T.C. Memo. 2007-339

UNITED STATES TAX COURT

STERLING TRADING OPPORTUNITIES, L.L.C., SENTINEL ADVISORS,

L.L.C., TAX MATTERS PARTNER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

TOPAZ TRADING, L.L.C., SENTINEL ADVISORS, L.L.C., TAX MATTERS

PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE,

Respondent

Docket Nos. 12361-05, 12629-05. Filed November 14, 2007.

Felix B. Laughlin and Mark D. Allison, for petitioner.

Bryan C. Skarlatos and Christopher M. Ferguson, for

participating partner.

Clare W. Darcy, for respondent.

MEMORANDUM OPINION

HALPERN, Judge: Respondent has moved to compel production

of documents (the motion). Participating partner AS/EI

Investments, L.L.C. (the L.L.C.), and petitioner object. L.L.C.
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has, under seal and for in camera inspection, submitted to the

Court four documents (the documents), which are at the center of

the dispute, along with a memorandum in support of its and

petitioner’s claim of work product protection for the documents. 

The L.L.C. has also filed (and shared with respondent) a redacted

copy of that memorandum (the memorandum). For the reasons

stated, we shall grant the motion.

Background

The memorandum describes the documents as

notes taken by Mr. Franco and his attorney, Morris

Missry, Esq., at two meetings which took place in the

latter part of 1999, between Mr. Franco and Mr. Missry,

on the one hand, and representatives of BDO and/or

Sentinel on the other. The first such meeting took

place on or about September 22, 1999 and the second

took place on or about October 28, 1999.

With respect to the first meeting, the memorandum states:

The purpose for having Mr. Missry accompany Mr. Franco

was to allow him to advise Mr. Franco concerning the

options transactions and to have him review the

proposed strategy in the likely event that Mr. Franco

was audited by virtue of potential losses declared as a

function of having invested in the options

transactions.

The September 22, 1999 meeting was attended by Mr.

Franco, Mr. Missry, Eric Hananel and Randy Frischer of

BDO, as well as representatives from Sentinel. * * * 

The purpose of this meeting was to educate Mr. Missry

about the options transactions and to introduce Mr.

Franco and Mr. Missry to Sentinel.

With respect to the second meeting, the memorandum states:

The October 28, 1999 meeting was attended by Mr.

Franco, Mr. Missry, Marvin Robinson, Esq. (a second

attorney hired by Mr. Franco with respect to the

options transaction) and Mr. Hananel. * * * As with

the earlier meeting, Mr. Missry accompanied Mr. Franco

to this meeting in order to advise Mr. Franco with

respect to the investments themselves and with a view
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1 L.L.C. identifies Mr. Franco as an investor in Sterling

Trading Opportunities, L.L.C., and Topaz Trading, L.L.C., and as

the “ultimate taxpayer whose liabilities are at issue in this

case.”

toward an ultimate challenge of the transactions by the

IRS. As with their notes from the September 22

meeting, both Mr. Missry’s and Mr. Franco’s notes

reflect discussions concerning the tax benefits of the

transactions in question and the need to anticipate an

IRS challenge through REDACTED .

Arguments of the Parties

L.L.C. argues that the documents were prepared in

anticipation of litigation and, for that reason, are entitled to

work product protection. L.L.C. argues: “The term ‘litigation’

* * * has been construed expansively so as to encompass virtually

any type of adversarial forum, including an IRS audit.” Also: 

“As the above facts demonstrate, the prospect of an ultimate

dispute with the IRS was an ever-present consideration in the

minds of Mr. Franco and Mr. Missry at the time of the September

22 and October 28, 1999 meetings.”1 L.L.C. recognizes that work

product may be subject to discovery if the information is

essential to the opponent’s case and is otherwise unavailable. 

L.L.C. argues:

This is plainly not the case here. As noted above, the

September 22 and October 28 meetings for which

Respondent now seeks Mr. Franco’s and Mr. Missry’s

notes were attended by several witnesses. One of those

witnesses, Marvin Robinson, Esq. submitted to an

informal interview with Respondent. Another witness,

Eric Hananel, is being deposed by respondent in June. 

In addition, Respondent has had discussions with Mr.

Missry himself about arranging an informal interview. 

And, of course, Respondent will have the opportunity to

question Mr. Franco about these meetings during any

ultimate trial in this case.
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Respondent argues that the documents are not protected by

the work product doctrine because petitioner and the L.L.C. have

failed to show that litigation was anticipated by Mr. Franco or

Mr. Missry at the time they wrote the documents. Respondent also

argues that, assuming that the documents were written in

anticipation of litigation, he has substantial need for the

documents and is unable to obtain the substantial equivalent by

other means. Respondent claims his substantial need is to show

the purpose, structure, parties, and fees for the

transaction, all of which relate to respondent’s

position that the transaction was entered into for

purely tax avoidance purposes. Contrary to

respondent’s position, petitioner and the participating

partner have alleged that Sterling Trading

Opportunities and Topaz Trading were formed for an

investment purpose.

Respondent bases his claim that there is no substantial

equivalent for the documents on the following. He has deposed

Mr. Hananel, who does not recall details about the information

that was provided to Mr. Franco and Mr. Missry in September and

October of 1999. Mr. Hananel did not recall attending meetings

with Sentinel Advisors with respect to Mr. Franco. Respondent

has spoken informally to Mr. Robinson, who could not provide

details about the meetings. Respondent summarizes: “The lapse

in time has caused memories to fade about the details discussed

at these two meetings. There simply is no other way for the

respondent to obtain the critical information contained in the

contemporaneous notes of the meetings sought in the motion to

compel.”
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Respondent adds that the L.L.C. memorandum does not claim

that the documents contain the mental impressions, conclusions,

opinions, or legal theories of an attorney or other

representative of a party concerning litigation. Respondent

argues that, even were petitioner and the L.L.C. to make that

claim, he has made a highly persuasive showing of a substantial

need for the documents.

Discussion

We recognize the work product doctrine. See Ratke v.

Commissioner, 129 T.C. __, __ (2007) (slip op. at 9-10). 

If the party opposing discovery establishes that

the information sought is work product, then discovery

will not be required unless the Court determines that,

in the situation before it, the information sought

should nevertheless be disclosed. Hickman v. Taylor,

329 U.S. 495, 512 (1947); Ames v. Commissioner, 112

T.C. at 310-311.

Ratke v. Commissioner, supra at __ (slip op. at 7). In the Ratke

case, we addressed the extent of the privilege resulting from the

work product doctrine as follows:

The privilege resulting from the work product

doctrine is qualified; it may be overcome by an

appropriate showing. Ames v. Commissioner, 112 T.C. at

310; Hartz Mountain Industries v. Commissioner, 93 T.C.

at 527 (1989). Rule 26(b)(3) of the Federal Rules of

Civil Procedure requires a showing of “substantial

need” and an inability to otherwise obtain the

substantial equivalent “without undue hardship”; that

rule sets aside “disclosure of the mental impressions,

conclusions, opinions, or legal theories of an attorney

or other representative of a party concerning the

litigation.” [Id. at __ (slip op. at 13); fn. ref.

omitted.]

The documents, as described in the L.L.C. memorandum, and as

shown by our in camera examination, contain notes taken by
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Messrs. Franco and Missry at two meetings to educate them about

the options transactions, including the possibility of IRS

examination of the transaction. Petitioner and the L.L.C. do not

claim, nor do we see, any opinion work product (i.e., “mental

impressions, conclusions, opinions, or legal theories of an

attorney or other representative of a party concerning the

litigation”). If anything, the documents contain fact-based work

product. Fact-based work product may be discovered on a showing

of substantial need and the inability to obtain the substantial

equivalent without undue hardship. We shall assume, without

deciding, that the documents contain fact-based work product.

Because we find that respondent has substantial need for the

information contained in the two documents and the inability to

obtain the substantial equivalent from other sources, respondent

may have discovery of the documents.

Respondent claims that the documents will show the purpose,

structure, parties, and fees for the transactions in question,

all of which may assist respondent in proving that the

transactions in question were entered into for purely tax

avoidance purposes. It is a fair inference from the L.L.C.

memorandum that the documents do contain information concerning

the purpose, structure, parties, and fees for the transaction, or

concerning at least some of those matters, and our in camera

examination confirms that inference. We shall assume that a tax

avoidance purpose is relevant to the cases before us, something

that the L.L.C. and petitioner do not contest. Respondent claims
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a substantial need for the information in the documents to prove

that purpose. The L.L.C. memorandum recognizes that substantial

need is one of the elements that a party must show to overcome

the work product privilege. Apart from arguing the availability

of substantially equivalent information from other sources, the

L.L.C. memorandum does not argue that respondent lacks a

substantial need for the information in the documents. Putting

aside other sources, we think that respondent has shown a

substantial need for the information in the documents, and we so

find.

As to the availability to respondent of substantial

equivalents to the documents, we think that respondent’s efforts

to obtain information about the two meetings from Messrs. Hananel

and Robinson show the futility of relying on memory to describe

the particulars, indeed, even the occurrence, of two relatively

brief meetings that occurred more than 8 years ago. Petitioner

and the L.L.C. do not suggest that, other than the memories of

the participants, there is any substantial equivalent to the

documents from which the happenings at the two meetings can be

established. We agree with respondent that there is no other way

for him to obtain the information contained in the documents

other than to examine them.

Respondent has made an adequate showing to overcome the

privilege resulting from the work product doctrine, as claimed by 

petitioner and the L.L.C.
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On the premises stated,

An appropriate order will be

issued granting the motion and

ordering L.L.C. to produce copies

of the documents.