Court Opinion

ID: 4486526
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:30.150315+00
Date Added: 2024-06-11T14:53:58.438236
License: Public Domain

SWIFT, J., respectfully concurring. I believe that further explanations are appropriate (1) of the reason the rule implicit in Universal Manufacturing Co. v. Commissioner, 93 T.C. 589 (1989), and Westreco, Inc. v. Commissioner, T.C. Memo. 1990-501, for the issuance of protective orders needs to be modified, and (2) of how the Tax Court’s traditional informal stipulation and discovery process should operate in the large cases. (1) The opinions in Universal Manufacturing Co. and Westreco did not analyze or weigh the underlying facts and circumstances relevant to motions for protective orders. Rather, they weighed the principles and structure of tax audit and tax administration (particularly the IRS summons authority) against the principles and structure of tax litigation (particularly Tax Court discovery). Those opinions, erroneously in my view, concluded that the latter is preeminent (at least in the context of a pending court case) and that there exists a fundamental and per se unfairness when the IRS attempts to utilize its statutory authority under the audit rules with respect to related taxpayers, other years, or other liabilities, at the same time that a taxpayer is involved in a pending tax case. In Universal Manufacturing Co., in Westreco, and in the instant case, we are faced with respondent’s specific and express statutory authority and responsibility under sections 7602 and 7609 to conduct civil and criminal audits for any and all years and for all taxpayers. See, for example, sec. 7602(c)(3).1 That authority (which includes the summons power) is separate and distinct from the discovery rules of this Court, is not limited by the Rules of this Court, and unless that authority is clearly abused, this Court, in my opinion, has no business directly or indirectly interfering with the manner or method by which respondent utilizes that authority. The motions for protective orders in Universal Manufacturing Co., Westreco, and the instant case, are in my opinion premature. They ask us to rule on the use of information before we even know what the information is, what form it takes, and before it is offered into evidence. Under Fed. R. Evid. 402, all relevant evidence is generally admissible except as otherwise provided by the Constitution, statute, other provisions of the Rules of Evidence, or other rules prescribed by the Supreme Court. None of those exceptions apply to the facts of Universal Manufacturing Co., Westreco, or the instant case. Section 6103(h) states that information obtained by the IRS through the use of administrative summonses is excepted from the general rules of nondisclosure where it is to be used in subsequent and related court litigation. If the per se rule set forth in Universal Manufacturing Co. and Westreco were correct, section 6103(h) would be rendered meaningless with regard to litigation in the Tax Court. Further, the discovery rules of this Court were never intended to be used as a vehicle to limit the admissibility of otherwise relevant information. As discussed below, it is exactly this type of information (i.e., relevant information that has been lawfully obtained) that the Tax Court traditionally has required a party to produce informally under the Branerton rule and to include in a stipulation. See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974); Rule 91(a). Lastly, even if the use of a summons were to be viewed as a means of acquiring information not available under our rules, it does not necessarily follow that suppression of evidence is a proper remedy. Suppression of evidence, even if predicated on a court’s supervisory powers, has been restricted to those areas where the remedial objective of suppressing evidence (namely, the deterrence of future illegal activity) is most efficaciously served, and suppression must be balanced against the undesirable effect of impeding the fact finding process. United States v. Payner, 447 U.S. 727 (1980). In this case, as in Universal Manufacturing Co. and Westreco, there has been no finding that respondent committed any illegal or wrongful act in serving the summonses. Also, most of the summonses in this case requested third parties to produce information. In Payner, the Supreme Court held that even information that was stolen from a third party in violation of the Fourth Amendment to the Constitution should not necessarily be excluded from evidence in a case in which the third party is not a participant. See United States v. Payner, 447 U.S. at 735 n. 7; Dixon v. Commissioner, 90 T.C. 237, 245 (1988), following Payner on this point. Assuming a protective order is justified in a case, a further significant question is raised by the broad protective orders that were issued in Universal Manufacturing Co. and Westreco, and by the protective order requested in the instant case, concerning the proper nature, scope, and extent of protective orders. A discussion of that question is perhaps best left for another day, but the failure of the majority opinion herein to address that question, in my opinion, should in no way be construed as an implicit approval of the nature, scope, or extent of the particular protective orders issued in Universal Manufacturing Co. and Westreco. (2) The discovery issue involved in Westreco Inc. v. Commissioner, supra, in Universal Manufacturing Co. v. Commissioner, supra, and in the instant case, directly and significantly affects the litigation and resolution in the Tax Court of our largest and most complicated cases. Indeed, the cumulative deficiencies determined by respondent in just the three cases mentioned are approximately $33 million (with millions more involved in other years). Taxpayers most interested in this issue are likely to be major international corporations that have entered into multi-issue, multi-year transactions. Recently published news and legal articles indicate that the significance of this issue, as it relates to litigation of the large tax cases, has not been lost on the Government, the private bar, the media, or the general public. In light of the above, I respectfully suggest that it is especially appropriate to provide at this time to the litigants in this Court additional guidance concerning the continued viability or lack thereof of the Tax Court’s traditional informal stipulation and discovery process in the context of the large cases that are now being filed and that will be filed in the years ahead. Routinely and particularly with regard to major clients, accountants, and lawyers (in preparing tax returns, in giving accounting and legal advice, and certainly prior to litigating a case) investigate what information from related taxpayers and from other years of their clients is relevant to the current year returns, or to the pending transaction, controversy, or litigation. It would thus appear to be prima facie fair and appropriate that respondent’s agents and counsel, in the large complex tax cases, also have a keen interest in investigating and obtaining information from related taxpayers and from other years that may be relevant to the issues in a pending case. Similarly, to the extent information from related taxpayers and from other years of the same taxpayers, in fact, is relevant to issues pending before us, this Court in my opinion should have the same interest in such information. How then, in the large cases, is relevant information from related taxpayers and from other years to be discovered for use in this Court? I believe that even in the large cases counsel for both parties generally should continue to utilize this Court’s informal stipulation and informal discovery process to develop such information. See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974); Rule 91. Where an appropriate Branerton request has been made by either counsel for relevant information pertaining to related taxpayers or to other years, opposing counsel, if they already have the responsive information, should turn over such information informally and completely. If they do not have such information and do not know if it exists, opposing counsel should undertake an investigation to determine whether the information exists and whether it is in their client’s custody or control, followed by an appropriate informal and complete disclosure of all information found. Where — in large cases and in connection with a complete and thorough development of the relevant facts — counsel believes that there is a need to question certain key witnesses or potential witnesses of the opposing party, counsel should proceed under Branerton to request an informal meeting with such individuals and with opposing counsel. Where an informal meeting cannot be agreed to and where the individuals in question do indeed appear to be key witnesses and to have been in a position to have particular insight into the relevant information or transactions at issue in a pending case, I would normally expect both counsel to agree, in such situations, to consensual depositions under Rule 74, thereby obviating the need for the Court to rule on a motion for nonconsensual depositions under Rule 75. Where consensual depositions under Rule 74 cannot be agreed to, counsel should contact the Court to discuss the appropriateness of formal depositions. I suggest that the Court, in the large cases, and in such situations, should not be as hesitant as it has been in the past to order third-party nonconsensual depositions under Rule 75. The approach suggested herein emphasizes the Tax Court’s strong interest in deciding cases based on all relevant information, and it would provide guidance to counsel in the large cases regarding how that information generally is to be developed. It reaffirms the Tax Court’s continued use and primary reliance on good faith, reciprocal, and complete informal discovery, even in the large, complex cases. It recognizes and suggests that some increase in the use of depositions under Rules 74 and 75 may be appropriate in the large cases, and it would appear to minimize potential abuses of respondent’s summons authority in connection with pending cases. PARKER, Gerber, and RUWE, JJ., agree with this concurring opinion.   Sec. 7602(c)(3) provides as follows: (3) Taxable years, etc., treated separately. — For purposes of this subsection, each taxable period (or, if there is no taxable period, each taxable event) and each tax imposed by a separate chapter of this title shall be treated separately.