Opinion
14941-18
02-03-2023
CRAIG K. POTTS & KRISTEN H. POTTS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Cary Douglas Pugh, Judge
This case currently is set for trial on November 6, 2023, in Phoenix, AZ. On September 28, 2022, we heard the parties' arguments on a series of discovery-related motions filed by respondent on August 19, 2022: a Motion to Compel Responses to Interrogatories, a Motion to Compel Production of Documents, and a Motion to Review the Sufficiency of Answers or Objections to Request for Admissions. On October 3, 2022, we ordered the parties to supplement their respective filings relating to these motions, petitioners on November 9, 2022, and respondent on November 16, 2022,to which petitioners responded, also on November 16, 2022. On February 2, 2023, the Court held a conference call with the parties regarding the status of the pending discovery requests.
To put the February 2, 2023, conference call into context we will recap the status of the pending discovery. Respondent's November 16, 2022, status report states that respondent no longer seeks to compel responses to its interrogatories or requests for admissions. Respondent remains unsatisfied, however, with petitioners' explanation for their failure to produce documents responsive to respondent's document requests. Petitioners cite, among the reasons for their failure to secure responsive documents, the death in 2016 of a business associate; a 2017 hurricane; and the fact that their current business manager works from home and lacks a legal background. Apparently concerned by respondent's continued dissatisfaction with their efforts, petitioners supplemented their response on November 16, 2022, to add that they intend to travel to the Turks & Caicos to obtain documents in March 2023. Petitioners also complain again about the expense that they must incur to secure responsive documents.
Petitioners' excuses do not explain why they did not have sufficient time between the filing of their petition on July 31, 2018, and the first time this was set for trial on December 16, 2019, to secure documents responsive to respondent's initial informal discovery requests. And the very real disruptions caused by the pandemic do not explain delays of this duration. On the other hand, we agree that taxpayers should not be required to undertake heroic measures to obtain documents.
If petitioners cannot (or do not attempt to) secure responsive documents, then they will not have those documents for their case. Moreover, as we explained previously, petitioners bear the burden of proving their entitlement to theft losses. Nothing in our October 3, 2022, Order or this Order bars them from continuing to argue (as they have to date) that the documents respondent seeks are not relevant to their case. If we disagree, we may exclude any documents that they produce late. And if they fail to produce documents (or we exclude them as produced late) petitioners will have to demonstrate why their failure to produce those documents should not give rise to a negative inference.
Petitioners maintain that the documents sought are not relevant even though the standard for discovery requests is not "relevance"; the difference between the standard for admissible evidence and for discovery has no effect on our analysis below. Either way, petitioners must accept the consequences of their failure to secure documents prior to November 9, 2022.
Because we do not know whether they will secure any documents, we cannot evaluate whether those documents are relevant to petitioners' or respondent's respective positions, whether the documents were reasonably available to petitioners before November 9, 2022, or whether their late production is prejudicial to respondent. That must be done in the context of trial. That is, the Court will determine at trial whether any sanction for failure to produce documents in compliance with the Court's Orders, such as exclusion from evidence or a negative inference against petitioners, is appropriate.
While the Court stated its position in the February 2, 2023, conference call that call was off the record. This Order is entered to ensure that there is no confusion. Moreover, during the February 2, 2023, conference call respondent reiterated concerns regarding the late production of documents and potential prejudice to respondent and asked for greater clarity from petitioners as to what documents would be produced. Petitioners indicated that the documents were business records but after lengthy discussion agreed to identify categories of documents to respondent within the next two weeks.
Upon due consideration and for cause more fully appearing in the record, it is
ORDERED that petitioners shall, on or before, February 16, 2023, produce to respondent a list of the categories of documents that petitioners expect to produce to respondent on or before March 31, 2023. It is further
ORDERED that petitioners shall, on or before March 31, 2023, file a status report with the Court regarding the status of the production of documents to respondent. That status report shall describe the documents produced and their source and volume and state when each category of documents came into the possession of petitioners.