Opinion ID: 156361
Heading Depth: 2
Heading Rank: 3

Heading: The Weight of Circumstantial Evidence Presented by the IRS

Text: 25 We must now consider whether the district court afforded the IRS's secondary evidence the proper weight in reaching its decision. On this issue, the Crosses contend that the district court erred. They argue that, although the secondary evidence may have supported a reasonable inference that the form was executed, the record also supports the contrary inference: that the form was not executed by either the Crosses or a representative of the IRS. Thus, they contend, the district court should have conducted a trial. 26 We agree with the Crosses that the burden of proving the existence and validity of a signed Form 870-AD is on the IRS. See McGaughey, 977 F.2d at 1071; United States v. Conry, 631 F.2d 599, 600 (9th Cir.1980). However, as explained below, in light of decisions granting summary judgment in similar circumstances, the secondary evidence actually produced by the IRS in this case, the Crosses' failure to rebut the IRS's evidence, and the Crosses' own conduct, we agree with the district court that IRS has met its burden and that a trial is not required. 27 In support of this conclusion, we first note that courts have granted summary judgment regarding the existence and the terms of documents on the basis of secondary evidence. See e.g, McGaughey, 977 F.2d at 1071-72 (granting summary judgment to the IRS on the basis of secondary evidence that the taxpayers waived the statute of limitations period even though the IRS could not produce the original waiver form); State Mut. Life Assurance Co. v. Lumbermens Mut. Cas. Co., 874 F.Supp. 451, 455-56 (D.Mass.1995) (granting summary judgment to insured regarding the terms of an insurance policy even though the original policy could not be located because a cornucopia of circumstantial evidence [ ] all point[ed] in the same direction); New York v. Blank, 820 F.Supp. 697, 704-05 (N.D.N.Y.1993) (concluding that the terms of an insurance policy had been established by circumstantial evidence presented on summary judgment), vacated on other grounds, 27 F.3d 753 (2d Cir.1994). 28 For example, in McGaughey, the IRS filed a complaint against a taxpayer in the Tax Court seeking a judgment on a deficiency. The IRS's claim was based in part on an offer of compromise suspending the statute of limitations. According to the IRS, the offer of compromise had been recorded on a standard form. However, in accordance with IRS procedures, the form had been destroyed after eight years. In spite of its inability to produce the original form, the IRS moved for summary judgment on the basis of secondary evidence that the form had been executed. The taxpayer averred that he did not recall signing the form. 29 The Tax Court granted summary judgment to the IRS, and the Seventh Circuit affirmed. The court relied primarily on the evidence of IRS procedures offered in its summary judgment motion: 30 The secondary evidence offered by the government to prove that [the taxpayer] executed the waiver contained in the Form 656 included a detailed description of the procedures involved in processing an offer of compromise and the control cards and memoranda associated with this offer. These materials identified the steps of the process [the taxpayer's] offer underwent, and further indicated that the offer could not have reached those steps in the process if his offer was not on a Form 656 and if the waiver on the form was not validly executed. [The taxpayer] argues the government's showing was insufficient because nobody specifically recalled the presence of the waiver on his offer of compromise. However, the Rules of Evidence do not establish a hierarchy of secondary evidence; anything that tends to demonstrate the writing's contents may constitute secondary evidence. 31 McGaughey, 977 F.2d at 1071-72. 32 In this case, as in McGaughey, the record contains persuasive evidence that the document at issue was signed by the taxpayers as well as IRS officials. As noted above, a letter to the Crosses from their own accountant indicates that he sent a Form 870-AD to them and told them that it was an accurate statement of their agreement with the IRS. 33 Additionally, the IRS presented evidence from an official who had worked on the Crosses' case. Brenda L. Fisher, who served as an appeals aide in the Oklahoma City office, stated that she prepared closing documents in the Crosses' case and that the documents that she signed (an Appeals Case Closing Transmittal and assessment documents) demonstrate that she had verified that the Crosses had signed the Form 870-AD. See Aplts' App. at 57-58. Ms. Fisher explained that the closing documents contained the notation Form 8070 AD in her handwriting and that she would not have made that entry unless the Crosses had signed the form. See Aple's Supp.App. at 11-12. 34 Significantly, Ms. Fisher's testimony also indicates that IRS officials signed the Form 870-AD after the Crosses did. She stated that an IRS Form 5403, an Appeals Closing Record listed an agreement dateof June 22, 1986. See Aplt's App. at 57, 69; Aple's Supp.App. at 15. According to Ms. Fisher, that was the date that the chief of the office signed the Form 8[ ]70-AD, accepting it for the [C]ommissioner. See Aple's Supp.App. at 15. 35 The IRS also submitted an affidavit from William Reitan, the former Chief of the IRS Appeals Office in Oklahoma City, which handled the Crosses' case. See Aplts' App. at 59-60. Mr. Reitan explained that under established IRS practices, the settlement of a case proceeded through five steps, each of which required the responsible official to review settlement documents, including the Form 870-AD: (a) commencement of the case closing process, which began only after the signed form was received from the taxpayers; (b) preparation of closing documents by an appeals aide; (c) review of the form by the Chief of Appeals, who determined that the taxpayers had signed the form before he signed it himself; (d) review by an appeals record clerk, who would take the figures set forth in the form and include them in the assessment document; and (e) review by the Oklahoma District Examination Support Processing (ESP) Section, which determined whether all the necessary documents were present and used the date that the form was accepted to calculate the assessed interest. As to this final calculation, Mr. Reitan explained, [w]ithout a form 870-AD properly signed by the taxpayers, ESP would not make an assessment. Instead, they would return the file to [the Appeals Division] stating no assessment could be made Aplts' App. at 60. Based on these established procedures, Mr. Reitan added, he was confident that [the Crosses] had signed [F]orm 870-AD on or before July 16, 1986.... The standard procedures made it virtually impossible to permit an assessment without the taxpayers' signature on [F]orm 870-AD. Id. at 59-60. 36 In light of these established administrative procedures, a presumption of regularity attaches to the IRS's settlement of the dispute with the Crosses. See Bar MK Ranches v. Yuetter, 994 F.2d 735, 740 (10th Cir.1993); Wilson v. Hodel, 758 F.2d 1369, 1374 (10th Cir.1985). [A]ll necessary prerequisites to the validity of official action are presumed to have been complied with, and ... where the contrary is asserted it must be affirmatively shown. United States v. Ahrens, 530 F.2d 781, 785 (8th Cir.1976) (quoting Lewis v. United States, 279 U.S. 63, 73, 49 S.Ct. 257, 73 L.Ed. 615 (1929)). 37 An examination of the Crosses' submissions reveals that they have failed to make such an affirmative showing. As explained below, the limited evidence that they have identified does not support a reasonable inference that they did not execute the Form 870-AD. 38 The Crosses first point to their own response to the IRS's interrogatories indicating that [they] can't say whether [they] did or ... didn't execute the Form 870-AD. See Aplts' App. at 148. We agree that the Crosses' failure to remember whether they signed the form is entirely understandable: there is no indication that they had any familiarity with the methods used to settle cases with the IRS; the events in question occurred nine years earlier; and the signing of one particular tax form among many is certainly a forgetable experience. However, in light these very circumstances, the Crosses' lack of memory about the form is entitled to little weight in determining whether they actually signed it. See McGaughey, 977 F.2d at 1070, 1072-73 (affirming the grant of summary judgment to the to IRS in spite of the fact that the taxpayer stated that he did not remember signing a waiver form). This would be a closer case if the Crosses had stated under oath that they did not sign the Form 870-AD, but they did not so state. Cf. Godfrey v. United States, 997 F.2d 335, 339-40 (7th Cir.1993) (relying on taxpayers' affidavit regarding the date that they received a refund check in concluding that the taxpayers' were entitled to summary judgment). 39 The Crosses also point to two statements in Mr. Reitan's deposition: that he had no personal recollection of the Crosses' case and that IRS officials occasionally make mistakes. See Aplts' App. at 134, 141. These statements are also insufficient to rebut the IRS's evidence. Although it is quite conceivable that some errors occurred in the IRS's handling of the Crosses' case, Ms. Fisher's testimony about the settlement of the Crosses' case, the evidence presented by the IRS concerning the various levels of review, and the statements of the Crosses' own accountant do not allow a rational inference that the IRS officials responsible for the five levels of review of the settlement all made the same alleged error (i.e. failing to notice that the Crosses had not signed the Form 870-AD) and that this series of errors then led to the challenged assessment being made in the absence of a signed waiver. 40 It should also be noted that the Crosses' own conduct supports the IRS's contention that they signed the Form 870-AD. Although the IRS issued the challenged assessments in July 1986, it was not until 1995, when the IRS could not produce the Form 870-AD in response to a record request, that the Crosses began to contest the validity of the waiver of the notice of deficiency requirement. The Crosses thus appear to have acted for approximately nine years as though the waiver were valid. See Aplts' App. at 57 (affidavit of Brenda Fisher) (To my knowledge, no question was ever raised by the taxpayers as to the validity of the [Form 870-AD] or the assessment of the tax liability. The first time I heard of any disagreement was ... on June 2, 1995.). 41 Finally, we are unpersuaded by the Crosses' argument that they are entitled to a trial because the IRS was unable to explain precisely what happened to the Form 870-AD. Although it is true that the IRS did offer such an explanation about the missing form in McGaughey (i.e. that the document was destroyed pursuant to the IRS's record retention procedures), we do not think that the lack of such an explanation in this case requires the district court to hold a trial. 42 In support of this conclusion, we note that the Crosses have not cited, nor have we found, any authority indicating that a court is required to conduct a trial if the proponent of secondary evidence is unable to offer a definitive explanation of the fate of the original document. Indeed, such a principle is not supported by Fed.R.Evid. 1004(1) or the cases interpreting it. By allowing the admission of secondary evidence if an original is lost or destroyed (if the proponent has not acted in bad faith) and by allowing the proponent of the secondary evidence to establish that an original is lost or destroyed by demonstrating that it has conducted a diligent search, the decisions applying Rule 1004(1) acknowledge that it will not always be possible to establish what happened to the original. As a result, once the proponent has demonstrated that it has conducted a diligent search, and providing that there is no evidence of bad faith, a court may shift the inquiry away from what happened to the original and toward the secondary evidence that indicates whether the document existed and what it said. See, e.g, McGaughey, 977 F.2d at 1071-72; State Mut. Life Assurance, 874 F.Supp. at 455-56; Blank, 820 F.Supp. at 704-05. Whether the case may be decided on summary judgment or whether a trial is required will depend not on whether the proponent can explain what happened to the original but rather on the weight of the evidence regarding its existence and its terms. 43 Here, the IRS offered unrebutted evidence that it had conducted a diligent search for the Form 870-AD. In light of the IRS's diligent but ultimately unsuccessful search, it was proper for the district court to consider the secondary evidence offered by the parties. In light of the weight of that secondary evidence, no rational fact-finder could conclude that the Crosses failed to execute the Form 870-AD. Accordingly, it was proper for the district court to enter judgment for the IRS without proceeding to trial.