Opinion
24703-21
06-17-2024
NORTH DONALD LA PROPERTY, LLC, NORTH DONALD LA INVESTORS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge
This case is calendared for trial at an initial special session of the Court beginning September 9, 2024, and a second session beginning October 7, 2024, both in New Orleans, Louisiana. The case involves a charitable contribution deduction claimed by North Donald LA Property, LLC (North Donald) for a conservation easement. The IRS also determined a civil fraud penalty under section 6663 .
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.
In January 2024, respondent issued subpoenas duces tecum to 7 individuals and entities seeking information and documents relating to the transactions at issue. The subpoena recipients produced information and documents. Counsel for respondent shared with petitioner all of the material thus produced.
On or around May 9, 2024, petitioner served subpoenas duces tecum on Pamela Stafford, an IRS revenue agent, and 17 non-party individuals and entities (subpoenaed parties), including the 7 that had received respondent's earlier subpoenas. In each of the 17 non-party subpoenas, petitioner seeks any documents that the subpoenaed party previously produced to the "United States Government" and any correspondence between the "United States Government" and the subpoenaed party. Petitioner defined the "United States Government" to include the "Internal Revenue Service, Department of Treasury, and Department of Justice" (DOJ). The scope of the requests is limited to materials created since May 5, 2020, the date on which the IRS commenced the examination of North Donald. The scope of the requests is also limited to materials relating to specified persons, entities, or locales directly connected to the easement transaction at issue. Several of the subpoenas contain additional sections, but these additional sections are not addressed in respondent's Motions. The case is calendared for a remote document subpoena hearing on June 26, 2024, which operates as the return date for the subpoenas.
On May 15, 2024, respondent filed at docket entry #154 a Motion to Quash or Modify the Subpoena that petitioner served on Ms. Stafford. On May 16, 2024, respondent filed at docket entries ##156-172 Motions to Quash or Modify the Subpoenas that petitioner served on the 17 non-parties. On June 3, 2024, petitioner filed a Response opposing the Motions filed at docket entries ##156-172. In the Response petitioner noted that it had withdrawn the subpoena served on Ms. Stafford, the subject of the Motion at docket entry #154. Petitioner also represented that it had notified the 7 subpoenaed parties who had produced documents in response to IRS subpoenas that they need not reproduce those same documents in response to petitioner's subpoena. None of the 17 subpoenaed parties has filed a motion to quash petitioner's subpoenas, except for RESPEC Co., LLC (RESPEC).
The subpoena petitioner issued to RESPEC requests broader categories of information, including "all contracts with the DOJ, Department of Defense, United States Army, National Park Service, and the United States Environmental Protection Agency, from January 1, 2014 through January 1, 2019," "all reports relating to the mining of clay that were prepared by RESPEC from January 1, 2014, through January 1, 2019," and "all documents relating to resource and reserve estimates, mining engineering, or permitting, of clay prepared between January 1, 2014 and January 1, 2019." Petitioner's response to RESPEC's motion to quash is due June 17, 2024. We will address RESPEC's motion in a separate order upon receipt of petitioner's response.
A. Applicable Law
Rule 147(d)(3)(iii) states that "the Court must quash or modify a subpoena that . . . subjects a person to undue burden," meaning a burden that outweighs the value of the subpoenaed information to the serving party. See Amazon.Com, Inc. & Subsidiaries v. Commissioner, T.C. Memo. 2014-245, 108 T.C.M. (CCH) 245, 253-54. Factors to be considered include the relevance of the information sought, the serving party's need for that information, the breadth of the request, the time period covered by the subpoena, the particularity of the request, and the burden imposed. Id. at 253. For purposes of discovery the standard of relevance is liberal: our Rules permit discovery of any material relevant "to the entire 'subject matter' of the case." Zaentz v. Commissioner, 73 T.C. 469, 471 (1979) (quoting Rule 70(b)).
Our Rules do not speak directly to the question of whether a party has standing to quash a subpoena that was issued to a non-party. In these circumstances, we may give weight to the Federal Rules of Civil Procedure (FRCP). See Rule 1(b) (stating that "if the Rules provide no governing procedure, the Court . . . may prescribe the procedure, giving particular weight to the FRCP to the extent that they are suitably adaptable to govern the matter at hand"). In evaluating motions to quash a subpoena under Rule 147(d)(3), we look to FRCP 45(d)(3) because Rule 147(d)(3) was derived from it. See Amazon.Com, 108 T.C.M. (CCH) at 252 n.3; cf. Estate of Yaeger v. Commissioner, 92 T.C. 180, 189 (1989) (noting that the Court may follow the FRCP in evaluating motions for a protective order under Rule 103(a)). Under FRCP 45(d)(3) a party generally does not have standing to move to quash a subpoena served on a non-party unless the party claims a privilege or personal right in the information sought by the subpoena. See, e.g., Swanson v. Murray Bros., LLC, No. 4:21-mc-00081-MTS, 2021 WL 1380285, at *3 (E.D. Mo. Apr. 12, 2021) (holding that party had standing to challenge non-party subpoena because it could claim privilege in the requested information); E.E.O.C. v. Danka Indus., Inc., 990 F.Supp. 1138, 1141 (E.D. Mo. 1997) (finding party lacked standing to challenge non-party subpoenas because it did not assert a claim to privilege in the requested information).
B. Respondent's Motions to Quash
Respondent asks the Court to quash petitioner's requests for documents that the subpoenaed party produced to the "United States Government" and correspondence between subpoenaed party and the "United States Government" since May 5, 2020. Respondent urges that the information sought is irrelevant to the subject matter of this case and would generate no admissible evidence. He contends that petitioner's request for "all documents produced to the United States Government" is a "fishing expedition intended to gain insight into other IRS examinations or investigations" not pertinent to this litigation.
Respondent appears to lack standing to challenge the non-party subpoenas. He did not contend in the Motions that he can reasonably assert any privilege over, or claim any personal right in, any of the information sought in the subpoenas. But assuming arguendo that respondent has standing to challenge the subpoenas, we do not agree that the requested information is categorically irrelevant to this case or that it automatically imposes an undue burden on the subpoenaed parties. Of the 17 subpoenaed parties, only RESPEC has filed a motion to quash, suggesting that the others may not share similar concerns about burden. Petitioner has attempted to prevent unnecessary burden or expense by notifying the 7 subpoenaed parties who produced documents to the IRS previously that they need not produce those documents again.
With respect to relevance, we can imagine circumstances in which documents or communications involving the subpoenaed parties and the "United States Government" could conceivably be relevant to this case. To the extent the communications or documents relate to persons, entities, or locales involved in this case, the materials could shed light on facts surrounding the easement transaction and the alleged commission of fraud. Such materials could be used either to support or to contradict other evidence presented at trial.
Respondent urges that petitioner, in issuing the subpoenas, is engaged in a "fishing expedition intended to gain insight into other IRS examinations or investigations." We are mindful of the risk of abuse of our discovery process. But we also recognize that the stakes for petitioner are high: The civil fraud penalty asserted in this case exceeds $85 million. Because of this, we are inclined to give petitioner every opportunity (within reason) to marshal evidence that might rebut the Commissioner's allegations of fraud. Needless to say, if material produced by the subpoenaed parties to petitioner is irrelevant, as respondent urges, he may object to the admission of that material into evidence at trial.
Upon due consideration, it is
ORDERED that respondent's Motion to Quash or Modify a Subpoena, filed May 15, 2024, at docket entry #154, is denied as moot. It is further
ORDERED that respondent's Motions to Quash or Modify a Subpoena, filed May 16, 2024, at docket entries ##156-172, are denied. It is further
ORDERED that, in addition to regular service, the Clerk of the Court shall serve a copy of this Order on the subpoenaed parties as follows:
Louisiana Earth Corps, LLC 9332 Bluebonnet Boulevard Baton Rouge, LA 70810 Nungesser Industries, LLC 36290 Rheusaw Crawford Rd. Pearl River, LA 70452 Pappillion Trucking, Inc. Tolunay-Wong Engineers, Inc. 6037 Commerce Point Dr. Geismar, LA 70734