Opinion ID: 2517270
Heading Depth: 2
Heading Rank: 1

Heading: Competing Interests: Liberal Discovery and the Confidentiality of Tax Returns

Text: In deciding discovery disputes, we have long held that the rules of civil procedure should be construed liberally so as to effectuate the full extent of their truth-seeking purpose. Corbetta v. Albertson's, Inc., 975 P.2d 718, 720 (Colo.1999). This liberal construction is intended to eliminate surprise at trial, discover relevant evidence, simplify issues, and promote the expeditious settlement of cases. Morgan, 86 P.3d at 394 (quoting Silva v. Basin W., Inc., 47 P.3d 1184, 1188 (Colo.2002)). In accordance with these principles, it is within the discretion of the trial court to decide motions to compel discovery, and these rulings should be upheld on appeal absent an abuse of discretion. Corbetta, 975 P.2d at 720. C.R.C.P. 26(b)(1) provides that parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party. . . . Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. The broad scope of discovery, however, does not equate to an open door for all available information. Indeed, relevancy is not the end of the inquiry, particularly where a party opposes discovery on the ground that it would violate the right to confidentiality. See Corbetta, 975 P.2d at 720. The right to privacy, or the right to confidentiality as it is sometimes referenced, protects `the individual interest in avoiding disclosure of personal matters.' Id. (quoting Whalen v. Roe, 429 U.S. 589, 599, 97 S.Ct. 869, 51 L.Ed.2d 64 (1977)). It includes the power to control what we shall reveal about our intimate selves, to whom, and for what purpose. Martinelli, 199 Colo. at 173-74, 612 P.2d at 1091 (internal quotation and citation omitted). Discovery requests seeking confidential material require a trial court to balance an individual's right to keep personal information private with the general policy in favor of broad disclosure. Cf. Losavio v. Robb, 195 Colo. 533, 538, 579 P.2d 1152, 1156 (1978) (discussing balancing of interests where the grand jury issued a subpoena duces tecum to the department of revenue seeking the production of state tax returns for several individuals and corporations). This court has previously found that, while not privileged, tax returns are confidential. Alcon, 113 P.3d at 737. Section 39-21-113(4)(a), C.R.S. (2007), bans the department of revenue and its agents from divulging any information obtained during the course of an investigation or disclosed in an individual's tax returns, [e]xcept in accordance with judicial order or as otherwise provided by law. Alcon, 113 P.3d at 742-43. In Losavio, we recognized that this statute evinces a strong public policy of protecting the confidentiality of taxpayers' state income tax returns. 195 Colo. at 539, 579 P.2d at 1156. Later, in Alcon, we explained that this policy not only applies in cases where a party seeks disclosure of tax returns from the department of revenue, but also in casessuch as the one now before uswhere one party requests tax returns directly from the other party. See 113 P.3d at 743. Similarly, federal case law has clearly created a policy favoring confidentiality of federal tax returns by prohibiting the disclosure of returns except under certain circumstances. Id.; see, e.g., A. Farber & Partners, Inc. v. Garber, 234 F.R.D. 186, 190-91 (C.D.Cal.2006) (noting that there is a public policy against unnecessary public disclosure). [4] This general reluctance of courts to compel the disclosure of tax returns is due to both `the private nature of the sensitive information contained therein' and `the public interest in encouraging the filing by taxpayers of complete and accurate returns.' Carmody v. Vill. of Rockville Ctr., No. CV-05-4907, 2007 WL 2042807, at  (E.D.N.Y. July 13, 2007) (quoting Smith v. Bader, 83 F.R.D. 437, 438 (S.D.N.Y.1979)). Aside from disclosing income, tax returns typically contain information about the taxpayer's marital status, dependents, business dealings, investments, religious affiliations, charitable inclinations, property holdings, and debt obligations. William A. Edmunson, Discovery of Federal Income Tax Returns and the New `Qualified' Privileges, 1984 Duke L.J. 938, 938. Indeed, a tax return reveals the skeletal outline of [a taxpayer's] personal and financial life. Id. at 938 n. 2. It is because of the high level of confidential material contained within tax returns that we provide additional protection to these documents, requiring those seeking such information to satisfy more than just a mere test of relevance before discovery will be permitted.