Opinion
17076-21
02-06-2023
J L MINERALS, LLC, BEASLEY TIMBER MANAGEMENT, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Patrick J. Urda Judge
This case is calendared for trial at the Court's special session in Atlanta, Georgia, beginning February 27, 2023. Petitioner, J L Minerals, Beasley Timber Management, LLC, Tax Matters Partner (JL Minerals), challenges a Notice of Final Partnership Administrative Adjustment (FPAA) that (1) disallowed a charitable contribution deduction with respect to JL Minerals' donation of a conservation easement and (2) determined penalties under sections 6662 and 6662A of the Internal Revenue Code. [Doc. 1.]
Before the Court are two motions to compel filed by JL Minerals. [Docs. 36, 51.] The parties have narrowed their dispute in this regard to a handful of interrogatories and document requests. [Doc. 181.] We will grant the motion to compel responses to interrogatories in full and the motion to compel document production in part.
Background
The following facts are derived from the parties' pleadings, motion papers, and declarations and exhibits attached thereto. They are stated solely for the purpose of deciding the pending motions and not as findings of fact in this case.
In December 2015, Jackson Lake Plantation, LLC (Jackson Lake), purchased 644 acres of land in Wilkinson County, Georgia, for $1,600,000. [Doc. 1, ¶9(g), (i); Doc. 54, Ex. C p.4.] Before the purchase, this land had been used primarily for hunting and as timberland. [Doc. 1, ¶9(g), (i).]
Shortly after acquiring the property, Jackson Lake contributed a 64.7-acre tract (the property) to JL Minerals, a Georgia-based limited liability company that operated as a partnership for federal income tax purposes during all relevant times. [Doc. 1, ¶¶2, 9(g).] In 2017, JL Minerals donated a conservation easement over the property to Heritage Preservation Trust, Inc., and claimed a charitable contribution deduction of $16,745,000 on its 2017 Form 1065, U.S. Return of Partnership Income. [Doc. 26 at 30.] JL Minerals based this deduction amount on the purported value of deposits on the property of kaolin, an alumina-silicate mineral used in the production of paper, porcelain, paints, and other products. [Doc. 1, ¶9(k).]
The IRS thereafter investigated JL Minerals' 2017 tax reporting, which culminated in the issuance of an FPAA that disallowed the claimed deduction and determined penalties. [Doc. 1 at 26-30.] Specifically, the FPAA took the position, inter alia, that JL Minerals failed to establish that it made a contribution that "satisfied all the requirements of [section 170] and the corresponding Treasury Regulations for deducting a noncash charitable contribution." [Id.]
Discussion
I. Discovery Standard
Rule 70(b) permits discovery concerning "any matter not privileged and which is relevant to the subject matter involved in the pending case." The party objecting to discovery has the burden of establishing that the information sought is not relevant or otherwise not discoverable. See 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).
II. Analysis
A. Motion To Compel Responses to Interrogatories
Rule 71(b) provides that answers to interrogatories "shall be made . . . as completely as the answering party's information shall permit" subject to the requirement that the answering party "make reasonable inquiry and ascertain readily obtainable information."
In the disputed interrogatories, JL Minerals inquired into the Commissioner's bases for any contention that (1) "the U.S. Department of Agriculture - Natural Resources Service . . . soil conservation policy fails to constitute 'a clearly delineated governmental conservation policy' . . . applicable" to the property at issue [Interrogatory 8], (2) certain designated areas of the property "do not constitute significant relatively natural habitats" [Interrogatory 10a], and (3) protection of those habitats is not pursuant to 'a clearly delineated governmental conservation policy'" [Interrogatory 10b]. [Doc. 36.] The Commissioner objected that the interrogatories called for attorney-work product and that he needed to continue discovery to "fully develop a response" to these interrogatories. [Doc. 36, Appendix IV.]
We will grant the motion to compel as to these interrogatories. Contention interrogatories, as were propounded here, are well within the bounds of discovery, serving to clarify and narrow the issues in dispute. See, e.g., Zaentz v. Commissioner, 73 T.C. 469, 477-78 (1979); Rule 70(b). Moreover, the practical reasons the Commissioner gave for not previously responding to the interrogatories are no longer applicable: fact discovery is complete and the initial expert reports have been lodged. Trial is near, and we see no reason that the Commissioner cannot identify the contentions he intends to rely upon and the bases for those contentions. We will give him seven days to do so.
B. Motion To Compel Production of Documents
JL Minerals also seeks to compel the production of documents with respect to either the contention that (1) "the right to control invasive species of plants and other vegetation damages (as opposed to enhances) a relatively natural habitat" [Request 15], or (2) "Section 170 requires that [JL Minerals] must protect every inch of the [p]roperty in light of the binding Eleventh Circuit precedent in Pine Mountain" [Request 16]. The Commissioner answers, among other things, that he "has previously provided . . . the complete administrative file in this case," which "contains all documents in [his] possession used to support [his] position that [JL Minerals] failed to satisfy the requirements of section 170(h) to claim a noncash charitable contribution." [Doc. 51, Appendix II.]
We will accept the Commissioner's answer that he has produced all documents responsive to these requests. We will grant a portion of the relief sought by JL Minerals, however, and prohibit the Commissioner from offering or producing at trial any documents responsive to these two requests that it did not produce during discovery (aside from expert reports and supporting materials).
Upon due consideration, it is
ORDERED that JL Minerals' motion to compel responses to interrogatories, [Doc. 36], filed on October 31, 2022, is granted and the Commissioner shall supplement its responses to Interrogatories 8 and 10 within seven days of this Order. It is further
ORDERED that JL Minerals' motion to compel production of documents, [Doc. 51], filed on December 12, 2022, is granted in part in that the Commissioner is hereby prohibited at trial, without leave of this Court, from introducing into evidence any documents responsive to JL Minerals' requests that were not previously disclosed. JL Minerals' motion to compel production of documents is denied in all other respects.