Opinion
4582-21
07-14-2022
STANLEY C. KLATKA & CHRISTINA L. KLATKA, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Adam B. Landy, Special Trial Judge.
On July 26, 2021, petitioners filed an Application for Order to Take Deposition to Perpetuate Evidence. Respondent filed an objection to the application on August 31, 2021. Thereafter, petitioners filed a Motion to Compel Appearance for Depositions to Perpetuate Evidence on October 1, 2021, and respondent filed an objection to the motion on October 21, 2021.
Petitioners seek an application, pursuant to Rule 81, to depose four IRS employees who participated in their income tax examination for the taxable year at issue. Petitioners argue that the depositions are necessary "to prevent undue and excessive expense to all parties". Petitioners seek to perpetuate the employees' testimony as to (1) how much time was spent on petitioners' examination, (2) what documents were reviewed by the employees during the examination, and (3) how the employees came to the examination conclusions as outlined in the notice of deficiency, dated October 26, 2020. In their Motion to Compel, petitioners argue that the Court should grant their application for depositions "to perpetuate evidence that could be lost due to witnesses not being employed by the IRS any longer, and/or because witnesses may not be located if the depositions are delayed." (Emphasis added)
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent filed an objection to the application and to petitioners' motion for the following reasons: (1) petitioners have not made a showing that there is a substantial risk that any of the requested deponents or material will not be available at trial, (2) petitioners have not shown that the requested deponents and materials are "material to a matter in controversy" and "not privileged", (3) petitioners' request for depositions is premature as provided by Rule 74(c)(1), and (4) any request for a deposition, pursuant to Rules 74 or 81, is premature because the parties have not meaningfully engaged in informal discovery and petitioners have failed to respond to respondent's attempts for informal discovery.
In his two objections filed, respondent seems to also construe petitioners' Application for Order to Take Deposition to Perpetuate Evidence also as depositions for discovery purposes subject to Rules 70 and 74.
Rule 74(a) states that a party may obtain discovery by depositions with the consent of the parties under Rule 74(b) and without the consent of the parties under Rule 74(c). Paragraph (c) of Rule 74 states that a deposition without consent of the parties may be taken only after a notice of trial has been issued or after a case has been assigned to a Judge or Special Trial Judge of the Court and within the time to complete discovery. Taking a deposition is an extraordinary method of discovery and is to be used only when the testimony or documents cannot be communicated through informal consultation and communications. Id.; see also Rules 71, 72, and 74(b).
There are three additional factors to be weighed to determine if a party should be permitted to take a deposition without consent: (i) whether the movant has established a specific and compelling basis for the deposition; (ii) whether the movant intends for the deposition to serve as more than a substitute for cross-examination at trial; and (iii) whether the movant has had a prior opportunity to obtain the desired information or could obtain it through other means or from another source. See K & M La Botica Pharmacy, Inc. v. Commissioner, T.C. Memo. 2001-33, at *3-4.
Rule 81 permits a party who desires to perpetuate testimony, or to preserve any document, electronically stored information, or thing, to file an application pursuant to these Rules for an order of the Court authorizing such party to take a deposition for that purpose. Rule 81(a) states that such a deposition shall only be taken where there is a substantial risk that the person or document, electronically stored information, or thing will not be available at the trial of the case.
The sole issue in the case is whether petitioners are entitled to deductions claimed on Schedule A attached to their Form 1040 return. Petitioners have the burden of proof to show their entitlement to the deductions claimed. See I.R.C. § 7491; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Rule 142. The Court has not issued a notice setting this case for trial or assigned this case to a judge. Petitioners have not established a specific and compelling need for the deposition of the IRS employees and have not shown that they do not intend for the depositions to serve as a substitute for cross-examination at trial. Although these employees may have knowledge as to petitioners' examination, petitioners have not shown that the evidence sought cannot be obtained through informal communication between the parties. See Rule 74(c)(1)(B).
Respondent has conceded that petitioners are not liable for the accuracy-related penalty, pursuant to I.R.C. § 6662(a), after application of I.R.C. § 6751(b).
Respondent states that petitioners have failed to respond to his attempts for informal communication and to provide them with informal discovery.
Petitioners also have not made a showing that there is a substantial risk that any of the requested deponents or material sought will not be available at trial. Furthermore, petitioners have not successfully (1) shown the reasons for deposing the four employees rather than waiting to call them as witnesses at the trial or (2) provided a statement of how the proposed testimony or document, electronically stored information or thing is material to the matter in controversy. See Rule 81(b)(1)(B), (D).
Petitioners have not met their burden to depose the IRS employees at this time under Rule 74 or Rule 81. Upon due consideration of petitioners' application and motion and for cause, it is
ORDERED that petitioners' Application for Order to Take Deposition to Perpetuate Evidence, filed July 26, 2021, is denied. It is further
ORDERED that petitioners' Motion to Compel Appearance for Depositions to Perpetuate Evidence, filed October 1, 2021, is denied.