Opinion
27494-16 21889-21
10-19-2023
GARY C. GEORGE & ROBIN A. GEORGE, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Travis A. Greaves Judge
Currently before the Court are the following discovery motions: (1) respondent's Motion to Review Sufficiency of Answers or Objections to Request for Admissions, filed August 15, 2023; (2) respondent's Motion to Compel Responses to Interrogatories, filed August 18, 2023; (3) respondent's Motion to Compel Production of Documents, filed August 18, 2023; and (4) petitioners' Motion to Compel Discovery, filed August 18, 2023. We address each motion in turn below.
Background
The following facts are derived from the pleadings, the parties' motion papers, and the exhibits and declarations attached thereto. They are stated solely for purposes of deciding the motion and not as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
Between the years of 2012 through 2014 (research years), petitioners operated a poultry production business through George of Missouri, Inc. (GOMI), an S corporation. During this period, GOMI allegedly performed qualified research to create an improved poultry product. Through GOMI, petitioners claimed a credit for certain supply expenses related to the research under section 41 Credit for Increasing Research Activities (research credits). Respondent challenged whether petitioners are entitled to the research credits.
Discussion
Rule 70 sets forth the general provisions relating to discovery. Rule 70(a)(1) provides that "the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication before utilizing the discovery procedures provided in these Rules." In Branerton Corp. v. Commissioner, 64 T.C. 191, 193 (1975), we explained that formal discovery procedures should be used only after the parties attempt informally to obtain needed information.
Unless otherwise noted, Rule references are to the Tax Court Rules of Practice and Procedure.
Rule 70(b) provides that "[t]he information or response sought through discovery may concern any matter not privileged and which is relevant to the subject matter involved in the pending case." A party opposing discovery has the burden of establishing that the information sought is not relevant or is otherwise not discoverable. See Rutter v. Commissioner, 81 T.C. 937, 948 (1983); Branerton Corp., 64 T.C. at 193. For purposes of discovery the standard of relevancy is liberal: our Rules permit discovery of any material relevant "to the entire 'subject matter' of the case." Zaentz v. Commissioner, 73 T.C. 469, 471 (1979) (quoting Rule 70(b)). A party may seek discovery of information if that information is reasonably calculated to lead to admissible evidence or if it may assist that party in understanding relevant material. See id. at 471-72.
I. Respondent's Motion to Review the Sufficiency of Answers or Objections to Request for Admissions
On July 11, 2023, respondent served on petitioners Respondent's First Request for Admissions. On August 10, 2023, petitioners served a Response to First Request for Admissions. Therein, petitioners purported to admit or deny each request for admission and did not provide any objections to the requests for admission. On August 15, 2023, respondent filed a Motion to Review the Sufficiency of Answers or Objections to Request for Admissions. Respondent alleges that petitioners improperly refused to admit, inappropriately denied, or evasively answered, several of the requested admissions. Respondent specifically challenged petitioners' responses to the following requests for admission: 4, 8, 13, 21, 24, 28, 39-41, 72, 78- 81, 89-94, 96, and 97. On October 2, 2023, petitioners filed a Response to Motion to Review the Sufficiency of Answers or Objections to Request for Admissions.
Rule 90(a) permits a party to serve upon another party written requests for admission of the truth of any nonprivileged matter relevant to the pending action, so long as the matter is "set forth in the request and relate[s] to statements or opinions of fact or of the application of law to fact . . ." Upon being served with written requests for admission, the answering party must: (1) specifically admit or deny the matter; (2) state in detail why the matter cannot be truthfully admitted or denied; or (3) state a detailed objection. See Rule 90(c). Under Rule 104(d), an evasive or incomplete answer to a Rule 90 request for admission is treated as a failure to respond.
A party who has requested admissions may move for a determination as to the sufficiency of any answers or objections. See Rule 90(e). In that case, absent a justified objection, the Court "shall order that an answer be served." See id. Further, should the Court determine that any answer does not comply with the requirements of Rule 90, we have discretion either to order an amended answer or order that the matter is admitted. See id.
Our conclusions regarding these responses are as follows:
¶¶ 4, 21, 24, and 28. Petitioners' responses deny that they included specified additives (Calsporin, Salinomycin, Sporulin, and Tylan) based on manufacturer recommendations and indicate that they added the specified additives in "varied amounts" to the feed. Petitioners' responses satisfy Rule 90(c). We will deny respondent's motion as it relates to requests 4, 21, 24 and 28.
¶¶ 8 and 13. Petitioners admitted these paragraphs in their response to respondent's motion. We deem these requests admitted and grant respondent's motion with respect to requests 8 and 13.
¶¶ 39, 40, and 41. Petitioners' responses deny that their new or improved business component is not a "no antibiotics-ever chicken." Petitioners explain that while working on "improved poultry products," they began researching how to create a "no antibiotics-ever chicken." It is unclear whether petitioners are claiming that the "no antibiotics-ever chicken" is a separate business component that they did not claim research credits for or a subset of "improved poultry products." Amended answers must be served.
¶ 72. Petitioners deny that Salinomycin was used in broiler production prior to 2012. Petitioners then explain that Salinomycin was included in feed rations dated November 29, 2011. This answer is unresponsive as it fails to indicate whether petitioners used Salinomycin outside of the research trial. Thus, an amended answer must be served.
¶¶ 78 and 79. Petitioners deny that they used a vaccination against Laryngotracheitis in broiler production prior to tax year 2012 and 2009. However, petitioners' explanation relates to a specific combination of vaccines, which is not responsive. In their response, petitioners admitted that they used the vaccinations before 2012 and 2009 in the broiler production but not the combination tested in the research projects. We deem requests 78 and 79 admitted.
¶¶ 80 and 81. Petitioners deny that they used HVT-Vectored Infectious Laryngotracheitis vaccine in the production of broilers before 2012 and 2009. However, petitioners' explanation relates to the specific combination of vaccines tested during the research projects. Petitioners' responses are evasive because the request relates only to the HVT-Vectored Infectious Laryngotracheitis vaccine. Amended answers must be served.
¶¶ 89 and 90. Petitioners deny that they claimed research credits for the lists
of projects specified in the requests. In their explanation, petitioners list identical projects, adding the specific location of each project. Respondent does not object to the addition of the qualifiers. We deem these requests admitted as modified by petitioners in their response.
¶¶ 91, 92, and 93. Petitioners deny that they claimed research credits related to the lists contained in each request. Petitioners elaborate "In GRG 050299-050304, GOM identified the specific research flocks which were used to conduct the research projects in tax year 2013." In their response, petitioners indicated that the only additional research study they claimed outside of the alliantgroup tax study was phytase. Request 91 is deemed admitted as to the phytase. Petitioners' denial as to all other requests comply with Rule 90(c).
¶ 94. Petitioners deny that they claimed research credits for any projects other than those identified in requests for admission ¶¶ 89-93. In their response, petitioners state that they claimed research credits related to the projects listed in ¶ 89-90 and the phytase trial listed in ¶ 91. Consistent with petitioners' representation, we deem this request admitted.
¶ 96. Petitioners deny the amount of qualified research expenditures GOMI claimed for each of the research years, directing respondent instead to Form 6765 for each research year. The numbers in the request match those on Forms 6765. This request is deemed admitted.
¶ 97. Petitioners deny that the qualified research expenses listed on Form 6765 do not include projects identified outside of the alliantgroup tax study. This is consistent with other representations. This answer complies with Rule 90(c).
II. Respondent's Motion to Compel Responses to Interrogatories
On October 21, 2022, respondent served on petitioners Respondent's First Interrogatories to Petitioners. On December 5, 2022, petitioners served Petitioners' Response to Respondent's First Request of Interrogatories. On February 27, 2023, petitioners supplemented their responses. On July 11, 2023, respondent served Respondent's Second Interrogatories. On August 11, 2023, petitioners served on respondent Petitioners Responses to Respondent's Second Requests of Interrogatories. On August 18, 2023, respondent filed a Motion to Compel Responses to Interrogatories, seeking a Court order to compel petitioners to fully respond to interrogatories 9, 10, 11, 12, and 15. On October 2, 2023, petitioners filed a Response to Motion to Compel Responses to Interrogatories.
Rule 71 provides the procedures for requesting answers to interrogatories and seeking sanctions against a party for failure to answer in a Tax Court proceeding. Rule 71(a) provides that unless otherwise stipulated or ordered by the Court, a party may serve upon any other party no more than 25 written interrogatories, including all discrete subparts but excluding interrogatories described in Rule 71(d) (related to expert witnesses). Rule 71(b) provides that answers to interrogatories be made in good faith and as completely as the answering party's information permits. The answering party is also required to make reasonable inquiry and ascertain readily obtainable information. See Rule 71(b). Rule 71(e) permits a party to produce business records in lieu of answering an interrogatory if the burden of deriving such information is substantially the same between the parties.
Interrogatory 9 requests that petitioners provide the location of each research project, explain the experimental combination of each research project, and identify the number of trials in each project. Petitioners object to this interrogatory on the basis that it is repetitive and indicate the document bates numbers on which the answers may be found. Respondent has asserted that the documents indicated by petitioners are unresponsive and one of the documents is not within its possession. We will not compel petitioners to respond further to this interrogatory. In their response, petitioners direct respondent to the grower contracts, which contain the addresses of each farm, and precisely identify the prior production date of the missing document. This answer is sufficient under Rule 71(e). As such we deny respondent's motion as it relates to interrogatory 9.
Interrogatory 10 requests that petitioners indicate the specific employees who worked on each research project, their activity on the project, and the percentage of time the employee spent on the project. Petitioners object to this interrogatory on the grounds that respondent did not informally request the information and that the information is irrelevant. Respondent's interrogatory is consistent with prior Branerton requests. Further, the information relating to employees who participated in the research projects, despite their wages not being claimed as part of the research credit, is likely to produce admissible evidence regarding the projects. Therefore, the interrogatory is relevant. See Zaentz, 73 T.C. at 471. As such, we grant respondent's motion as it relates to interrogatory 10.
Interrogatory 11 requests that petitioners identify the feed formula ingredients for each research project and their costs. Petitioners object to this interrogatory on the grounds that respondent did not previously attempt to obtain this information via informal discovery and that the information requested is duplicative. Despite petitioners' claim that respondent did not satisfy his obligation under Branerton, respondent's informal requests were consistent with this interrogatory. Further, the documents specified by petitioners as responsive do not appear responsive to the interrogatory. As such, we grant respondent's motion as it relates to interrogatory 11.
Interrogatory 12 requests that petitioners identify the desired metric and uncertainty related to each business component. Petitioners object to this interrogatory on the ground that respondent did not previously request this information through informal discovery methods and the request is duplicative. We reject the argument that respondent failed to request this information through informal discovery because respondent's Branerton requests were consistent with this interrogatory. We further reject as insufficient petitioners' designation of certain previously provided business records as responsive. While a party may produce business documents in response to interrogatories under Rule 71(e), the party is required to "specify" the responsive documents. Specifying a range of nearly 50,000 pages of documents in response to this interrogatory does not meet this specificity requirement. Thus, we grant respondent's motion as it relates to interrogatory 12.
Interrogatory 15 requests that petitioners provide information regarding expert witnesses they expect to rely upon at trial. Petitioners object to this interrogatory on the basis that the deadline to file expert reports is October 27, 2023. Petitioners have further indicated that they have not selected expert witnesses at this time. Because the interrogatory overlaps with the October 27, 2023, deadline for expert disclosure and petitioners represent that they have not selected expert witnesses, we will deny respondent's motion with respect to interrogatory 15.
Finally, petitioners object that respondent has exceeded the maximum number of interrogatories and therefore they should not be required to answer interrogatories 13, 14, and 15. Interrogatory 15 is an interrogatory under Rule 71(d) related to expert witnesses. Thus, interrogatory 15 does not count towards the 25-interrogatory limit. See Rule 71(d). Counting each discrete subpart, respondent has served 30 interrogatories. This exceeds the maximum number of interrogatories. Generally, this would result in the Court denying a motion to compel interrogatories 13 and 14. However, respondent has not sought an order compelling a response to interrogatories 13 and 14. Therefore, we need not take further action on interrogatory 13 and 14.
Respondent also moves pursuant to Rule 104, requesting that petitioners be prohibited from introducing any facts or evidence related to any claim of research credits for tax years 2012, 2013, and 2014. The relief sought by respondent under Rule 104 is premature at this point, and we will deny respondent's motion as it relates to precluding petitioners from claiming they were entitled to the research credits.
III. Respondent's Motion to Compel Production of Documents
On July 11, 2023, respondent served to petitioners Respondent's Requests for Production of Documents. On August 10, 2023, petitioners served on respondent Petitioners' Response to Respondent's Request for Production of Documents. On August 18, 2023, respondent filed a Motion to Compel Production of Documents, alleging that petitioners failed to adequately answer requests 2, 5, 13, 26, 27, and 28. Petitioners filed a Response to Motion to Compel Production of Documents.
Rule 72 provides the procedures for requesting documents and seeking sanctions against a party for failure to provide documents in a Tax Court proceeding. Rule 72(b) requires that the party upon which a request is served shall within 30 days serve a written response stating with "respect to each item or category, that inspection and related activities will be permitted as requested, unless the request is objected to in whole or in part, in which event the reasons for objection shall be stated."
Requests 2 and 5 ask for petitioners to provide documentation regarding each employee that worked on a research project in tax year 2012 and the expenses claimed by petitioners for the research years. Petitioners object to these requests on the grounds that respondent failed to request these documents via informal discovery and that the information is not relevant. These requests are consistent with respondent's informal discovery requests, and therefore, he meets his obligation under Branerton. We reject petitioners' argument regarding the relevance of these documents. Documents regarding the employees who conducted the research projects, regardless of whether their wages were claimed as qualifying research expenses, are reasonably calculated to produce admissible evidence or assist respondent in understanding petitioners' claimed research credits. As for the supply expenses, those documents are relevant because petitioners claimed research credits based on supply costs. We grant respondent's motion as it relates to requests 2 and 5.
Request 13 asks that petitioners provide documentation related to the systematic trial and error process for each grow site during tax years 2011 and 2012. Petitioners object to this request as duplicative. Respondent contends that the documents cited by petitioners do not relate to tax year 2011. The prior Branerton request that petitioners cite does not relate to tax year 2011. Therefore, it does not sufficiently answer the interrogatory. Therefore, we will grant respondent's motion as it relates to request 13.
Requests 26, 27, and 28 ask that petitioners provide documentation showing all qualified research expense supplies incurred in the research years. Petitioners object to this request because respondent did not request these documents through informal discovery and argue that the requests are duplicative. We reject petitioners' Branerton argument because respondent previously requested these documents. Further, the documents petitioners indicate are responsive to the requests do not appear to substantiate the research expenses as requested. Thus, we grant respondent's motion with regards to requests 26, 27, and 28.
Respondent also moves pursuant to Rule 104, requesting that petitioners be prohibited from introducing any facts or evidence relating to the subject of the Motion to Compel Production of Documents if they fail to provide the requested materials in response to an order from this Court. The relief sought by respondent under Rule 104 is premature at this point, and we will deny respondent's motion as it relates to precluding petitioners from introducing evidence.
IV. Petitioners' Motion to Compel Discovery
On November 30, 2022, petitioners served on respondent Petitioners' First Request for Production, which sought production of the documents supporting respondent's interrogatory answers. On January 3, 2023, respondent served Respondent's Response to Petitioners' First Request for Production of Documents. Respondent supplemented his response on July 11, 2023, by providing two audio files and disclosing his expert witness. On August 28, 2023, respondent again supplemented his production, including materials supplied by alliantgroup. Respondent served a final supplement on September 5, 2023, but withheld two communications based on attorney work product privilege. On August 18, 2023, petitioners filed Motion to Compel Discovery, seeking an order to compel respondent to fully comply with requests 3 through 22. On September 29, 2023, respondent filed Response to Motion to Compel Discovery.
Respondent asserts several general objections related to the production requests. First, respondent asserts that requests 3 through 16 are overly broad and burdensome because respondent previously provided the requested documents by answering petitioners' interrogatories. Each request asks respondent to produce documents used to support his answers to petitioners' interrogatories. The underlying interrogatories ask respondent to identify the documents that support the answers, and respondent appears to have complied by referencing documents exchanged in informal discovery and documents in petitioners' control. Petitioners do not argue that this production was incomplete or respondent withheld documents. Therefore, we deny petitioners' motion as it relates to requests 3 through 16. We need not consider respondent's further objections as they relate to these interrogatories.
Respondent objects to requests 3 through 22 on the basis that the requests are premature and overly burdensome. In his response, respondent concedes that this objection is moot for requests 3 through 18. As for requests 19 through 22, we sustain respondent's objection. These requests relate to witnesses and expert witnesses respondent anticipates calling at trial. Respondent is required to provide this information in accordance with the pretrial order at a later date. As such, we will sustain respondent's objection and not require production related to requests 19 through 22 at this time.
Next, respondent objects to requests 3 through 22 on the basis that the requested information is protected by the work product doctrine. Respondent fails to specifically indicate why documents related to requests 3 through 18, 21, and 22 are covered by the work product privilege. Therefore, respondent fails to carry his burden of establishing that these requests seek information protected by work product privilege. As the objection relates to request 19 and 20, it is moot because we denied petitioners' request on the basis of prematurity.
Respondent's final general objection argues that petitioners seek information behind the notice of deficiency. As a general rule, this Court will not look behind the notice of deficiency to examine alleged motives and procedural irregularities. See Greenburg's Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974). The requests do not appear to examine respondent's motives or procedure leading to the notice of deficiency. Rather, the requests seek information directly related to our de novo consideration of petitioners' income tax liability. Thus, the requests do not seek to look behind the notice of deficiency. We reject this objection.
In addition to the general objections, petitioners specifically seek to compel requests 17 and 18, alleging that respondent has failed to provide all information in his possession. Related to these requests, petitioners assert that respondent has not provided all documents received from third parties as evidenced by the failure to produce documents received from alliantgroup. In his response, respondent asserts that the requests are moot because he has supplied the production related to these requests. Given respondent's representation to the Court, we deny petitioners' Motion to Compel Discovery with respect to requests 17 and 18.
Petitioners also move pursuant to Rule 104, requesting that respondent be prohibited from raising or asserting any claim not enumerated in Respondent's Response to Petitioners' First Request for Production of Documents. The relief sought by petitioners under Rule 104 is premature at this point, and we will deny petitioners' motion as it relates to precluding respondent from advancing arguments.
Upon due consideration, it is
ORDERED that respondent's Motion to Review Sufficiency of Answers or Objections to Request for Admissions, filed August 15, 2023, is granted with respect to the following requests for admission: 39, 40, 41, 72, 80, and 81. Petitioners shall, on or before November 20, 2023, serve amended answers to these requests for admission. It is further
ORDERED that respondent's Motion to Review Sufficiency of Answers or Objections to Request for Admissions, filed August 15, 2023, is granted with respect to the following interrogatories being deemed admitted in accordance with this order: 8, 13, 78, 79, 89, 90, 91, 94, and 96. It is further
ORDERED that respondent's Motion to Review Sufficiency of Answers or Objections to Request for Admissions, filed August 15, 2023, is denied with respect to the following requests for admission: 4, 21, 24, 28, 91, 92, 93, and 97. It is further
ORDERED that respondent's Motion to Compel Responses to Interrogatories, filed August 18, 2023, is granted with respect to the following interrogatories: 10, 11 and 12. Petitioners shall, on or before November 20, 2023, serve amended answers to these interrogatories. It is further
ORDERED that respondent's Motion to Compel Responses to Interrogatories, filed August 18, 2023, is denied with respect to any preclusive effect failing to comply with this Order may have and the following interrogatories: 9 and 15. It is further
ORDERED that respondent's Motion to Compel Production of Documents, filed August 18, 2023, is granted with respect to the following requests for production: 2, 5, 13, 26, 27, 28. Petitioners shall, on or before November 20, 2023, serve documents related to these requests. It is further
ORDERED that respondent's Motion to Compel Production of Documents, filed August 18, 2023, is denied with respect to any preclusive effect failing to comply with this Order may have. It is further
ORDERED that petitioners' Motion to Compel Discovery, filed August 18, 2023, is denied.