Opinion
7118-19
12-18-2023
DANIEL S. JACOBS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Emin Toro Judge
Now before the Court are two Motions: petitioner Daniel S. Jacobs' Motion to Compel Discovery (Doc. 71) and his Motion for Continuance of Evidentiary Hearing (Doc. 73). The Commissioner filed objections to both Motions (Docs. 76 & 77). On December 13, 2023, the Court held a remote hearing (Hearing) during which both parties appeared and were heard regarding the pending Motions.
At the Hearing, the Court explained that the question whether the Commissioner's litigating position is "substantially justified" under section 7 4301 requires an objective inquiry. The U.S. Court of Appeals for the Ninth Circuit has explained the relevant test as follows:
The statutory phrase "substantially justified" means "'justified in substance or in the main'-that is, justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. at 565. "That is no different from the 'reasonable basis both in law and fact' formulation ... To be 'substantially justified' means, of course, more than merely undeserving of sanctions for frivolousness ..." Id. at 565-66.Huffman v. Commissioner, 978 F.2d 1139, 1147-48 (9th Cir. 1992) (emphasis added), as amended (Dec. 4, 1992), aff' in part, rev'g in part T.C. Memo. 1991-144; see also Lewis v. United States, 144 F.3d 1220, 1222 (9th Cir. 1998) ("The test for
1 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. whether the government's position is substantially justified is whether a reasonable person would think the government's position was reasonable.").
Additionally, the Court expressed reservations concerning petitioner's view that Rule 33(b)'s requirement that parties make "reasonable inquiry" when preparing their pleadings affects the analysis with respect to the "substantially justified" standard under section 7430. The former is directed towards the parties' conduct during the litigation before our Court, and violations of the rule may cause the Court, in its discretion, to apply appropriate sanctions. The latter is a statutory rule that entitles a prevailing party to attorney's fees as a matter of law if, among other things, the government's position (as opposed to its conduct) is not substantially justified. Given that petitioner has moved for fees under the latter, the Court fails to see why respondent's obligations under Rule 33(b) affect the analysis in these proceedings. Compare Fink v. Gomez, 239 F.3d 989, 992-94 (9th Cir. 2001) (applying a subjective bad faith standard to analyze the court's inherent authority to impose sanctions), with Kenney v. United States, 458 F.3d 1025, 1032- 34 (9th Cir. 2006) (applying an objective "reasonable person" standard to analyze a taxpayer's entitlement to fees under section 7430).
Furthermore, as the Court noted in its November 7, 2023, Order, the Ninth Circuit was specific as to the task on remand. Our task is "to consider the merits of Jacobs' claim that, in light of the information the CIR had received in the administrative proceedings, the CIR's litigation position was unreasonable." Jacobs V. Commissioner, No. 21-71211, 2022 WL 16707186, at *2 (9th Cir. Nov. 4, 2022). This is clear in light of the Ninth Circuit's observation that "Jacobs contends that the information provided to the CIR during the administrative proceedings made it unreasonable for the CIR to file an answer denying the allegations in his petition." Id. Thus, our focus must be on "the information provided to the CIR during the administrative proceedings" and "the information the CIR had received in the administrative proceedings." Based on our review of that information, we would discern what the Commissioner actually "learned" or (if the Commissioner had reviewed the information carefully as a reasonable person would) "should have learned" about Mr. Jacobs' position. Id. And that in turn informs the analysis whether a reasonable person would find the Commissioner's answer reasonable. See also Lewis, 144 F.3d at 1222. But our task does not include determining whether the administrative proceedings should have been conducted differently than they were. Nor does our task include deciding what the Commissioner might or might not have learned if the administrative proceeding had been conducted differently. The focus of the remand proceedings, based on the Ninth Circuit's direction, is on the information Mr. Jacobs had already provided and the Commissioner had already received at the time the Commissioner filed the Answer. In evaluating the requests in the Motions, we keep this task firmly in mind.
If the parties wish to be heard further on these points, they will be free to brief them following the hearing calendared for January 30, 2024.
Regarding the Motions now before us, the Court observes as follows:
Interrogatory #1: Petitioner agrees that respondent properly answered the interrogatory, Pet'r's Mot. Tfl3 n.2, so this request is moot.
Interrogatory #2: The Court views respondent's identification of Laura Mullin and Michael Park, with Mr. Park's clarifying comments during the Hearing, as sufficient to answer this interrogatory. The Court will not require a narrative describing the dates or hours Ms. Mullin and Mr. Park worked on the Answer, but will require the production of time logs, with appropriate redactions, as described below.
Interrogatory #3: While the Court views these materials as having, at best, marginal relevance to the issue before us, the Court will order a response to this request in that respondent will describe what time logs it maintains that reflect respondent's employees' work on the Answer.
Interrogatory #4: The Court views any further response to this interrogatory as unnecessary given the needs of this case and the materials that will be provided in response to Interrogatory #3 and Document Request #1.
Interrogatory #5: Petitioner agrees that respondent's answer, as supplemented during the hearing to confirm that respondent did not undertake any independent inquiry beyond reviewing the Administrative File, is adequate, so this request is moot.
Interrogatory #6: Petitioner's request will be denied on relevance grounds.
Interrogatory #7: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that respondent's counsel did not contact petitioner to request oral substantiation while preparing the Answer, is adequate, so this request is moot.
Interrogatory #8: Petitioner's request will be denied on relevance grounds.
Interrogatory #9: Petitioner agrees that respondent's answer, as supplemented during the Hearing by Mr. Park, is adequate, so this request is moot.
Interrogatory #10: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that respondent's counsel did not contact petitioner while preparing the Answer, is adequate, so this request is moot.
Interrogatory #11: Petitioner agrees that respondent's answer, as clarified during the Hearing, is adequate, so this request is moot.
Interrogatory #12: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that there are no annotations in the Administrative File that would yield insights as to other information respondent's counsel gathered, is adequate, so this request is moot.
Interrogatory #13 & 14: Petitioner's request will be denied on relevance grounds because this request asks for the subjective views of respondent's counsel.
Interrogatory #15: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that respondent's counsel did not review any documents outside the Administrative File at the time the Answer was filed, is adequate, so this request is moot.
Interrogatory #16: The Court will order respondent to answer this interrogatory more fully to describe documents in the IRS's possession at the time of the Answer related to this case that were not included in the Administrative File and why they were not included in the Administrative File.
Interrogatory #17: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that no efforts were undertaken other than acquiring and reviewing the Administrative File, is adequate, so this request is moot.
Interrogatory #18: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that respondent still believes the Administrative File is complete because any omitted materials are irrelevant, is adequate, so this request is moot.
Interrogatory #19: The Court views respondent's confirmation during the Hearing that Mr. Park and Ms. Mullin were not in possession of the Executive Summary at the time the Answer was filed, and that at least one other individual at the IRS was in possession of it, as adequate for the needs of this case.
Interrogatory #20: Petitioner's request will be denied because it is not relevant, is disproportionate to the needs of the case, and would require disclosing information in contravention of section 6103.
Interrogatory #21 & 22: Petitioner's request will be denied on relevance grounds.
Interrogatory #23, 24, & 25: Petitioner's request will be denied because the Appeals Case Memorandum already produced is sufficient given the needs of this case and the questionable relevance of the requested information.
Document Request #1: The Court will order respondent to produce the materials that it describes in response to Interrogatory #3 to the extent not already produced. Section 6103 information related to other taxpayers shall be redacted.
Document Request #2: The Court views respondent's answer, as supplemented during the Hearing to confirm that respondent's counsel did not contact petitioner to request oral substantiation while preparing the Answer, as adequate to resolve this request.
Document Request #3: Petitioner's request will be denied on relevance grounds.
Document Request #4: The Court will order respondent to produce respondent's counsel's written communications made before the Answer was filed regarding the preparation of the Answer. No production is required with respect to oral communications.
Document Request #5: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that respondent's counsel did not contact petitioner while preparing the Answer, is adequate, so this request is moot.
Document Request #6: The Court views respondent's answer, as supplemented during the Hearing to confirm that (1) respondent's counsel reviewed all the materials in the Administrative File, and (2) there are no annotations in the Administrative File that would yield insights as to other information respondent's counsel gathered, as sufficient to resolve this request.
Document Request #7: Petitioner agrees that respondent's answer, as supplemented during the Hearing to confirm that respondent did not review any documents not included in the Administrative File when preparing the Answer, is adequate, so this request is moot.
Document Request #8: The Court will order respondent to produce any responsive documents not already in petitioner's possession, including, if they exist, the November 7, 2018, Executive Summary prepared by Linda Shanks, the report of the Tax Inspector General for Tax Administration, and the Case Activity Report ("CAR") subsequent to January 31, 2019, described in petitioner's Motion. Pet'r's Mot. 1 30.
In view of the foregoing and for reasons appearing more fully in the transcript of the Hearing, it is hereby
ORDERED that petitioner's Motion to Compel Discovery (Doc. 71) is denied in part as moot with respect to Interrogatories # 1, 5, 7, 9, 10, 11, 12, 15, 17, 18, as well as Document Requests # 5 and 7. It is further
ORDERED that petitioner's Motion to Compel Discovery (Doc. 71) is granted in part in that, on or before December 29, 2023, respondent shall supplement its answers to Interrogatories # 3 and 16, as well as Document Requests # 1, 4, and 8, consistent with the Court's discussion above. It is further
ORDERED that petitioner's Motion to Compel Discovery (Doc. 71) is denied in all other respects. It is further
ORDERED that petitioner's Motion for Continuance of Evidentiary Hearing (Doc. 73) is denied.