Opinion
7703-19
02-02-2022
ALABAMA S&G, LLC, BIG ESCAMBIA VENTURES, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber Judge
This is a syndicated conservation easement case. The Internal Revenue Service (IRS or respondent) disallowed the charitable contribution deduction claimed for the easement by Alabama S&G, LLC, and determined various accuracy-related penalties, including a reportable transaction understatement penalty under section 6662A. See IRS Notice 2017-10 (classifying "syndicated conservation easement transactions" entered into after January 1, 2010, as "reportable transactions" penalizable under sections 6662A and 6707A).
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times.
Among the contentions petitioner advances is the contention that Alabama S&G is immune from penalty under section 6662A. Petitioner argues that Notice 2017-10 is invalid because it was not subjected to "notice and comment" rulemaking procedures as allegedly required by the Administrative Procedure Act (APA). Alternatively, petitioner urges that the IRS seeks to apply Notice 2017-10 retroactively-the easement here was granted in 2014--and contends that such retroactive application is "arbitrary and capricious" under the APA.
Seeking support for its position petitioner has filed a Motion to Compel Production of Documents. It demands that the IRS supply "all documents associated with" Notice 2017-10, including internal IRS communications and deliberations, prior drafts of the Notice, correspondence with third-party organizations, and discussions among IRS employees who participated in the drafting of the Notice. Petitioner also seeks IRS "training materials … directed at establishing reliance on the IRS's public statements." (Petitioner originally sought documentation relating to an investigation of Alabama S&G's appraiser, but it has since withdrawn that request.)
Conceding that Notice 2017-10 was not subjected to APA notice-and-comment rulemaking procedures, respondent contends that IRS listing notices, as a matter of law, are not subject to such procedures. To the extent petitioner seeks documents in support of its "retroactivity" argument, respondent contends that the documents are privileged or are irrelevant to this case. Given the nature of petitioner's challenge, respondent urges that his only discovery-related obligation is to produce the administrative record of Notice 2017-10, as certified by the Secretary of the Treasury. See James Madison, Ltd. v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996).
Respondent has produced to petitioner a complete copy of the administrative record, and he maintains that this is the only body of documents he is required to produce. See Oceana, Inc. v. Ross, 920 F.3d 855, 865 (D.C. Cir. 2019) (holding that documents that are "not part of the administrative record to begin with," such as "predecisional and deliberative documents," are not discoverable and "do not need to be logged as withheld from the administrative record"). If any of the requested documents are potentially discoverable, respondent contends that they are irrelevant to the APA questions or are privileged. Finally, respondent urges that petitioner's requests are overly broad and unduly burdensome.
Petitioner's discovery requests strike us as a classic "fishing expedition," and we will deny its Motion. Whether Notice 2017-10 should have been issued pursuant to APA notice-and-comment rulemaking procedures presents a question of law, and further discovery is irrelevant to the proper resolution of that question. Whether respondent's "retroactive" application of Notice 2017-10 was "arbitrary and capricious" must be decided on the basis of the administrative record. Respondent has produced the administrative record, and petitioner is free to advance whatever arguments it believes appropriate on the basis of that record.
Upon due consideration, it is
ORDERED that petitioner's Motion to Compel Production of Documents, filed October 29, 2021, is denied.