Consider the Confidentiality of Your Iowa Tax Appeal Before Filing

The Iowa Department of Revenue (IDR) issues you a tax assessment. You file a written appeal. Is your entire appeal automatically confidential? If not, what parts of your written appeal are confidential? 

The Iowa Court of Appeals recently reaffirmed a long-standing principle of Iowa tax controversy in POET-DSM Project Liberty, LLC v. Iowa Dep’t of Revenue. The default rule is that Iowa tax appeals—previously referred to as tax protests—filed with the IDR are generally open to the public.  

The Iowa Court of Appeals also sent a clear message to future taxpayers: if you are concerned with the confidentiality of your tax appeal, consult with an Iowa tax professional before filing your appeal.

IDR denied an ethanol company’s research activities tax credit claims. The taxpayer filed a massive, 49-page appeal with “thousands of pages of exhibits detailing the research and development of its ethanol extraction method, plus financial records.” The Court specifically noted, in oral arguments and in its opinion, that the taxpayer’s out-of-state accountant filed the appeal. 

The Court rejected the taxpayer’s efforts to keep the whole appeal confidential from open records requests. The taxpayer will still have an opportunity to assert trade secret and other protection for certain information in the appeal and exhibits. The taxpayer is seeking further review from the Iowa Supreme Court. 

Tax Appeals Filed with IDR are (Still) Generally Open Records 

IDR’s legal position—that tax appeals are generally open to public inspection—is quite old.  Since Iowa enacted income and sales taxes in 1934, basic confidentiality statutes have applied to Iowa income and sales tax returns, return information, and audit records. Those confidentiality laws grew and were modified over time. But until recently, Iowa tax confidentiality statutes did not specifically address tax appeals. Tax appeals weren’t returns. And they weren’t audits. They were written documents filed by taxpayers who wanted to object to a tax assessment or refund denial.

Confidentiality of state tax appeals came to the forefront in the 1970s. Iowa had recently enacted two cornerstones of state government procedure and transparency: the Iowa Open Records Act and the Iowa Administrative Procedure Act (IAPA). The statutes apply to IDR and all other state agencies. The Iowa Open Records Act makes records in the hands of government open to public inspection, unless an exemption or another statute shields the record. The Open Records Act contains exceptions for things like protected trade secrets and information with no public value. The IAPA requires IDR to make final tax appeal decisions available for public inspection. Before making tax appeal decisions public, IDR is required to delete certain information that would be a “clearly unwarranted invasion of personal privacy or trade secrets.” Furthermore, the IAPA makes oral proceedings in tax appeals open to the public.

Between 1976 and 2020, two formal Iowa Attorney General Opinions and IDR’s administrative rules stated that tax appeals are generally open records, available for public inspection. Taxpayers, however, had mechanisms to request redaction of certain information that fell into confidential categories, like trade secrets.

Recent Legislative Changes: Keep the General Framework, Add Some Automatically Protected Categories

In 2020, the Iowa legislature directly addressed public disclosure of tax appeals. The legislature largely ratified the existing position that tax appeals are generally open records. The statute expressly incorporated some of the familiar, long-standing tools for taxpayers to request redactions for things like trade secrets or other confidential information.

Importantly, the Iowa legislature shielded additional types of information from public disclosure. The 2020 law created categories of information that are automatically confidential, even if the information is contained in a tax appeal file. Specifically, the law required IDR to redact the following information before releasing a tax appeal file to the public: financial account numbers, IDR audit numbers, SSNs, FEINs, names of minor children, medical information, and copies of tax returns. 

IDR is required to redact this information prior to public disclosure. Taxpayers are not required to request this type of information be redacted. However, it is a good practice to alert IDR that such per se confidential information is contained in a tax appeal. Also, taxpayers can use a process to keep additional information confidential. This requires a motion and affidavit to explain the legal and factual basis that makes the information confidential.

State tax dispute procedures and laws are unique to each state. Confidentiality of tax appeals is just one of many important features of the Iowa tax appeals process.