Opinion
2824-20
04-06-2023
KIRK STEVENS & SHANNON STEVENS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
RICHARD T. MORRISON JUDGE
We grant respondent's Motion to Compel Production of Documents (Doc. 82), filed February 8, 2023.
Background
Petitioners contend that in 2014 they entered into a "transaction designed to hedge their interest rate risk and through which they could profit from a rise in interest rates or volatility over the next 30 years." (Doc. 32 at ⁋ 1)
On November 24, 2014, tax attorney Jeffrey Rubinger wrote an opinion letter to petitioners regarding the tax consequences of the transaction. (Doc. 88, Ex. G. at ¶ 15, Doc. 88, Ex. G at Ex. 3)
In their Petition (Doc. 1), petitioners claimed they had "established a business purpose" for the transaction. (No. 1 at ¶89) They also claimed that they had reasonably relied on Rubinger's opinion within the meaning of Treas. Reg. § 1.6664-4(c). (Doc. 1 at ¶¶ 94-99; Doc. 87, part V)
On December 12, 2022, respondent served petitioners with respondent's third request for production of documents, which included requests 9 through 28. (Doc. 82 at ¶ 1; Doc. 82, Ex. 1-R) In their response, petitioners asserted attorney-client privilege over documents that would be responsive to requests 21, 22, and 25-28. (Doc. 82 ¶ 1; No. 82, Ex. 2-R)
On February 8, 2023, respondent filed a Motion to Compel Production of Documents (Doc. 82). In the motion, respondent seeks production of the documents that would be responsive to requests 21, 22, and 25-28. (Doc. 82 at ¶ 15)
On March 8, 2023, petitioners filed an Opposition to Motion to Compel Production of Documents (Doc. 99).
On March 24, 2023, respondent filed a Reply to Opposition to Motion to Compel Production of Documents (Doc. 110).
Discussion
Petitioners contend that the six document requests in question intrude upon privileged communications with Jonathan Gopman and Jeannette Witten, the attorneys other than Rubinger upon whom petitioners relied to consider and implement the transaction. (Doc. 99 at pp. 13-15; Doc. 46 at ¶ 20) Respondent has explained that, in addition to performing the functions described by petitioners, Gopman and Witten served as intermediaries between petitioners and Rubinger. (Doc. 82 at ¶ 10) This explanation is not contested by petitioners.
Petitioners' assertion that they reasonably relied on the advice of Rubinger waived attorney-client privilege as to their communications with Gopman and Witten. The validity of this reasonable-reliance defense does not hinge solely on the text of Rubinger's opinion. Regulations provide: "All facts and circumstances must be taken into account in determining whether a taxpayer has reasonably relied in good faith on advice (including the opinion of a professional tax advisor) as to the treatment of the taxpayer . . . under Federal tax law." Treas. Reg. § 1.6664-4(c). Therefore, to assert reasonable reliance on the Rubinger opinion is to waive attorney client privilege with respect to the facts and circumstances that must be considered in determining whether petitioners reasonably relied on the Rubinger opinion. The communications with Gopman and Witten are facts and circumstances relevant to the reasonable-reliance defense. The communications with Rubinger should be considered together with the communications with Gopman and Witten.
Furthermore, by asserting the transaction has a business purpose, petitioners have placed at issue their understanding of the transaction, an understanding that was informed by their communications with Gopman and Witten. See Slone v. Commissioner, 810 F.3d 599, 605 (9th Cir. 2015) (to defeat sham-transaction doctrine the taxpayer must show "it had a business purpose for engaging in the transaction other than tax avoidance"). This assertion also waived privilege over communications with Gopman and Witten.
Conclusion
Given the foregoing, it is
ORDERED that respondent's Motion to Compel Production of Documents (Doc. 82), filed February 8, 2023, is granted and petitioners shall, on or before April 19, 2023, produce at IRS Office of Chief Counsel, 60017th Street, Suite 300N, Denver, CO 80202-5402, for inspection and copying, and continuing from day to day thereafter for so long as reasonably necessary to examine and copy them, the documents that would be responsive to requests 21, 22, and 25-28 of respondent's December 12, 2022 third request for production of documents.