Opinion
3411-21 6084-21
12-20-2023
DEL MONTE LLC, DEV X INVESTMENT 2015, LLC, TAX MATTERS PARTNER, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda Judge
These consolidated cases are set for trial at the Court's Cleveland, Ohio special session scheduled to begin January 29, 2024. The cases stem from charitable contribution deductions claimed in connection with 2016 donations of conservation easements over historic buildings in Ohio.
Petitioners, Del Monte LLC, Dev X Investment 2015, LLC, Tax Matters Partner and Continental Downtown Properties, LLC, Historic Preservation Fund 2016 LLC, Tax Matters Partner (collectively, petitioners), filed a motion to take deposition pursuant to Rule 74(c)(3), seeking to depose an IRS real-estate appraiser who was involved in both cases before the issuance of the respective notices of deficiency. [Docs. 74-76.] Petitioners assert that the deposition is necessary to obtain material information regarding alleged improper influence by IRS personnel on the IRS appraiser's work in this and other cases, as well as information the IRS appraiser might possess regarding untoward influence on the Commissioner's expert witnesses. [See, e.g., Doc. 74 at 4-17; Doc. 76 at 4-5.] They also contend that the IRS appraiser filed a whistleblower complaint that might show a conflict of interest for the Commissioner's trial counsel, a charge that the Court takes extremely seriously. [Doc. 74 at 17-18.] We will deny petitioners' motion.
Unless otherwise indicated, Rule references are to the Tax Court Rules of Practice and Procedure. "Doc." references are to the docket record in the lead case, Docket No. 3411-21, compiled by the Clerk of the Court, using .pdf pagination.
Nonconsensual depositions are an extraordinary method of discovery.Rule 74(c)(1)(B). Such depositions are available only when ordered by the Court and the testimony sought is relevant, not privileged, and cannot be practicably obtained through other means, such as informal consultation, interrogatories, or document requests. Id.; see also Rule 70(b). When determining whether to exercise our discretion to grant this extraordinary request, we look to factors including whether the movant has established a specific or compelling basis and whether the deposition is intended to serve as merely a stand-in for cross-examination at trial. See, e.g., K & M La Botica Pharmacy, Inc. v. Commissioner, T.C. Memo. 2001-33, 2001 WL 117701, at *4.
We note that the IRS appraiser is not a "party," as required by Rule 74(c)(3). The party opposing petitioners in these cases is the Commissioner of Internal Revenue, who "speak[s]" only "through formal statements of policy[,] such as regulations [and] revenue rulings." Sidell v. Commissioner, 225 F.3d 103, 111 (1st Cir. 2000). We will not hold this error against petitioners, as our order providing for motion practice inadvertently referenced Rule 74(c)(3) rather than Rule 74(c)(2), which governs nonconsensual depositions of nonparty witnesses. [Doc. 62.]
The information sought does not justify a deposition. As an initial matter, "this Court will not look behind a deficiency notice to examine the evidence used or the propriety of [the Commissioner's] motives . . . in making his determinations." Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974). The information sought by petitioners relating to the internal back-and-forth that produced the appraisal in the examination phase of these cases is simply not relevant to the questions before us in these deficiency proceedings. As we have explained before, "our determination as to a [taxpayer's] tax liability must be based on the merits of the case and not any previous record developed." Id. at 328.
Petitioners fare no better with the other grounds on which they rely. They contend that there was a pattern of IRS improper influence on the work of internal appraisers in other cases. Again, we see no relevance given that we review the disallowance of the claimed deduction de novo. Sego v. Commissioner, 114 T.C. 604, 609-10 (2000). Whether or not the IRS committed bad acts in the examination phase of other cases is neither here nor there for determining the deductibility of the conservation easement donations in these cases and, to the extent necessary, the value of the easements.
Nor are we persuaded that the IRS appraiser has any discoverable information regarding the Commissioner's experts. Although petitioners suggest that the IRS appraiser might possess inside information regarding untoward influence on the Commissioner's experts slated for trial, the IRS appraiser's declaration expressly rejects this contention. Petitioners will have the opportunity to explore the instructions and limitations provided to the Commissioner's experts, and we see nothing to be gained from deposing the IRS appraiser on a point on which the IRS appraiser swore to a total lack of knowledge. [Doc. 93 at 11.]
Finally, the IRS appraiser has sworn that the whistleblower complaint that was filed "does not allege [that] IRS counsel improperly interfered with exam's valuation" [Doc. 93 at 42], as was the gravamen of petitioners' claim. We have significant concerns about petitioners' obtaining a protected whistleblower complaint, linking it to a specific employee, and then attempting to use vague allegations to force a deposition (thereby outing the whistleblower in the process). Our concern is heightened given apparently unfounded aspersions of improper conduct by various attorneys-a very serious charge. We trust that in future cases, counsel before us will recognize that such murky allegations (especially those from a protected source) will not unlock the gate to extraordinary methods of discovery.
It is accordingly
ORDERED that petitioners' motion to take deposition pursuant to Rule 74(c)(3) [Doc. 74] filed October 27, 2023, is denied.