Opinion
Civil No. 13-61528-CIV-Marra/Matthewman
08-05-2015
DAVID GOLDBERG, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION TO COMPEL REVENUE OFFICERS TO ANSWER CERTIFIED QUESTIONS AND RELATED MATTERS [DE 42]
THIS CAUSE is before the Court upon Plaintiff, David Goldberg's ("Plaintiff") Motion to Compel Revenue Officers to Answer Certified Questions and Related Matters ("Motion") [DE 42]. This matter was referred to the undersigned by United States District Judge Kenneth A. Marra. See DE 30. Defendant, United States of America ("Defendant"), filed a response [DE 45], Plaintiff filed an affidavit in support of his motion [DE 49], and the Court held a hearing on the Motion on July 27, 2015. The matter is now ripe for review.
BACKGROUND
The relevant facts of the case are as follows. Plaintiff filed a lawsuit against Defendant, alleging that he is entitled to a refund for all monies he has paid Defendant for 26 U.S.C. § 6672 assessments because he is not a "responsible person" of Allegiant Professional Services, Inc. ("Allegiant"), the company for which he served as CEO, and therefore could not be required to pay unpaid taxes on Allegiant's behalf. [DE 1].
At the hearing on the Motion, Plaintiff's counsel explained that Plaintiff paid Allegiant's outstanding taxes for one employee for multiple quarters so that Plaintiff could file this lawsuit and invoke federal jurisdiction.
Defendant then filed an Amended Counterclaim [DE 31] on August 29, 2014, seeking from Plaintiff over $7 million for Allegiant's outstanding employment taxes from 2008-2010. Defendant also seeks from Plaintiff approximately $2.9 million for Allegiant's unpaid employment and income taxes withheld from its employees from 2011 and 2012. [DE 31]. According to Defendant, Plaintiff is liable "as a person responsible for collecting, truthfully accounting for, and paying over the employment taxes paid by Allegiant's employee." Id.
The depositions of two IRS officers, John Black and Michelle Fuchs, were taken on May 22, 2015. [DE 49]. The draft deposition transcripts were emailed to counsel for both parties on May 27, 2015. Id. Defendant submitted changes to the transcript of Ms. Fuchs' deposition on June 4, 2015, and never filed an errata sheet or signed the transcript for Mr. Black's deposition. Id. The discovery cut-off in this case was May 15, 2015. See DE 39.
MOTION AND RESPONSE
In his Motion, Defendant seeks to compel Mr. Black and Ms. Fuchs to answer certain deposition questions about an IRS levy in 2013 to various alter egos and/or successors in interest of Allegiant (collectively, "third parties"). [DE 42]. While Defendant believes that questions about this issue are improper pursuant to 26 U.S.C. § 6103(a), Plaintiff believes that he is entitled to the information pursuant to Section 6103(e)(1)(D)(iii) because he is a bona fide shareholder owning one percent or more of the outstanding stock of Allegiant and/or pursuant to Section 6103(h)(4)(A-C), which permits disclosure of tax returns and return information in judicial and administrative tax proceedings under certain circumstances. Id.
These include Smart-Tek Solutions Corp.; Smart-Tek Automated Services, Inc.; Solvis; Medical Staffing, Inc.; Smart-Tek Services Solutions Corp.; American Marine, LLC d/b/a AMS Outsourcing; Allegiant Management Services Corp.; Allegiant Professional Business Services, Inc.; Delrada Financial Corp., Delrada Management Consulting Corp.; Soltex Corp.; Solvis Corp.; Solvis Group; Solvis Medical, Inc.; Solvis Healthcare, Inc.; Call Center HR; Quicktix, Inc.; Heritage Staffing, Inc.; Solvis Nursing Michigan, Inc.; All Staffing, Inc.; Staffing Partners California, Inc.; Employment Systems, Inc.; and Trucept Corp. See DE 42 at pp. 3-4.
In response, Defendant first argues that the motion is time-barred because it was filed more than thirty days after the depositions occurred in violation of Local Rule 26.1. [DE 45]. Defendant next contends that returns and return information are confidential under Section 6103 of the Internal Revenue Code. Id. Defendant explains that, absent an express authorization, Section 6103 bars the disclosure of information regarding parties who are not parties to this proceeding. Id. Defendant explains that the Court must employ the party test, the item test, and the transaction relationship test in order to determine whether the information sought falls under an exception to the privilege, and Defendant argues that Plaintiff fails all three tests. Id. Defendant also argues that Plaintiff could have sought the same information through third-party subpoenas or through questions at Brian Bonar and Colin Niven Bonar's depositions and failed to do so. Id. Finally, Defendant asserts that Plaintiff's requests that the witnesses review their files, bring IRS records to their depositions and travel from San Diego to South Florida for their depositions are improper. Id.
HEARING
At the July 27, 2015 hearing, Plaintiff's counsel argued that Plaintiff was not a person in control of Allegiant to the extent that he should be held liable for Allegiant's unpaid taxes. He explained that Plaintiff was duped and put up by serial non-payers of withholding taxes, Brian Bonar and Colin Niven Bonar ("the Bonars"), to be their "fall guy." He stated that Plaintiff wants the information regarding the alter egos and successors in interest of Allegiant so that he can show the jury Rule 404(b) evidence that proves that Plaintiff fell prey to individuals who regularly defraud the IRS. Plaintiff is seeking information regarding whether the alter ego and successor in interest companies paid withholding taxes to the IRS to show the Bonars' common scheme or plan to defraud the IRS. Plaintiff's counsel explained that he tried to obtain this information during the Bonars' depositions but that they were less than truthful.
Defendant's counsel explained that Defendant is free to find multiple persons responsible for Allegiant's taxes under the current law and that Plaintiff cannot escape liability by demonstrating that other individuals may also be liable. Defendant's counsel explained that Plaintiff is solely seeking tax return information from the third parties since he has already received information about Allegiant from Defendant. Defendant's counsel stated that Plaintiff is the party in this case and that his liability arose from Allegiant only, so Plaintiff fails the party test under the IRS statutory scheme.
Defendant's counsel then contended that there is no item on any of the third parties' tax returns that is directly related to this case, so Plaintiff cannot pass the item test. Defendant's counsel argued that no matter whether the item test is broadly or narrowly interpreted, Plaintiff cannot succeed under that test.
With regard to the transaction test, Defendant's counsel stated that Allegiant is not a party to this current proceeding and that there is no relationship alleged between Plaintiff and anyone but Allegiant; in other words, Plaintiff has not claimed to have any relationship with the third parties about whom he is seeking tax return information. Defendant's counsel stressed that the standard under the IRS statute at issue is whether the tax return information sought by Defendant is "directly related" to this action, not simply whether it is relevant. Defendant's counsel pointed out that Plaintiff never sent formal discovery requests to Defendant and that Plaintiff's counsel could have deposed any other alleged "fall guys" tricked by the Bonars to demonstrate the Bonars' pattern and practice if he had so chosen. Finally, Defendant's counsel emphasized that the only real issue in this case is what Plaintiff knew and did and what authority he had on behalf of Allegiant.
In response, Plaintiff's counsel argued that, even though Allegiant is not a named party in the current lawsuit, it is clearly a crucial party to the proceeding as all of Plaintiff's liability stems from his involvement with Allegiant. Thus, if Allegiant is a kind of unspoken or putative party to the proceeding, both the party test and transactional test are satisfied. Plaintiff's counsel pointed out that Allegiant clearly had transactional relationships with the alter egos and successor in interest companies as is acknowledged in the IRS levy.
Plaintiff's counsel stated that he wanted to ask the IRS officers whether Trucept, one of the alter ego or successor in interest companies to Allegiant, has paid down Allegiant's tax liability because virtually all of Allegiant's assets were transferred to Trucept. This information would be directly related to the damages sought by the IRS against Plaintiff and would show whether the IRS needs to decrease the amount of money sought from Plaintiff. Additionally, Plaintiff's counsel would also ask if Trucept paid the IRS any employee withholding taxes and if the IRS is seeking to collect taxes from Trucept. This information would show that the Bonars' other companies engaged in the same pattern of activity as Allegiant. According to Plaintiff's counsel, the Bonars committed fraud on the IRS in the same manner over and over again, and some of the tax money from the various alter egos and successor in interest companies has been traced to different entities and assets owned by the Bonars.
In response, Defendant's counsel stated that questioning the IRS officers about whether the various entities paid their own taxes is not at all directly related to the current proceeding. Defendant's counsel conceded somewhat that questioning regarding whether any of the various entities had paid toward the money owed by Allegiant would pass the transactional test. Finally, Defendant's counsel explained that whether the Bonars committed fraud is not directly related to whether Plaintiff should have paid over Allegiant's taxes and that there is no fraud exception in the IRS statute.
DISCUSSION
For purposes of background, the IRS is seeking to hold Plaintiff accountable for Allegiant's unpaid taxes pursuant to Internal Revenue Code Section 6672, which provides in relevant part as follows:
(a) General Rule. Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.26 U.S.C. § 6672. Code Section 6671(b) defines "person" to include "an officer or employee of a corporation who, as such officer, employee or member, is under a duty to perform the act in respect of which the violation occurs." 26 U.S.C. § 6671(b). Section 6672 "imposes liability upon (1) a responsible person (2) who has willfully failed to perform a duty to collect, account for, or pay over federal employment taxes." Thosteson v. United States, 331 F.3d 1294, 1299 (11th Cir. 2003) (citing Williams v. United States, 931 F.2d 805, 810, reh'g granted and opinion supplemented, 939 F.2d 915 (11th Cir. 1991)). Defendant argues that Plaintiff's claim that there are other people responsible for Allegiant's unpaid taxes is not a defense, as more than one person may be responsible under the IRS code. Plaintiff, on the other hand, claims that he is not a responsible person under the code at all and is seeking evidence to prove it.
First, the Court does not find that Plaintiff's Motion should be denied for being filed untimely. Southern District of Florida Local Rule 26.1(h)(1) states that motions to compel should be filed within thirty (30) days of the occurrence of grounds for the motion, but it also explains that "[f]ailure to file a discovery motion within thirty (30) days, absent a showing of reasonable cause for a later filing, may constitute a waiver of the relief sought." S.D. Fla. L.R. 26.1(h)(1). The depositions at issue were taken on May 22, 2015. [DE 45, 49]. The draft deposition transcripts were emailed to counsel for both parties on May 27, 2015. Id. Defendant submitted changes to the transcript of Ms. Fuchs' deposition on June 4, 2015, and never filed an errata sheet or signed the transcript for Mr. Black's deposition. Id. Plaintiff's Motion was filed on June 26, 2015. The Court finds that Plaintiff has acted reasonably and has shown reasonable cause for filing his Motion slightly outside of the thirty-day period and notes that Defendant has not shown that it was prejudiced by the late filing.
Additionally, the Court will not deny Plaintiff's Motion on the basis that he "made a general request to compel and attached dozens of pages of deposition transcripts without further specification without complying with Rule 26.1(i)(2)(A)." [DE 45]. Southern District of Florida Local Rule 26.1(i)(2)(A) requires that motions to compel shall "for each separate interrogatory, question . . . or deposition question, state: (A) verbatim the specific item to be compelled." S.D. Fla. L.R. 26.1(i)(2). On page four of his Motion, Plaintiff does list the exact portion of Mr. Black's deposition that he finds to be objectionable. [DE 42]. Additionally, throughout his Motion, Plaintiff makes it very clear what information he is seeking from both Ms. Fuchs and Mr. Black. Id. The Court will not deny the Motion on such a minor technicality.
The main issue before the Court is whether the information sought is protected under 26 U.S.C. § 6103. Section 6103 states in part, "[r]eturns and return information shall be confidential, except as authorized by this title" and "no officer or employee of the United States shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee or otherwise or under the provisions of this section." 26 U.S.C. § 6103(a)(1). Plaintiff does not dispute that Section 6103 generally makes tax returns and return information confidential, but rather asserts that two of the exceptions to confidentiality apply in this case.
Section 6103(e)(1)(D)(iii) states that "[t]he return of a person shall, upon written request, be open to inspection by or disclosure to any bona fide shareholder of record owning 1 percent or more of the outstanding stock of such corporation." 26 U.S.C. § 6103(e)(1)(D)(iii). There was no further argument at the hearing regarding the application of this statutory exception to the facts at hand. The Court has independently reviewed this provision and finds that it does not apply. Plaintiff has not claimed that he was a shareholder of any of the successor in interest or alter ego companies of Allegiant. Instead, he appears to be claiming to be a shareholder of Allegiant. Plaintiff is not seeking information directly from Allegiant but rather from the successor in interest or alter ego companies. Therefore, this exception does not apply. Moreover, Plaintiff has not sufficiently argued that this exception applies and provides no supporting facts or law.
Next, Plaintiff asserts an exception for disclosure of tax returns and return information in judicial proceedings. Specifically, Section 6103(h)(4) states the following:
(4) Disclosure in judicial and administrative tax proceedings
A return or return information may be disclosed in a Federal or State judicial or administrative proceeding pertaining to tax administration, but only—
(A) if the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability, or the collection of such civil liability, in respect of any tax imposed under this title;
(B) if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding;
(C) if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding; or
(D) to the extent required by order of a court pursuant to section 3500 of title 18, United States Code, or rule 16 of the Federal Rules of Criminal Procedure, such court being authorized in the issuance of such order to give due consideration to congressional policy favoring the confidentiality of returns and return information as set forth in this title.
26 U.S.C. § 6103(h)(4). For purposes of efficiency, the Court will adopt Government counsel's reference to these tests as (A) the "party test," (B) the "item test," and (C) the "transaction test."
However, such return or return information may not be disclosed as provided in subparagraph (A), (B), or (C) if the Secretary determines that such disclosure would identify a confidential informant or seriously impair a civil or criminal tax investigation.
The Party Test:
Plaintiff's argument in favor of application of the party test is that, because Plaintiff is being held liable for Allegiant's unpaid employment taxes, Allegiant is a crucial party to this proceeding, and the third parties at issue are simply alter egos and/or successors in interest of Allegiant. Therefore, Plaintiff should have access to the third parties' return information as they are basically parties to this action as well. After hearing the parties' arguments and reviewing the documents in this case, however, the Court finds that the third parties clearly are not parties to the current proceeding, and that the current proceeding did not arise out of, or in connection with, determining the third parties' civil or criminal liability, or the collection of such civil liability. Thus, Plaintiff has not met the party test.
The Item Test:
The Court must next consider the item test, which applies only if the treatment of an item reflected on the third parties' returns is directly related to the resolution of an issue in this case. The Federal Circuit explained that "[b]y using 'directly' to modify the 'related to' language in § 6013(h)(4)(B), Congress intended an even narrower exception to apply for disclosure to members of the public in judicial proceedings, such as this case." In re United States, 669 F.3d 1333, 1338 (Fed. Cir. 2012). However, "[n]ot all authorities have interpreted the 'item test' in § 6103(h)(4)(B) as narrowly as the Federal Circuit did in In re United States. Instead, they have read . . . § 6103(h)(4)(B) to permit disclosure when return information is directly related to an issue in the judicial proceeding." NorCal Tea Party Patriots v. I.R.S., No. 1:13-cv-341, 2015 WL 1487112, at *6 (S.D. Ohio Apr. 1, 2015). Further, the IRS Chief Counsel has instructed in a non-binding published reference guide that disclosure of return information is authorized "whether the item on the third party's return or return information directly relates to the elements for defending or proving the civil cause of action or crime at issue in the tax proceeding." Disclosure & Privacy Law Reference Guide, IRS Chief Counsel, Proc. & Admin. (Rev. 102012), Doc. 144-1 at PageID 2733. The Court notes that there is no Eleventh Circuit opinion that interprets the item test. The Court finds that, under the broader standard laid out by NorCal Tea Party Patriots, supra, the item test would most likely apply in this case regarding the limited issue of whether the third parties have paid any of Allegiant's unpaid taxes for which Plaintiff is currently being held responsible. The item test would not be satisfied, however, under the narrower standard discussed in In re United States, supra. Regardless, the Court need not determine whether the item test applies in this case as it finds that the transaction test does apply to some extent, as discussed below.
The Transaction Test:
Finally, the transaction test permits disclosure of tax return information which "directly relates to a transactional relationship between a . . . party . . . and the taxpayer which directly affects the resolution of an issue in the proceeding." 26 U.S.C. § 6103(h)(4)(C). The Court does find that this test applies to the current proceeding, because, if any of the third parties have paid any portion of Allegiant's outstanding taxes, this would directly affect the damages sought in this case. As Government counsel explained at the hearing, the collection of Allegiant's taxes pursuant to Section 6672 can be carried out jointly and severally. If any of the third parties have paid any amount toward Allegiant's unpaid taxes, Plaintiff would owe less. Thus, the transaction test applies to the extent that Plaintiff should be able to depose the IRS officers regarding whether any of the third parties have made any payment toward Allegiant's overdue taxes.
Moreover, Defendant's counsel seemingly conceded this point at the hearing on the Motion. --------
Upon review of the Motion and the entire case file, it is hereby ORDERED as follows:
1. Plaintiff, David Goldberg's Motion to Compel Revenue Officers to Answer Certified Questions and Related Matters [DE 42] is GRANTED IN PART AND DENIED IN PART.
2. Plaintiff may re-depose IRS officers John Black and Michelle Fuchs solely regarding the issue of whether the alter egos and successors in interest of Allegiant, including Trucept as well as those listed in Plaintiff's Motion, paid any of Allegiant's unpaid
withholding taxes. In other words, Plaintiff may ask Officers Black and Fuchs whether any of Allegiant's unpaid taxes, for which the IRS is holding him accountable, have been paid by a successor in interest to Allegiant or an alter ego of Allegiant, including Trucept. Plaintiff may not question the officers about any other matters as the additional areas of inquiry are barred by 26 U.S.C. § 6103.
3. Officers Black and Fuchs are not required to travel to the Southern District of Florida for the continuation of their depositions. Both officers reside in California, and there is no legal basis to compel their attendance in this district. Plaintiff's counsel shall travel to San Diego or may opt to take the limited depositions remotely.
4. Officers Black and Fuchs are not required to review their files in preparation for the depositions and are not required to bring documentation to their depositions. They are not Rule 30(b)(6) witnesses, and such relief is without legal or factual support.
DONE and ORDERED in Chambers this 5th day of August, 2015, at West Palm Beach, Palm Beach County in the Southern District of Florida.
/s/_________
WILLIAM MATTHEWMAN
UNITED STATES MAGISTRATE JUDGE