A Tax Court Procedural Anomaly: the Trial Subpoena Duces Tecum, Designated Orders July 29 – August 2

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Subpoenas, morphing motions and a protestor’s use of the Tax Court judgment finality rule were covered in orders issued during the week of July 29th. Judge Leyden also made sincere efforts to help petitioners help themselves and prevent dismissal of their case (here), and the petitioners heeded her advice.

Docket No. 19502-17, Cross Refined Coal, LLC, U.S.A. Refined Coal, LLC, Tax Matters Partner v. C.I.R. (order here)

This first order was not actually designated, but Bob Kamman raised it as one that perhaps should have been, because it involves a distinctive aspect of Tax Court procedure: the trial subpoena duces tecum.

Information and documents can (and should) be requested well in advance of trial but if they are not provided, then the mechanism available to the parties to demand the production of documents is with a trial subpoena duces tecum. Section 7456(a)(1) requires subpoenaed third parties to appear and produce discovery-related documents at the “designated place of hearing,” rather than some other location at another time as allowed by other Courts (see Fed. R. Civ. P. 45). The rule is in contrast with typical Tax Court procedures that encourage the parties to exchange information informally and as early as possible.

In this order, the petitioner moves to quash the trial subpoenas that the IRS served on six non-parties. Petitioner argues that the issuance of subpoenas is the IRS’s attempt to obtain discovery from petitioner in violation of Rule 70(a)(2), which requires that discovery between parties be completed no later than 45 days prior to the calendar call date. The Court disagrees that the rule applies because the subpoenas were served on non-parties, rather than the petitioner or another party in the case.

Petitioner’s issue with the subpoenas is the IRS’s timing. The subpoenas were served on the non-parties 25 to 21 days before the calendar call, and since the subpoenas order the non-parties appear at trial it means there may be very little time for the petitioner to review any newly produced documents.

A rule governing the timing for subpoenas does not seem to exist in the Code or Tax Court rules. The Tax Court’s website suggests that the subpoena form can be obtained from the trial clerk at the trial session (it is also available on the Tax Court’s website, here). There are some references to timing in the Internal Revenue Manual which instructs IRS employees that, “[t] he time for the issuance of necessary subpoenas will vary from case to case depending to a large extent upon the finalization of stipulations,” and “[t]o be effective in enforcing the attendance of the witness, a subpoena must be served on the witness a reasonable time in advance of its return date. A ‘reasonable time’ will vary from witness to witness depending upon the location of the residence of the witness and the place of trial and, in the case of a subpoena duces tecum, the nature of the documents and records called for by the subpoena.” I.R.M. 35.4.4.4.1.1

The Court points out that its standing pretrial order requires exhibits be exchanged before trial, but an exception to the requirement can be made if the documents are received from a third-party at the trial session, when the proffering party had no prior opportunity to receive and exchange them.

That being said, the Court is somewhat suspicious of the IRS’s timing in this case and states, “[i]f respondent’s use of the subpoenas in this case were to result in a large number of previously undisclosed documents being offered at trial, we would expect to inquire about whether the last-minute production of the documents was actually imposed on respondent through no fault of his own, or whether instead the subpoenas were a blameworthy last-minute attempt to obtain documents that he could have attempted to obtain in time to comply with the standing pretrial order.”

The Court also sympathizes with petitioner’s concerns, but believes they are premature – because it is not guaranteed that the third parties will submit documents nor that the IRS will offer any submitted documents into evidence. Petitioner will still have the option to object later if the information produced by the subpoenas results in prejudice.

The flip side of the subpoena issue involves the timing of their return.  Neither the IRS nor a taxpayer who issues a subpoena duces tecum has the ability to force the third party to provide the documents prior to calendar call.  While the IRS could have summoned the documents prior to issuing the notice of deficiency, once in Tax Court the summons procedure no longer applies.  It may be fair to fault the IRS for not using its summons power to obtain necessary third party information prior to issuing the notice but if the need for the third party documents does not become apparent until after the notice has gone out, the IRS has no way to force the third party to turn over the documents before calendar call.  This is not ideal for either party since neither party may know what the documents will provide.  Usually, a party issuing a subpoena duces tecum will try to get the recipient of the document to produce the documents before calendar call in order to avoid the problem of having to come down to court.  This informal process can circumvent the problems described here.  However, if the third party does not want to turn over the documents until calendar call, the party seeking the documents does not have easy tools in the Tax Court to force their hand prior to calendar call.

Docket Nos. 17038-18L & 17353-18L, The Diversified Group Incorporated, et al. v. C.I.R. (order here)

Next up is yet another section 6751(b)(1) case, in a consolidated docket, addressing the timeliness standard established in Clay, but this order also involves the application of a Tax Court rule that allows the Court to treat the petitioners’ motion for judgment on the pleadings as a motion for summary judgment. This is permissible when matters outside the pleadings are presented to the Court, and not excluded, which then allows the motion to be governed by Rule 121.

A judgment on the pleadings is appropriate when it is clear from the pleadings themselves that the case presents no genuine issues of fact and only issues of law. The basis for the judgment is limited to the pleadings and admissions already presented, so there is no option to present additional information.

A motion for summary judgment is appropriate when there are issues raised by the pleadings, but the issues are not genuine issues of material fact and the moving party is entitled to judgment as a matter of law. A motion for summary judgment can address matters outside of the pleadings and the parties are given a reasonable opportunity to present all information pertinent to the motion pursuant to Rule 121.

In this case, petitioners moved for a judgment on the pleadings because the IRS included proof that it had met the timeliness standard under Graev III in the pleadings, but the time frame established by the pleadings is too late under Clay. In response, however, the IRS presented (and the Court did not exclude) the declaration of the immediate supervisor of the revenue agent involved in the case, and exhibits showing that supervisory approval was obtained much earlier than the date on the Form 8278 included in the pleadings. The Court finds the IRS’s information sufficient to raise a genuine issue of material fact regarding when, and in what fashion, managerial approval was obtained. As a result, the Court denies the petitioners’ motion for summary judgment.

Docket No. 335-19, Jalees Muzikir v. C.I.R. (order here)

In this designated order, the IRS’s motion for judgment on the pleadings is granted. Petitioner had previously filed a “years petition” for the year at issue. According to a footnote in the order, “a ‘years petition’ does nothing other than allege that for a substantial number of consecutive taxable years the taxpayer did not receive any jurisdictionally-relevant IRS notice, such as a notice of deficiency or a notice of determination, that would permit an appeal to the Tax Court. A ‘years petition’ is the manifestation of protest from tax deniers and tax protestors.” The case petitioner instituted with the “years petition” was dismissed for lack of jurisdiction, but then he subsequently received a notice of deficiency for one of the years which is the year at issue in this order.

Petitioner argues that since the Court dismissed his initial case, the IRS doesn’t have jurisdiction over the year at issue now because of the Tax Court judgment finality rule under section 7481. The Court disagrees with this analysis and grants the IRS’s motion, because petitioner did not raise any issues other than the IRS’s lack of jurisdiction.

About Samantha Galvin

Samantha Galvin is an Associate Professor of the Practice of Taxation and the Director of the Low Income Taxpayer Clinic (LITC) at the University of Denver. Professor Galvin has been teaching full-time at the University of Denver since October of 2013 and teaches courses in tax controversy representation, individual income tax, and tax research and writing. In the LITC, she teaches, supervises and assists students representing low income taxpayers with controversy and collection issues.

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