Opinion
11909-22
12-18-2023
WAUKEEN Q. MCCOY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
PETER J. PANUTHOS SPECIAL TRIAL JUDGE
Pending before the Court is respondent's (1) Motion to Seal, filed December 8, 2022; (2) Motion to Seal, filed March 20, 2023; (3) Motion to Seal, filed April 19, 2023; and (4) Motion to Seal, filed May 1, 2023.
On September 26, 2023, a hearing was held on the above-mentioned motions at the Court's San Franciso, California trial session. Both petitioner and respondent appeared and were heard.
Background
The following background is derived from the parties' filings and the hearing held on the respective motions.
Prior to filing a petition, on November 30, 2021, petitioner's counsel, Jay Weill, requested under the Freedom of Information Act ("FOIA"), all examination files created and/or maintained by the Internal Revenue Service (IRS) with respect to the examination, audit, and/or investigation of petitioner Waukeen Q. McCoy, for the taxable years 2009, 2010, and 2011
On April 14, 2022, the IRS Disclosure Office produced 1,212 pages in response to the FOIA request including the Examining Officer's Activity Record (Activity Record).
On May 26, 2022, petitioner timely filed a Petition in this case, seeking review of a notice of deficiency dated March 1, 2022, as follows.
Tax Year
Deficiency
I.R.C. § 6663 Penalty
I.R.C. § 6651(a)(1) Penalty
2009
$270,395
$202,796
$67,348
2010
$203,250
$152,362
$50,787
2011
$172,472
$129,354
$9,023
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.
On September 12, 2022, petitioner sent an email to respondent that made references to information in the Activity Record. Respondent subsequently reviewed the documents produced by the Disclosure Office and concluded that the Activity Record had been improperly redacted and contained privileged information. On September 20, 2022, respondent contacted Attorney Weill informing him of the inadvertent disclosures and requested the initially redacted Activity Record be destroyed or returned.
On October 7, 2022, respondent mailed Attorney Weill a request to return or destroy the initially redacted Activity Record and also attached a newly redacted copy of the Activity Record. Petitioner's counsel informed petitioner of the privilege claim and request to return or destroy the information on October 13, 2022. On November 1, 2022, Attorney Weill filed a Declaration indicating that he had returned or destroyed the documents that respondent claimed as privileged. On October 4, 2022, Attorney Weill filed a Motion to Withdraw as Counsel citing conflict interfering with his ability to represent petitioner. He indicated petitioner objected to the motion. On October 31, 2022, petitioner filed an Opposition to Motion to Withdraw as Counsel and an accompanying Declaration of Waukeen McCoy in Support of Opposition to Motion to Withdraw as Counsel. In the filings, petitioner referenced information from the Activity Record that respondent considered privileged. On November 10, 2022, the Court granted Attorney Weill's Motion to Withdraw as Counsel.
"Newly redacted" is intended to describe the respondent's submission with what he asserts contain appropriate redactions.
Petitioner made subsequent filings with the Court which included information subject to respondent's privilege claim. In response, respondent filed several Motions to Seal. On December 8, 2022, respondent filed a Motion to Seal Opposition to Motion to Withdraw as Counsel and Declaration of Waukeen McCoy in Support of Opposition to Motion to Withdraw as Counsel. On March 20, 2023, respondent filed a Motion to Seal petitioner's Reply to Answer. On April 19, 2023, respondent filed a Motion to Seal Petitioner's Declaration of Waukeen McCoy in Support of Motion for Extension of Time. On May 1, 2023, respondent filed a Motion to Seal Petitioner's Opposition to Motion to Seal.
Discussion
Section 7453 provides that Tax Court proceedings are conducted "in accordance with the rules of evidence applicable in trials without a jury in the United States District Court of the District of Columbia." The Federal Rules of Evidence, which incorporate the common law rules of privilege, apply to proceedings in that court. See Fed. R. Evid. 501, 1101; Rule 143.
I. Motion to Seal
The Tax Court Rules of Practice and Procedure provide that if information produced in discovery is subject to a claim of privilege, the party making the claim may notify any party who received the information of the claim and the basis for it. See Rule 70(d)(2). Once notified of the claim, the receiving party must return, sequester, or destroy the information and must not use or disclose the information until the claim is resolved, and the information may be presented to the Court under seal for a determination of the claim. Id.
After receiving petitioner's email on September 12, 2022, respondent notified petitioner's counsel on September 20, 2022, that the Activity Record had been improperly redacted and contained privileged information. Petitioner's counsel informed petitioner of respondent's request to destroy the information on October 13, 2022. However, petitioner contrary to the clear language of Rule 70(d)(2) continued to make filings using the information at issue. Respondent has filed the pending motions to seal in response. Pursuant to Rule 70(d)(2), the Court will grant respondent's Motions to Seal.
II. Privilege Claims
Respondent asserts attorney-client privilege, deliberative process privilege, and FOIA exemptions over portions of the Activity Record.
The burden of establishing attorney-client privilege rests with the party asserting the privilege. See Bernardo v. Commissioner, 104 T.C. 682 (1995). The burden of establishing that a document is exempt from disclosure under FOIA which includes deliberative process privilege, rests with the agency invoking the exemption. See Vaughn v. Rosen, 484 F.2d 820 (D.C. Cir. 1973); see also Hardy v. Bureau of Alcohol, Tobacco, Firearms and Explosives, 243 F.Supp.3d 155, 162 (D.D.C. 2017).
In practice, this Court has generally required the submission of a privilege log whenever a party asserts privilege over a large number of documents. See Pacific Management v. Commissioner, T.C. Memo. 2015-97. A privilege log must set forth facts that establish, as to each document, each element of the claimed privilege. Chevron Corp. v. Weinberg Group, 286 F.R.D. 95, 98 (D.D.C. 2012). As one court stated, an assertion of privilege requires, at a minimum, the identification of "the authors, dates of preparation, and subject matter of the documents, as well as facts establishing each element of the privilege claim." United States v. W. Elec. Co., Inc., 132 F.R.D. 1, 3 (D.D.C. 1990). Without an adequately detailed privilege log, neither a requesting party nor a court can adequately assess whether the privilege has been properly claimed or what the proper scope of the claimed privilege is. See Chevron Corp., 286 F.R.D. 95, 98. Similarly, FOIA exemption claims require the agency to make an itemized explanation for each claim. Vaughn v. Rosen, 484 F.2d 820, 827 (D.C. Cir. 1973).
In support of his claim, respondent submitted a copy of the initially redacted Activity Record, a copy of the newly redacted Activity Record and a purported privilege log. The privilege log specifies a BATES number, a description of the document, and statutory references to the privilege being asserted.
Petitioner asserts that the privilege log is inadequate. The Court is inclined to agree. While the privilege log specifies a BATES number and the initially redacted Activity Record includes BATES numbers, the newly redacted Activity Record does not include any BATES numbers. Further, the privilege log does not specify dates, entries, nor any elements of the claimed privileges. From the privilege log and the documents before us, the Court is unable to properly assess the claim as we cannot identify the portions of the Activity Record over which privilege is being claimed. Therefore, the Court will not opine as to the privilege issue at this time.
III. Conclusion
Petitioner asserts that the information that respondent seeks to seal is highly relevant and that he intends to present this information to defend against respondent's determination that the underpayments are due to fraud. Petitioner points out that the period of the statute of limitations expired without a finding of fraud. In his answer, respondent has made affirmative allegations to support the fraud penalty pursuant to section 6663. Respondent also relies on allegations of fraud as a defense to the expiration of the statute of limitations. The Court made clear at the hearing that opinions, deliberations, recommendations, and discussions made prior to the issuance of the notice of deficiency by IRS employees were not particularly relevant. See Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, (1974).
Respondent has the burden of proving fraud and that burden must be carried by clear and convincing evidence. See 7454(a); Rule 142(b). The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Estate of Pittard v. Commissioner, 69 T.C. 391, 400 (1977). That is the record made in Court, not the opinions, deliberations, recommendations and discussions among IRS employees prior to the issuance of the notice of deficiency. See Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974). The Court cautions petitioner to not read into this order that any of the deliberations, recommendations, discussions and opinions that took place prior to the issuance of the notice of deficiency are either relevant or admissible into evidence. Ultimately, the trier of fact in this case will decide the merits of the respective parties' positions and to what extent the disputed material is relevant and otherwise admissible into evidence.
Upon due consideration and for the reasons elaborated upon above, it is
ORDERED that respondent's (1) Motion to Seal, filed December 8, 2022; (2) Motion to Seal, filed March 20, 2023; (3) Motion to Seal, filed April 19, 2023; and (4) Motion to Seal, filed May 1, 2023, are granted. Petitioner's Opposition to Motion to Withdraw as Counsel, filed October 31, 2022; Declaration of Waukeen McCoy in Support of Opposition to Motion to Withdraw as Counsel, filed October 31, 2022; Reply to Answer, filed March 1, 2023; Declaration of Waukeen McCoy in Support of Motion for Extension of Time, filed March 31, 2023; Opposition to Motion to Seal, filed April 21, 2023 are sealed from public view and shall not be inspected by any person or entity not a party to this case, except by an Order of the Court. It is further
ORDERED that petitioner, pursuant to Rule 70(d)(2) shall return and/or destroy any prior documents provided to petitioner subject to a claim of privilege. It is further
ORDERED that petitioner shall refrain from making further references to information claimed to be privileged or exempt from disclosure, in any future filings. It is further
ORDERED that the parties shall, on or before January 19, 2024, file status reports (joint or separate) advising as to compliance with this order.