Allison v.
United States, 701 F.2d 933, 940 n.9 (Fed. Cir. 1983); Hutchinson, 765 F.2d at
669-70; Estate o f Ceppi v. Commissioner, 698 F.2d 17, 19 (1st Cir. 1983), cert,
denied, 462 U.S. 1120 (1983); Bank o f C learwater v. United States, 7 Cl. Ct.
289, 294 (1985). Indeed, the Supreme Court observed that the Blue Book con­
stituted a “ compelling contemporary indication” of legislative intent. Federal
P ow er Comm’n v. Memphis Light, Gas & W ater D iv., 411 U.S. 458, 472 (1973).
   The IRS does not dispute the relevance of the Blue Book as to the issue raised
herein. Indeed, an IRS training manual entitled D isclosure Litigation Training Ref­
erence, states in relevant part:

             As for prereferral advice, although no court has addressed the
          issue, a referral for purposes of section 6103(h)(3) may, in appro­
          priate circumstances, include disclosures made by the IRS to Justice
          in connection with the necessary solicitation of advice and assist­
          ance with respect to a case prior to the formal referral (citing the
          Blue Book).

Office of Chief Counsel, IRS, Disclosure Litigation Training Reference 45 (July
1994).
   In sum, we believe a §6103 referral does include those occasions where the
IRS solicits DOJ advice during the investigative stage, but prior to a formal refer­
ral of the case.3 We now turn to the issue whether DOJ’s participation on the
Committee would fall within this type of referral category.
   The IRS claims that the solicitation of advice from the DOJ attorney on the
Committee does not qualify as a §6103 referral because the undercover proposals
do not satisfy certain prerequisites. The Tax Division takes the contrary position,
citing current practices of the IRS in seeking pre-formal referral advice from DOJ
attorneys as analogous to the advice sought from the Committee attorney. These
practices include the following:

   3 Although no court has decided the issue presented herein, at least one court has broadly construed w hat constitutes
a “ referral” for purposes o f §6103. See United States v. Bacheler, 611 F.2d 443 (3d Cir. 1979). C ourts have also
acknowledged the importance o f DOJ and IRS working together in investigating and prosecuting tax crimes. See
id.; United States v. Chemical Bank, 593 F.2d 451 (2d Cir. 1979).

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   A dvice concerning IRS summons fo r records andlor testimony. IRS agents or
District Counsel attorneys often contact DOJ civil trial or appellate attorneys in
the Tax Division for advice relating to the defensibility of the procedures or scope
of an IRS summons. Disclosure of tax information and often the identity of the
taxpayer are essential to rendering the opinion requested.
   C ase developm ent and strategy. On a regular basis, Tax Division lawyers re­
ceive telephone calls from IRS District Counsel attorneys seeking advice about
the course of legal action that should be pursued in certain factual situations to
build a strong case against the defendant. Full disclosure is made in seeking this
type of advice. In some instances, representatives from the IRS Criminal Investiga­
tion Division meet with Tax Division managers to discuss a whole class of cases
focused on a particular market segment. Tax information has been disclosed so
that the Tax Division could assess the likelihood that the cases would be pros­
ecuted.
   Coordination o f multi-district litigation. In IRS investigations that cross judicial
districts, IRS District Counsel attorneys may disclose details of the cases to DOJ
in seeking advice as to whether all of the cases would be prosecuted and to facili­
tate the coordination of those prosecutions.
   A ppellate issues. IRS personnel frequently contact the Tax Division appellate
attorneys about specific issues pending in DOJ cases that are similar to ones aris­
ing in IRS investigations. To fully discuss the legal implications, IRS personnel
often disclose tax information to the DOJ attorney.
   C ases requiring prom pt D O J action. In exigent circumstances where prompt
DOJ action is necessary, IRS personnel will make disclosures to DOJ so that
DOJ attorneys can begin working on the case. The IRS describes these cir­
cumstances as part of the referral procedure and not a request for prereferral ad­
vice. IRS Jan. 22, 1996 Letter at n.2. The Tax Division asserts that the disclosures
are made before any formal referral of the case has been made.
   D O J prosecution policies. The Tax Division and the IRS describe another situa­
tion where pre-formal referral solicitation occurs. In determining whether DOJ’s
dual prosecution policy applies to preclude a particular federal prosecution, certain
procedures must be followed by the IRS and DOJ. In compliance with these re­
quirements, tax information must be disclosed. The IRS describes this procedure
as rarely used during the past several years.
   Consensual monitoring o f conversations. The Tax Division and the IRS ac­
knowledge that pre-formal referral disclosures are made in compliance with DOJ
policy that IRS agents seek DOJ approval prior to engaging in any consensual
monitoring during an investigation. The DOJ policy is set forth in a 1983 Attorney
General Memorandum signed by William French Smith and in the United States
Attorney’s Manual. Memorandum to Heads and Inspectors General of Executive
Departments and Agencies, from William French Smith, Attorney General, Re:
P rocedures f o r Lawful, W arrantless Interceptions o f Verbal Communications
(Nov. 7, 1983); USAM 9-7.302 (July 1, 1992). The IRS requires compliance with
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the DOJ policy. IRM 9389. As explained in the Internal Revenue Manual, the
purpose of the policy is “ to avoid any abuse or any unwarranted invasion of
privacy.” Id. at 9389.1 at 9-228.4. The Tax Division explained that the policy
has the additional purposes of ensuring that the interception be carried out in a
way that will withstand challenge in court and that a uniform approach to moni­
toring be utilized throughout the country. DOJ Jan. 24, 1996 Letter at 6.
   We agree with the Tax Division that the current practices are analogous to and
legally indistinguishable from DOJ’s participation on the Committee.4 We also
agree that disclosures to the DOJ attorney on the Committee would be permissible
referrals under §6103. DOJ’s involvement on the Committee is necessary' “ to
ensure legal, ethical, and prosecutorial uniformity in the application of the under­
cover technique for Federal law enforcement.” MOU at 2. The role played by
the DOJ attorney would include assisting in the development of a uniform ap­
proach to the use of the undercover technique and to ensure that prosecutive issues
are addressed at the earliest stage. The attorney could help ensure that the inves­
tigation would withstand challenge in court, by advising on entrapment and double
jeopardy defenses, as well as other issues. To fulfill the role of providing the
desired advice and assistance, the DOJ attorney would need full, access to the
relevant tax information. We understand that the disclosures, however, would be
limited to the information necessary to obtain the advice sought on the specific
proposal and that such. information would be returned upon completion of the
assignment.
   The nature of Group I operations creates the necessity for the solicitation of
DOJ advice in approving the proposals. A Group I undercover operation is a sen­
sitive and potentially intrusive technique, and care must be exercised to ensure
that it be used properly. MOU at 2. A flawed operation could create significant
legal impediments to a tax prosecution. If done correctly, however, the technique
is a valuable law enforcement investigative tool and is essential to the enforcement
of tax and tax related statutes. MOU at 1. IRS policies associated with these oper­
ations underscore the legitimate legal concerns associated with the practice.
   Under these circumstances, we are compelled to conclude that DOJ’s participa­
tion on the Committee falls within the rubric of the pre-formal referral advice
contemplated by §6103, as articulated in the Blue Book and applied in other prac­
tices by the IRS and DOJ. We do not find persuasive the contrary arguments
made by the IRS. Specifically, the IRS claims that the disclosures are not permis­
sible because no “ institutional decision” to refer a specific question to DOJ exists.
Nor has a preliminary determination been made that a formal referral may there­
after be appropriate. The IRS also states that the proposals to the Committee would
not necessarily be submitted by an IRS official with authority to make a §6103

   ■•Although the IRS now raises a question as to the propriety o f its 20 year compliance with DOJ policy relating
to consensual monitoring (see IRS Jan. 22, 1996 Letter at 10), we think the practice is permissible under the scope
o f §6103.


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                    Opinions o f the Office o f Legal Counsel in Volume 20


referral. Nor would the DOJ attorney on the Committee necessarily be from the
DOJ division to which a formal referral would be made.
   First, assuming §6103 requires that solicitations for advice must be made on
a case-by-case basis or after an “ institutional decision” has been made, as well
as a preliminary determination that a formal referral may be appropriate, we be­
lieve that referring requests to the Committee for approval of Group I operations
would satisfy these standards. The qualifying requirements for Group I operations
necessarily limit the types of requests made to the Committee. Determining that
a matter satisfies the prerequisites for a proposed undercover operation constitutes
a case-by-case determination. Indeed, before proposals are submitted to the Com­
mittee, several IRS officials must review and approve the proposals. We under­
stand that the number of undercover requests submitted to the Committee are few
in relation to the total number of IRS investigations and that no more than four
operations are considered at any one Committee meeting.
   In addition, the very nature of Group I operations and the associated approval
process would suggest that the IRS views these type of investigations as ones
that may be appropriate for referral to DOJ for prosecution. And, the assistance
proffered by the DOJ attorney would be limited in nature based upon the issues
posed by the particular operation and relevant tax information. These cir­
cumstances, that is the special role of the Committee, the policies associated with
referring qualifying proposals to the Committee for approval, the particular nature
of Group I undercover investigations, and the IRS decision to enter into an MOU
for DOJ participation, would suggest that an “ institutional decision” has been
made to seek DOJ advice in a particular matter. Simply put, we cannot agree
that these facts support IRS’ claim that disclosures to the DOJ attorney would
be tantamount to giving DOJ “ free and unfettered” access to tax information
in a whole class of cases.
   Even if, however, the submissions to the Committee were correctly character­
ized as a referral of “ a class o f cases,” we do not believe §6103 precludes such
referrals. Some of the IRS’ current practices of consulting with DOJ attorneys
prior to a formal referral could also be characterized as referrals of whole classes
of cases. For example, as discussed above, IRS representatives occasionally meet
with DOJ attorneys to discuss whole classes of cases, wherein tax information
is disclosed in seeking legal advice. Similarly, the IRS practice of complying with
the DOJ consensual monitoring policy could be characterized as a referral of a
whole class of cases. In these practices, as well as the proposed Committee work,
the solicitations for advice are essential to the successful prosecutions of tax viola­
tions. For example, as to the consensual monitoring cases, the solicitations help
“ to avoid any abuse or any unwarranted invasion of privacy,” IRM 9389.1 at
9-228.4, and to build a legally stronger investigation. DOJ Jan. 24, 1996 Letter
at 6. No one can dispute that uniformity in tax investigations and prosecutions

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  Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee


is critical to the success of the federal tax enforcement program. See USAM
6-4.000 (Mar. 1, 1994).
   In sum, we do not believe §6103 was intended to preclude DOJ from providing
advice in cases that as a class present legitimate legal concerns. The objectives
behind the current practices, as well as DOJ’s participation on the Committee,
are entirely consistent with the statute’s legislative history and Blue Book provi­
sion. The legislative history shows that §6103 was not intended to interfere with
DOJ’s access to tax information that is necessary in enforcing the tax laws. See
S. Rep. No. 94-938, at 324-25; Staff of House Comm, on Ways and Means,
94th Cong., 2d Sess., Summary o f Conference Agreement o f the Tax Reform Act
o f 1976, at 44-45 (Comm. Print 1976); see also Bacheler, 611 F.2d at 449. And,
the Blue Book explicitly states that the IRS may make disclosures to DOJ “ in
connection with the necessary solicitation of advice.” 5 Blue Book at 322.
   Finally, we are not persuaded by IRS’ claim that DOJ’s full participation on
the Committee is impermissible because the “ referrals” are not necessarily made
by IRS officials with authority to do so, or that the DOJ attorney would not be
from the division to which a formal referral would be made. We agree that the
“ referral” must be made by IRS personnel with the authority to do so. We also
believe, however, that this prerequisite can be satisfied. To the extent persons
involved in submitting requests to the Committee are not currently authorized to
“ refer” matters to DOJ for purposes of §6103, the IRS orders or practices can
be amended to guarantee that the persons referring the matters to the Committee
have the appropriate authority. We are unaware of any authority for the remaining
alleged prerequisite, that the DOJ attorney must be from the division to which
a formal referral would be made, nor has any been called to our attention. More­
over, the current practices of the IRS in soliciting DOJ advice, as discussed above,
do not appear to be consistent with the existence of such a requirement. In any
event, if such a prerequisite is desired, it could easily be complied with by redesig­
nating, as necessary, which DOJ attorney would sit on the Committee for specific
proposals.

                                                              CHRISTOPHER H. SCHROEDER
                                                               Acting A ssistant Attorney General
                                                                    Office o f Legal Counsel




  5 We construe “ necessary” here to mean solicitation that will further federal efforts in the tax enforcement pro­
gram.


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