Opinion
5310-22
01-31-2024
CARL B. BARNEY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler Judge
This case is calendared for trial at a special session of the Court, commencing on November 4, 2024, in Los Angeles, California.
On November 17, 2023, the parties filed the First Stipulation of Facts. Simultaneously with the First Stipulation of Facts, petitioner filed a Motion for Protective Order pursuant to Rule 50 and Rule 103. By Order dated November 29, 2023, we directed respondent to file a response to petitioner's Motion for Protective Order. On December 20, 2023, Respondent filed his Objection to petitioner's Motion for Protective Order.
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.
Petitioner's Motion for Protective Order seeks to seal certain exhibits to the First Stipulation of Facts, including tax returns, third-party financial information, and confidential agreements. Petitioner argues that the exhibits contain confidential return information protected under section 6103. Additionally, petitioner argues some exhibits contain confidential information which is not relevant to any issues in the case. Petitioner argues some information contained in the exhibits is protected by a constitutional right to privacy and other information is subject to confidentiality agreements.
Respondent argues that the tax returns petitioner is attempting to seal are either his own tax returns or returns of petitioner's own wholly owned entities which are central to the resolution of issues in this case. This case concerns petitioner's tax liability arising from a 2012 transaction involving the merger of petitioner's wholly owned S corporations. Petitioner chose how to report this transaction on the returns of the S corporations, and the reporting then flowed through to his individual return. Respondent claims that petitioner did not demonstrate any potential harm that would occur if the exhibits were made public, and petitioner did not show that the purportedly confidential exhibits were kept and remained confidential.
Rule 103(a) allows this Court to make any protective order when "justice requires to protect a party or other person from annoyance, embarrassment, oppression, or undue burden or expense." Generally, tax returns and return information shall be confidential. I.R.C. § 6103. However, section 6103(h)(4) allows for the disclosure of return information in a Federal judicial proceeding pertaining to tax administration when: (1) the taxpayer is a party to the proceeding; (2) the treatment of an item reflected on a return is directly related to the resolution of an issue in the proceeding; or (3) the return directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding. We find that the purportedly confidential information falls into the 6103(h)(4) exceptions, and disclosure of such information is allowed in relation to the instant federal judicial proceeding. We further find that petitioner has failed to meet his burden and establish both the confidential nature of these exhibits and the expected harm from their release into the public. Willie Nelson Music Co. v. Commissioner 85 T.C. 914, 925 (1985)
Considering the foregoing, it is ORDERED that petitioner's Motion for Protective Order Pursuant to Rule 50 and Rule 103 is denied.