Opinion
1829-17
09-01-2021
Michael A. Fiumara, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER
Peter J. Panuthos, Special Trial Judge.
On May 26, 2020, petitioner filed a Motion to Compel Production of Documents (petitioner's motion) pursuant to Rules 71, 72, and 104, concurrent with supporting declarations and exhibits. On June 30, 2020, respondent filed an Objection to petitioner's motion. On July 31, 2020, petitioner filed a Reply to respondent's Objection. This case was called for hearing during the Trial Session of the Court at San Francisco, California, on September 15, 2020 (held remotely). The parties appeared and were heard on petitioner's motion.
Unless otherwise indicated, subsequent Rule references are to the Tax Court Rules of Practice and Procedure. All section references are to the Internal Revenue Code in effect at all relevant times. Amounts are rounded to the nearest dollar.
The underlying case to which petitioner's motion relates deals with alleged civil tax fraud. In a statutory notice of deficiency issued to petitioner on October 21, 2016, respondent determined penalties under section 6663 of $25, 161, $13, 962, and $28, 582 for taxable years 2010, 2011, and 2012 (years in issue), respectively. A petition was timely filed on January 23, 2017.
The notice of deficiency was mailed on October 21, 2016, and the 90th day thereafter was Thursday, January 19, 2017, which day was not a legal holiday in the District of Columbia. See sec. 7503; Rule 25(b). Therefore, January 19, 2017, was the last day for petitioner to timely file a petition with this Court. See sec. 6213(a). The petition was received and filed by the Court on January 23, 2017. The envelope containing the petition is a priority mail 2-day envelope bearing a U.S. Postal Service postmark dated January 19, 2017. We thus treat the petition as timely filed pursuant to sec. 7502(a).
The parties narrowed the issues raised in petitioner's motion prior to the hearing before this Court. After the hearing, the issues raised in petitioner's motion which remain are:
In his motion petitioner sought an order compelling respondent to "produce evidence obtained from JP Morgan Chase ('Chase') of Petitioner's application to refinance the mortgage on his home, which shows the income Petitioner reported to Chase for 2012 was the same as he reported to the IRS." Petitioner also sought an order compelling respondent to produce summonses served upon Redwood Credit Union. At the September 15, 2020 hearing on petitioner's motion the parties indicated that these issues had been resolved.
In his motion petitioner also suggests, based on the premise that respondent has withheld documents until this point, that if respondent fails to comply with this Order in any respect, then the Court should impose sanctions under Rule 104. Petitioner has not established that respondent has failed to obey any Order of this Court. See Rule 104(c). Consequently, petitioner's motion for sanctions is also premature and is denied without prejudice. In his motion petitioner seeks to recover reasonable expenses, including attorney's fees and costs. As explained by the Court during the hearing on his motion, petitioner's request for an award of fees and costs is premature. See sec. 7430; Rule 231(a). Consequently, petitioner's motion is denied without prejudice with regard to an award of reasonable fees and costs.
(1) whether petitioner is entitled to the names of certain third-party contacts upon whose information respondent partially based his notice of deficiency and to the production of the unredacted statements of such contacts; and
(2) whether respondent is required to produce all summons issued for bank records of Dr. Gordon Larsen, M.D., petitioner's domestic partner during the years in issue, now deceased (Dr. Larsen), and all related notices served on Dr. Larsen.
Background
Petitioner resided in the State of California when the petition was filed. Petitioner and Dr. Larsen were domestic partners during the years in issue and were later married on July 3, 2013.
Petitioner earned his law degree in 1989 and has been an attorney licensed in California since December 8, 1992. During the years in issue petitioner operated the Law Offices of Michael A. Fiumara (law firm). The law firm provided legal services in the areas of criminal law, personal injury law, land use and zoning law, and general civil litigation. The law firm operated two offices located in Santa Rosa and San Rafael, California.
Each of the law firm's clients received and executed a fee agreement for legal services. For Spanish-speaking clients, the law firm provided fee agreements and other documents that were translated into Spanish. The law firm accepted cash, money orders, Cashier's checks, Visa and MasterCard for payment of legal services.
On April 23, 2013, an Internal Revenue Agent (RA) from the Internal Revenue Service (IRS) Small Business and Self-Employed Division contacted petitioner regarding an examination of his income tax returns for the years in issue and issued a first Information Document Request (IDR). The first IDR requested the books and records used to prepare the Federal income tax returns for petitioner and his law firm, including receipt books, billing invoices, bank statements, duplicate bank deposit slips, cancelled checks and the QuickBooks work papers and reports. Over the course of 2013 and 2014 respondent issued three subsequent IDRs and the parties held multiple conferences, including a tour of petitioner's business on November 18 and 19 of 2013.
Respondent prepared a bank deposits analysis for each of petitioner's tax years in issue. The IRS examination resulted in adjustments of unreported income received by petitioner's law firm of $115, 231, $66, 131, and $130, 215 for tax years 2010, 2011, and 2012, respectively. Respondent subsequently assessed underpayments of tax against petitioner of $34, 115 for tax year 2010, $18, 616 for tax year 2011, and $38, 109 for tax year 2012. Petitioner conceded to the adjustments in full and, on June 10, 2015, paid the underpayments of tax and associated interest for each year.
On October 21, 2016, respondent issued to petitioner a notice of deficiency determining civil fraud penalties under section 6663(a) of $25, 161 for tax year 2010, $13, 962 for tax year 2011, and $28, 582 for tax year 2012. Petitioner subsequently petitioned the Court for a redetermination of the deficiencies for the years in issue.
Petitioner served respondent with an informal request for production of documents on August 1, 2019, and with a formal Request for Production of Documents on February 11, 2020. He also served respondent with formal interrogatories on February 11, 2020.
Following the informal and formal discovery requests, respondent produced some 1, 128 pages of documents, many of which redacted the names and statements of certain third-party contacts on the basis of asserted privilege. Included in the documents produced was a copy of a document entitled "Summary of TPC Interviews" which states that the unidentified third-party contacts interviewed by the RA during the examination were former staff at petitioner's law firm and that "they fear retribution from [petitioner] * * * and they each stated that [petitioner] will attempt to discredit them if he learns that they have shared information with us."
At some point prior to the filing of the petition in this case petitioner's domestic partner, Dr. Larsen, received a letter from Wells Fargo Bank, N.A. (Wells Fargo). The letter, dated March 27, 2014, informed Dr. Larsen about an IRS summons issued on March 20, 2014, that "requests production of your bank records/information regarding your account(s) by 4/21/2014." Wells Fargo did not identify the bank account numbers associated with the IRS summons in the March 27, 2014 letter.
In his discovery requests, petitioner sought a copy of "[s]ummons dated August 1, 2013 to Wells Fargo Bank for the records of Gordon Larsen." In response to petitioner's request for such summons, respondent stated "no responsive summons that was issued for the records of Gordon Larsen." The documents produced by respondent also included a copy of a summons served by the IRS on Wells Fargo on March 20, 2014, requesting "[a]ll bank statements for all accounts (checking and/or savings) - including, but not limited to, [two bank accounts] - over which Michael A. Fiumara has signature authority, covering the period from January 1, 2012 to January 31, 2013* * *" (Wells Fargo summons).
Discussion
The standards governing discovery of documents are set out in Rule 70. 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." Information that would be inadmissible at trial is discoverable if the information appears reasonably calculated to lead to the discovery of admissible evidence. Rule 70(b). The party objecting to discovery has the burden of establishing that the documents sought by the other party are not relevant or that they are otherwise not discoverable. Rosenfeld v. Commissioner, 82 T.C. 105, 112 (1984); Rutter v. Commissioner, 81 T.C. 937, 948 (1983); Branerton Corp. v. Commissioner, 64 T.C. 191, 193 (1975). Thus, respondent bears the burden of establishing that the information and documents sought in petitioner's motion are not discoverable.
A. Identity of Third-Party Contacts and Request for Unredacted Documents
Respondent's determination in the notice of deficiency was based in part upon statements from third-party contacts interviewed during the IRS examination into petitioner's tax returns for the years in issue. Respondent contends that the identities of these third-party contacts are privileged under the Government's confidential informant privilege (informer's privilege) pursuant to the flush language of section 6103(h)(4). Petitioner seeks to have respondent identify the third-party contacts and to have respondent produce unredacted copies of the contacts' statements to the IRS.
The flush text of section 6103(h)(4) states, with regard to the disclosure of tax returns or return information to certain Federal officers and employees: "However, such return or return information shall 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 Government's privilege not to disclose the identity of its informers existed at common law. Weimerskirch v. Commissioner, 67 T.C. 672, 676 (1977), rev'd, 596 F.2d 358 (9th Cir. 1979). The Supreme Court, in Roviaro v. United States, explained the nature and reach of this privilege as follows (353 U.S. 53, 59-62 (1957)):
What is usually referred to as the informer's privilege is in reality the Government's privilege to withhold from disclosure the identity of persons who furnish information of violations of law to officers charged with enforcement of that law. * * * The purpose of the privilege is the furtherance and protection of the public interest in effective law enforcement. The privilege recognizes the obligation of citizens to communicate their knowledge of the commission of crimes to law-enforcement officials and, by preserving their anonymity, encourages them to perform that obligation.
The scope of the privilege is limited by its underlying purpose. Thus, where the disclosure of the contents of a communication will not tend to reveal the identity of an informer, the contents are not privileged. Likewise, once the identity of the informer has been disclosed to those who would have cause to resent the communication, the privilege is no longer applicable.
A further limitation on the applicability of the privilege arises from the fundamental requirements of fairness. Where the disclosure of an informer's identity, or of the contents of his communication, is relevant and helpful to the defense of an accused, or is essential to a fair determination of a cause, the privilege must give way. * * *
No fixed rule with respect to disclosure is justifiable. Weimerskirch v. Commissioner, 67 T.C. at 676. In determining whether the informer's privilege applies, the Court will balance the public interest in protecting the flow of information against the individual's right to prepare his defense. Roviaro v. United States, 353 U.S. at 62; Weimerskirch v. Commissioner, 67 T.C. at 676. Whether the privilege applies depends on the particular circumstances of each case. See Weimerskirch v. Commissioner, 67 T.C. At 677.
Respondent contends that the identities of the third-party contacts are privileged because the contacts are confidential government informants. With regard to the documents that redact information pertaining to the identities of the aforementioned third-parties, respondent contends that each document was properly redacted because each of the third-party contacts fears reprisal from petitioner. Respondent's support for this contention is that each of the redacted documents indicate on their face that the related third-party fears reprisal.
Petitioner contends that the third parties in question should not be protected by the informer's privilege for multiple reasons. First, petitioner states that the third parties should be properly classified as witnesses instead of confidential informants because (1) they have already been identified by respondent as witnesses to the facts alleged in respondent's Answer, (2) respondent has identified summaries of the individuals' statements as evidence of fraud, and (3) respondent reserved the right to call these individuals to testify at trial. In support of this position, petitioner alleges that documentation provided to the IRS by at least one of the third-party contacts was stolen from his law office. Petitioner contends that respondent intends to introduce this documentation as evidence of fraud at trial and that the documentation is necessary for respondent to prove his case. Second, petitioner argues that respondent has not met his burden of proving that the informer's privilege is applicable in this case because there is no evidence before the Court showing that the third parties currently fear reprisal or have any reason to do so. Petitioner argues that any evidence that the third parties feared reprisal is eight to ten years old and that because the IRS investigation closed in 2014 there is no reason for the Court to believe that the third parties still have the same fear. Finally, petitioner argues if the informer's privilege does apply in this case, the Government's interest in the anonymity of its informants must give way to petitioner's right to pretrial discovery. Petitioner argues that his need to discover the evidence that the Government claims supports its allegations of fraud and which respondent intends to produce at trial outweighs the dangers of identifying Government informants.
Petitioner has limited his request to the identities and statements of third parties whom respondent's counsel has identified as potential witnesses at trial. The Court will provide a scheduling order well in advance of any trial and require the parties to identify witnesses they intend to call at trial. To the extent that respondent does not intend to call certain parties as witnesses the Court will not require such parties to be identified.
Accordingly, we will grant petitioner's motion in that the Court will direct the parties to file respective pretrial memoranda and identify the persons they intend to call as witnesses. Following discussion with the parties, the Court will issue a scheduling order setting this case for trial and requiring the filing of pretrial memoranda identifying trial witnesses no later than 90 days prior to the trial date. The parties should be prepared to have a pretrial conference with the Court in the near future regarding the setting of a trial date and the issuance of the scheduling order. Furthermore, the parties should consider once again their willingness to have a remote trial because of the continuing concerns of COVID-19.
B. Summons to Wells Fargo
Petitioner contends that during the examination of his tax returns the RA conducting the examination served a summons on Wells Fargo for the bank records of petitioner's then-domestic partner Dr. Larsen without notifying Dr. Larsen or producing an audit report. Petitioner asserts that respondent has repeatedly refused to produce a copy of said summons despite specific requests to do so through informal and formal document requests. Respondent asserts that counsel has not refused to provide petitioner with a copy of any summons, but rather that the specific summons that petitioner has requested does not exist. Respondent asserts that the IRS has produced copies of all responsive requested bank summonses, that the IRS "has not indicated to petitioner that it has 'lost' any summons issued to Wells Fargo Bank for [Dr. Larsen's] bank records" and that it "has no responsive summons that was issued for the records of Gordon Larsen."
The Court notes that petitioner's contentions relate to a purported summons for records of a specific Wells Fargo bank account belonging to Dr. Larsen. The copy of the Wells Fargo summons produced by respondent applies to all Wells Fargo accounts over which petitioner had signatory authority from January 1, 2012 to January 31, 2013. In its March 27, 2014 letter addressed to Dr. Larsen Wells Fargo did not identify the bank account numbers listed in the related IRS summons issued on March 20, 2014. Although petitioner stated in his Declaration in support of his motion that he did not become a signatory on Dr. Larsen's Wells Fargo account until February 22, 2013, it is plausible that the bank may have produced documentation regarding Dr. Larsen's account that it believed was responsive to the Wells Fargo summons.
A party on whom document requests are served is not required to produce documents which he does not have in his possession, custody, or control. See Rule 72(a)(1) (party is required to produce documents within party's possession, custody, or control); Rosenfeld v. Commissioner, 82 T.C. at 115. With respect to the purported summons for the specific bank records of Dr. Larsen as identified by petitioner, an examination of the evidence and arguments before the Court does not indicate that a copy of such summons is in the possession, custody, or control of respondent. Respondent appears to have participated in the discovery process in good faith and to have produced copies of all summonses for bank records related to this case in his possession.
Accordingly, we will deny petitioner's motion to compel with respect to a copy of the purported summons for the Wells Fargo bank records of Dr. Larsen.
Premises considered, it is hereby
ORDERED that petitioner's Motion to Compel Production of Documents is granted in part in that the Court will direct the parties to file respective pretrial memoranda and identify the persons they intend to call as witnesses 90 days prior to the date of trial. It is further
ORDERED that petitioner's Motion to Compel Production of Documents is denied with respect to the production of a copy of the purported summons for the Wells Fargo bank records of Dr. Larsen. It is further
ORDERED that petitioner's Motion to Compel Production of Documents is denied in all other respects.
The parties shall be prepared to have a pretrial conference with the Court in the near future regarding the setting of a trial date, the possibility of proceeding remotely, and the issuance of a pretrial scheduling order.