Opinion
12235-20 12249-20
10-26-2023
JACKSON CROSSROADS LLC, GREENCONE INVESTMENTS LLC, TAX MATTERS PARTNER ET. AL., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler, Judge
On September 13, 2023, respondent filed a Motion to Quash or Modify Subpoena in these consolidated cases, moving pursuant to Rules 50 and 147(d) that the Court enter an Order quashing the subpoenas duces tecum issued by petitioner. On October 13, 2023, petitioner filed its Response to Motion to Quash or Modify Subpoena in these consolidated cases. For the reasons below, we will grant in part, and deny in part, respondent's Motion.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure.
Background
On September 5, 2023, petitioner in these consolidated cases gave notice to respondent of the three subpoenas duces tecum it intended to serve on MTC Holdings, LLC, Pritchett, Ball & Wise, and SRK Consulting (U.S.) Inc. (hereinafter collectively "IRS Experts"). Respondent has confirmed that each of these entities has been retained to perform expert services in syndicated conservation easement litigation matters before this Court. On September 8, 2023, petitioner gave notice of 26 additional subpoenas duces tecum it intended to serve on IRS employees (IRS Personnel).
In the subpoenas duces tecum petitioner issued to IRS Experts, and which are found in Exhibits A, B, and C to respondent's Motion to Quash or Modify Subpoena, are nearly identical (below is the request to SRK Consulting U.S. Inc.) and seek the following documents:
1. Copies of any solicitation, request for proposal, or similar communication issued by the Internal Revenue Service (or any other federal government agency) requesting the provision of services related to the examination of the 2016 tax year of Jackson Crossroads;
2. A copy of the contract between you and the Internal Revenue Service (or other federal government agency) governing your provision of services related to this matter;
3. Copies of any and all documents from the Internal Revenue Service (or other federal government agency) explaining the scope of work you were hired to perform for this matter, including, but not limited to, documents explaining, or instructing the methodology you should employ;
4. Copies of any and all communications related to your compensation for services in this matter;
5. Copies of any and all communications related to any facts or data supplied to you by the Internal Revenue Service (or any other federal government agency) in this matter;
6. Copies of any and all communications regarding any assumptions made by you, or provided to you by the Internal Revenue Service (or any other federal government agency) in this matter; and
7. Copies of any and all of you internal communications related to this matter.
8. In addition to the services rendered by you in this matter, we understand that the Internal Revenue Service and Department of Justice have engaged you to provide services in connection with examinations and litigation involving other taxpayers. To that end, we need to understand the extent and scope of the global relationship between you and the Department of Justice and Internal Revenue Service. For the sake of clarity, we are not seeking the names of taxpayers or return information. Please redact any personal identifiable information from any documents responsive to the following:
a. Copies of any solicitation, request for proposal, or similar communication issued by the Internal Revenue Service (or any other federal government agency) requesting the provision of services to which you submitted a proposal between January 1, 2015, through December 31, 2018;
b. A copy of the contract between you and the Internal Revenue Service, Department of Justice (or other federal government
agency) governing your provision of services between January 1, 2015, through December 31, 2018;
c. Copies of any and all documents from the Internal Revenue Service, Department of Justice (or other federal government agency) explaining the scope of work you were hired to perform as part of the provision of services, including, but not limited to, documents describing, explaining, or instructing the methodology you should employ in rendering a valuation or other analysis;
d. Copies of any documents evidencing the total potential value you were awarded by the Internal Revenue Service, Department of Justice (or other federal agency) for the provision of services from January 1, 2015 through the December 31, 2018; and
e. Copies of any documents, including communications, projections, budgets, and propsective evidencing the total amount of compensation you expected to be paid by the Internal Revenue Service, Department of Justice (or other federal agency) for the provision of services in addition to amounts already awarded and/or paid;
9. Any and all organizational charts reflecting the structure and ownership of SRK Consulting (U.S.), Inc. between 2015 and the date of this subpoena;
10. Any documents and communications, including reports, memorandums, and email correspondence which reflect a review, critique, evaluation, and/or criticism of work performed by SRK Consulting (U.S.), Inc. (and any of its employees) for the Internal Revenue Service or Department of Justice from January 1, 2015, through the date of this subpoena;
11. SRK Consulting (U.S.), Inc. is expected to provide reports at the direction of the Internal Revenue Service purporting to be expert reports as to the mineral or geological characteristics and/or value of property placed under conservation easement by Jackson Crossroads in 2016 with a highest and best use of the extraction of stone products. To that end, we need to understand SRK Consulting (U.S.), Inc.'s qualifications and experience in evaluating and valuing similar properties. As such, we request that you provide the following documents:
a. Copies of all reports authored by SRK Consulting (U.S.), Inc. in which they evaluate the mineral or geological characteristics and/or value of real property with a granite deposit from January 1, 2015, through December 31, 2018.
b. Copies of all reports authored by SRK Consulting (U.S.), Inc. in which it evaluates any characteristics of real property in the State
of Georgia from January 1, 2018, through December 31, 2018.
c. A copy of the complete curriculum vitae ("CV") of each employee of SRK Consulting (U.S.), Inc. assigned to assist in the preparation of the reports in this matter.
In the 26 subpoenas issued to IRS Personnel, as found in Exhibits D through CC to respondent's Motion to Quash, petitioner requested the following documents:
a. Copies of any notes produced or received by you related to or concerning Jackson Crossroads or its 2016 conservation easement contribution, specifically including but not limited to notes on the subjects of penalties, denial of a charitable deduction, and the valuation of a charitable deduction;
b. Copies of any memoranda produced or received by you related to or concerning Jackson Crossroads, its 2016 conservation easement contribution, or conservation easement contributions in general, specifically including but not limited to memoranda on the subjects of penalties, denial of a charitable deduction, and the valuation of a charitable deduction;
c. Email or other communications produced or received by you related to or concerning Jackson Crossroads or its 2016 conservation easement contribution, specifically including but not limited to emails or other communications on the subjects of penalties, denial of a charitable deduction, and the valuation of a charitable deduction;
d. Any reports or appraisals, including drafts, related to or concerning Jackson Crossroads or its 2016 conservation easement contribution, including those reports or appraisals prepared by the Internal Revenue Service, other government agencies, or independent contractors; and
e. All requests for proposals, contracts, and engagement letters concerning the hiring of subject matter experts, including independent contractors, to provide reports, appraisals, or similar analysis of Jackson Crossroads or its 2016 conservation easement contribution.
In his Motion to Quash or Modify Subpoena, respondent contends that the three subpoenas issued to IRS Experts are in contravention of our Rules, request privileged information, and are an inappropriate attempt to harass potential agents of respondent, none of whom have any independent relationship or factual nexus to the transactions at issue. Respondent's Motion goes on to contend how the twenty-six subpoenas duces tecum issued to IRS Personnel are likewise in contravention of our Rules and are an unduly burdensome request on respondent.
In its Response to Motion to Quash or Modify Subpoena, petitioner requests that the Court compel production of the subpoenaed documents for several reasons. Petitioner contends that the IRS Personnel issued subpoenas duces tecum target discrete sources of information that respondent has refused to provide despite numerous attempts, that the information sought is critical, and that respondent merely references a FOIA production as being responsive to prior discovery requests. Additionally, petitioner asserts that the three subpoenas duces tecum issued to IRS Experts also seek discrete sources of information necessary to ascertain the credibility and reliability of the opinions that respondent's experts provide in these consolidated cases. Petitioner contends that it is entitled to understand the experience and qualifications of respondent's purported experts, including any bias, under the U.S. Supreme Court standards found in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 593-94 (1993), Rule 702 of the Federal Rules of Evidence, and Rule 70. Moreover, petitioner contends that Rule 143(g), and the Scheduling Order issued by this Court, concern the disclosure of expert reports-not the timing of expert discovery.
Lastly, petitioner contends that section 6103 only protects taxpayer information and counsel for petitioner are willing to accept responsive documents containing the redaction of taxpayer names, identifying information, property description, etc. According to petitioner, the redactions would reduce any risk of disclosure while still providing the requested information.
Analysis
I. Motion to Quash or Modify Subpoena
A. General Standards
In the Tax Court, a party generally may move to quash (1) a subpoena duces tecum pursuant to Rule 147(d), see Stern v. Commissioner, 74 T.C. 1075, 1084 (1980); or (2) a subpoena ad testificandum pursuant to Fed.R.Civ.P. 45(b) (or through a motion for protective order under Rule 103(a)), see also Amazon.com, Inc. & Subs. v. Commissioner, T.C. Memo. 2014-245, at *7 n.3; Rule 1(b). Rule 147(d)(3)(A)(iii) provides that this Court may grant a motion to quash a subpoena that "subjects a person to undue burden," and Fed.R.Civ.P. 45(d)(3)(A)(iv) also speaks in terms of quashing a subpoena that "subjects a person to undue burden." The decision whether to grant a motion to quash is at our discretion, with the moving party bearing the burden of persuasion. See Amazon.com, T.C. Memo. 2014-245, at *8.
This Court has previously quashed subpoenas that would have resulted in "great inconvenience for many persons for little or no gain," declining attempts to use subpoenas as "an all-encompassing net in the search for information with which to build a case." Hunt v. Commissioner, T.C. Memo. 1990-248, 1990 WL 66551, at *27; see Durkin v. Commissioner, 87 T.C. 1329, 1403 (1986) ("The processes of this Court are simply not designed to be used to conduct a thorough investigation of a complex tax case."), aff'd, 872 F.2d 1271 (7th Cir. 1989). Thus, when "the Commissioner merely sought to have the persons subpoenaed produce all of its books and records so that the attorney for the Commissioner could examine them to find out whether they contained any helpful records, and when such person was not a party to the case but was only indirectly involved in some of the transactions, the Court refused to support the subpoena on the ground that the request was too burdensome when weighed against its probative value." Durkin, 87 T.C. at 1402 (explaining a decision at an earlier point in the case to quash third-party subpoenas).
1. Subpoenas Duces Tecum Issued to IRS Experts
Petitioner contends how the first four demands seek permissible information related to compensation of the respective experts, while the fifth and sixth requests relate to communication concerning facts, data and assumptions. While petitioner contends how the seventh request seeks internal communication, and the eight request, including subparts, seeks evidence related to compensation and financial relationship. With the ninth, tenth and eleventh requests, petitioner seeks to understand information of the expert entity structure, its prior work, including work performed in Georgia.
Respondent opposes all of the requests as being outside the scope of our Rules. On the one hand, respondent contends how the IRS Experts are not third-party fact witnesses, yet they also acknowledge that he may present expert witness testimony at trial from one or all of these IRS Experts. The Court agrees with respondent, in part, and petitioner, in part.
Rules 70(c)(4) and 143(g) govern the scope of discovery related to expert witnesses. Petitioner's subpoenas duces tecum issued to the IRS Experts cite to this Rule and recite much of the same language found in the Rule. Also, petitioner is correct that Rule 70 does not contemplate when this information is to be furnished, as respondent contends. Based on the foregoing, we find requests 2, 3, 4, 5 and 6, to be in accordance with Rule 70(c)(4)(B) and will deny the relief sought by respondent as to these requests of the IRS Experts and expect respondent's full compliance in providing the requested information.
However, requests 1, 7, 8, 9, 10 and 11, are either outside the scope of discovery, protected from disclosure under Rule 70, or will be later disclosed and discovered as part of the IRS Experts' written report under Rule 143(g). Therefore, we decline to permit petitioner to subpoena each and every prior opinion rendered by these IRS Experts in other litigation matters. However, petitioner's counsel remain free to voir dire the witnesses at trial and subsequently, during cross-examination, inquire into the details of its prior opinions, if any, when disclosed as part of the expert's written report. Accordingly, we will grant the relief sought by respondent as to requests 1, 7, 8, 9, 10 and 11 of the IRS Experts.
2. Subpoenas Duces Tecum Issued to IRS Personnel
Respondent opposes the subpoenas duces tecum issued to IRS Personnel and has confirmed that the persons listed in Exhibits D through V are employees, while those in Exhibits W through CC are not current IRS employees. Regardless of employee status, respondent contends how he has custody and control over all of the information being sought. Petitioner acknowledges how these cases are de novo, yet it asserts how it needs some of the information and meta data to verify the IRS's compliance with section 6751(b), potentially shifting of the burden of proof at trial if the FPAAs are found to be arbitrary and capricious. Finally, petitioner contends how the subpoenas duces tecum were necessary since respondent failed to provide responsive documents or information through informal and formal discovery.
First, the Court questions whether all 26 subpoenaed parties are in fact IRS Personnel. Second, the Court questions whether all 26 IRS Personnel were involved in the audit of the Partnerships and petitioner. Finally, the Court agrees that the information sought is clearly within the scope of the IRS Personnel work files; therefore, said documents are within the custody and control of respondent. If the IRS has not properly responded to a FOIA request, or if respondent has not adequately responded to written discovery requests, the appropriate relief is not a subpoena, but an action in district court under FOIA, or a motion to compel discovery in this consolidated case.
With the above in mind, the information being sought appears relevant or, at a minimum, reasonably calculated to lead to the discovery of relevant information. See Rule 70(b). Furthermore, and generally speaking, citing to a prior FOIA response is an inadequate response to a request for production of document propounded on respondent.
The Court will grant respondent's Motion to Quash or Modify Subpoena as to the subpoenas issued to IRS Personnel; however, the Court is also inclined to grant leave (if requested) for petitioner to seek to compel complete responses to prior written discovery in which it believes were not adequately responded to by respondent. Accordingly, the Court expects the parties, and their counsel, to resolve these remaining discovery disputes in the immediate future, so that the parties can focus on trial preparation.
Considering the foregoing, it is
ORDERED that respondent's Motion to Quash or Modify Subpoena filed September 13, 2023, is granted in part, as it relates to (1) requests 1, 7, 8, 9, 10, and 11 of the subpoena duces tecum issued to the IRS Experts, and (2) all requests of the subpoena duces tecum issued to IRS Personnel, are denied in part, as it relates to requests 2, 3, 4, 5, and 6 of the subpoena duces tecum issued to the IRS Experts.