Opinion ID: 461000
Heading Depth: 2
Heading Rank: 3

Heading: I.R.C. Sec. 7456(b)

Text: 46 Since the ruling below is unclear, we also review its propriety under I.R.C. Sec. 7456(b). We find that the Tax Court's order was valid on this theory as well. 47 Section 7456(b) is clearly designed to remedy the special discovery problems that can arise in litigation with foreign taxpayers. All of the language in Sec. 7456(b) regarding orders is directory. Once the court has found good cause for the production of documents, the court must order production of the documents. After a reasonable time for compliance, the court must order one of the three sanctions listed in Sec. 7456(b). Each of these sanctions focuses on full or partial dismissal. Under this section, then, the court's discretion is limited to finding good cause, and should the taxpayer not comply with an order to produce, choosing between the three available sanctions: striking pleadings, dismissing the proceeding, or rendering a default judgment. 48 The parties have not cited, and our research has not revealed, any cases in which the Tax Court has resorted to Sec. 7456(b). The section was added to the tax code when the Internal Revenue Code of 1954 was enacted. The legislative history of the section, however, provides us with no insight into the more subtle aspects of the section. Both the House and Senate Reports on the 1954 Code merely repeat the essential provisions of Sec. 7456(b). H.R.Rep. No. 1337, 83d Cong., 2d Sess. A433 (1954); S.Rep. No. 1622, 83d Cong., 2d Sess. 613 (1954). 49 Since the language of Sec. 7456(b) is mandatory, our review is limited to a determination whether the statutory prerequisites are satisfied. There is no dispute that the Commissioner had good cause for seeking the documents. Moreover, ABC does not claim that a reasonable time had not yet passed or that the underlying discovery motion was somehow invalid. Thus, the Tax Court discretion was limited to a choice between the three alternatives available under Sec. 7456(b). The only substantive issues in this lawsuit are whether the trusts were doing business in the United States or whether the trusts were present in the United States when they won the judgment in the California litigation. The Commissioner sought the documents to prove precisely these points. The only sensible sanction, then, was dismissal. A default judgment is inapplicable to this case, and striking out portions of the pleadings would leave ABC with no case, because the relevant portions of the pleadings would be those denying the Commissioner's theories. We thus find the order of dismissal valid under I.R.C. Sec. 7456(b).