Serving Subpoenas: Designated Orders 12/23/19 to 12/27/19

The designated order in this case is short, only three pages.  The case itself does not have terribly much connection to the focus on subpoenas.  It deals with the petitioner’s claim of identity theft regarding a Form 1099-C issued by Bank of America, which led to a statutory notice of deficiency regarding cancellation of debt income attributed to the petitioner.

What happened in the order?  It concerns the case’s trial scheduled for January 13, 2020, in Washington, D.C.  On December 16, 2019, the IRS filed a motion for an order permitting them to issue a subpoena duces tecum directing Bank of America to produce documents to them on a date prior to the January 13, 2020 calendar.  Mr. Johnson did not oppose the motion, but the Court denied the IRS motion.

Why is that?  First, looking at the motion, it explains the IRS motivations regarding the subpoena duces tecum.  Actually, the IRS originally served on Bank of America a subpoena duces tecum after the case was set for trial, using Form 14 from the Rules of the Tax Court as a means to obtain documents for use at trial.  Bank of America informed them that they would not release documents before the date specified of January 13.  The IRS admitted that they were unable to specify any other date than the calendar call date listed.  Bank of America personnel advised they would “happily comply” if the subpoena duces tecum specified an earlier date.

That is why the IRS filed their motion.  They would like to receive the documents with enough time to review them and follow up if the documents were not compliant or otherwise direct them to further discovery or other relevant information.  They stated in the motion how it would benefit everyone involved if the Court could just move the date up that they received the documents.  Bank of America would not need to make a personal appearance in court.  The parties could have settlement discussions that might avoid judicial involvement or trial.

In Judge Gustafson’s discussion of the case, he compares Rule 45 of the Federal Rules of Civil Procedure (not applicable to the U.S. Tax Court) with Rule 147 of the U.S. Tax Court Rules.  They both permit litigants to use a subpoena to require a third party to appear at trial (or a pre-trial deposition) to testify or use a subpoena duces tecum to produce documents at such a trial or deposition.

Where they differ is that Rule 45 of the Federal Rules allows a litigant to use a separate subpoena to require a third party to produce documents prior to trial, apart from the scheduling of any hearing or deposition.  This is in effect what the IRS attempted and the judge states it is not an unreasonable request, and granting the request might yield the anticipated benefit.

The issue is that Rule 147 of the U.S. Tax Court Rules does not contain a similar authorization.  Turning to Internal Revenue Code section 7456(a), it provides that Tax Court judges may require by subpoena the production, among other items, of all necessary documents at any designated place of hearing.  There is a note that this authorization is different from, and apparently narrower than, the authority given to the Court of Federal Claims.  As a result, a Tax Court litigant may serve on a third party a subpoena to produce documents at a trial session and, at that session, may call on the Court to enforce the subpoena.

Judge Gustafson includes some suggestions for litigants.  A litigant that served a subpoena duces tecum on a third party could ask them to voluntarily produce the documents before a trial session and, if they comply, excuse them from appearing at the trial session.  Also, a litigant that served such a subpoena duces tecum could request the Court for a phone conference with the parties and counsel for the third parties to encourage voluntary early production of documents.  However, given the wording of IRC 7456(a), the subpoena duces tecum of a sort the IRS requested is not authorized so the motion was denied.

Takeaway:  The process of obtaining documents from third parties provides another example of how the Tax Court differs from other courts. A legislative change to allow amendment of the Tax Court rules to provide the flexibility for obtaining documents similar to the flexibility that exists in other federal courts would seem appropriate. Judge Gustafson’s suggestions for how to work around the problem make sense and provide examples of the work arounds that have been used by litigants for years. Why not stop the need for work arounds of this type and create a system that allows for a logical flow of information in a fashion that would reduce the need for the parties to run up to the moment of trial without necessary information.

For further information on subpoenas, turn to Tax Court Rule 147 and Form 14 (the subpoena form available on the Tax Court website).  Some advice I found from a private practitioner is that a volunteer can serve 5 subpoenas before needing to get licensed and that the Tax Court no longer stamps the subpoenas.  With paying clients, use a process server but cost depends on difficulty of service.  For further Procedurally Taxing reading on subpoenas, turn here, here and here.