Barger v. Comm'r of Internal Revenue
| Decision Date | 05 February 1976 |
| Docket Number | Docket No. 3026-74. |
| Citation | 65 T.C. 925 |
| Parties | RALPH H. BARGER, JR., A.K.A. RALPH HUBERT BARGER, JR., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Rules 70 and 72, Tax Court Rules of Practice and Procedure.— Petitioner filed a motion to compel respondent, pursuant to Rule 72, to produce: (1) Copies of statements made by petitioner; (2) copies of third-party statements and business records; (3) the special agent's report; and (4) the revenue agent's report. Held, respondent must produce the above documents except to the extent that the impeachment and governmental privilege exceptions to discovery are applicable. Henry Hill, for the petitioner.
Joyce Elaine Britt, for the respondent.
Under date of May 5, 1975, petitioner, pursuant to Rule 72, Tax Court Rules of Practice and Procedure, served on respondent a Request for Production of Documents which request consisted of nine numbered paragraphs and called upon respondent to produce for petitioner's inspection and copying several documents compiled with respect to the above-captioned case. This request called for the production of the following documents:
(1) Copies of statements of petitioner and an individual allegedly made on May 19, 1972, in the presence of respondent's special agent and revenue agent.
(2) Copies of statements of the owner of a motorcycle dealership.
(3) Copies of business records and statements of the owners of a mortuary.
(4) Copies of statements of an individual concerning the purchase of an automobile.
(5) Copies of statements of an individual concerning the purchase of an automobile.
(6) Copies of statements of an individual concerning transactions with petitioner.
(7) Copies of a statement of petitioner allegedly made in October 1975 to a third party concerning his financial position.
(8) Copies of statements of an individual concerning the purchase of an automobile.
(9) Copies of all special agent's reports and revenue agent's reports concerning this case.
Under date of May 28, 1975, respondent responded to this request by making available to petitioner the statements of petitioner requested in paragraph (1) and objecting to the production of all of the other requested documents. Respondent subsequently has stipulated that the information requested in paragraph (6) will not be used at trial because the third party involved cannot be located.
Petitioner then on July 7, 1975, pursuant to Rule 104(b) of this Court, moved for an order compelling respondent to produce the requested documents and asked that a hearing on this motion be scheduled. This request was granted and a hearing was held on September 4, 1975. On September 22, 1975, respondent filed a Motion for Protective Order and a Motion to Strike petitioner's request.
At this hearing testimony was heard from respondent's special agent James W. David (hereinafter Davis) and respondent's revenue agent Richard A. Schmick (hereinafter Schmick). Both parties subsequently filed memorandums in support of their respective positions.
Respondent objects to the production of these documents on several grounds. With respect to the third-party statements and business records he asserts that the individuals interviewed are identified and readily available to petitioner, that the business records sought are not in his possession, and that this information was gathered in anticipation of litigation. This Court has recently issued three opinions that discuss these and other related matters. P. T. & L. Construction Co., 63 T.C. 404 (1974); Branerton Corp., 64 T.C. 191 (1975); Nena L. Matau Dvorak, 64 T.C. 846 (1975).
In Dvorak petitioner sought the production of third-party statements and respondent objected on the grounds that petitioner already had sufficient knowledge of the evidence and that the individuals were readily available for interview. This argument was rejected based on the philosophy stated in United States v. Jerrold Electronics Corp., 168 F.Supp. 146, 148 (E.D. Pa. 1958), and which the Court adopted at page 851 as follows: ‘When the information sought relates to the details of the case against a defendant which will eventually be brought out at trial, as is the case herein, such information should be given.’
Respondent's objection that he is not in possession of the requested business records is misplaced. Clearly only those records that ‘are in the possession, custody, or control of the party on whom the request is served need be produced.’ Rule 72(a)(1), Tax Court Rules of Practice and Procedure. Petitioner, however, is requesting only copies of those records that respondent possesses.
Respondent's final ground is that these documents were obtained in anticipation of the criminal tax litigation instituted against petitioner which includes many of the elements of a civil fraud case. Respondent points to an unbroken chain which includes his privity with the United States and his policy of asserting deficiencies and civil fraud penalties following the criminal tax litigation.
In P. T. & L., this argument was denied partly because the respondent had ‘offered us little to support his claim beyond conclusionary statements to that effect.’ P. T. & L. Construction Co., supra at 408. Trying to perfect his argument, respondent made a more definitive showing in Dvorak, but this Court held that the facts presented did not support his position. Nena L. Matau Dvorak, supra at 850. Respondent believes that a presentation of the facts in this case will support his claim.
The investigation into petitioner's financial affairs began as the result of a newspaper article. Special Agent David and Revenue Agent Schmick were assigned to this case and they conducted a joint investigation. The duties of a special agent include the investigation of alleged criminal violations of the Internal Revenue Code and the gathering of evidence to prove or disprove such allegations. At the conclusion of his investigation a report is written and a recommendation is made. The duties of a revenue agent include the examination of tax returns and the determination of the correct tax liability. At the conclusion of his work a report is written and a recommendation is made.
These men worked together gathering information to be used in their reports. Petitioner did not cooperate in this investigation, and Davis and Schmick used the net worth and expenditures method to reconstruct petitioner's income.
Before writing his report Davis discussed and evaluated the evidence with his group supervisor. At this point a report either recommending or not recommending further prosecution of this case could have been written. Davis then wrote a first draft of his report in which he recommended prosecution. This report was then reviewed by an attorney in the Regional Counsel's office and an attorney in the United States Attorney's office. This review was not part of the regular procedure but was done to expedite the case in view of other actions instituted against the petitioner by other Federal and State authorities.
As a result of this review one additional witness was interviewed and the information obtained was included. The report was not materially altered by this review and it was not prepared at the request of either attorney who reviewed it. The report was then finalized and submitted to the District Director who is the first link in the chain that eventually leads to the Department of Justice.
The report itself is broken into several parts. The first part contains a brief summary of the recommended charges and the years and amounts potentially in issue. There is also a brief history of the taxpayer. The next section contains the method of proof and an explanation of each item included. The final section contains the conclusion that restates the opening recommendations and his opinion that the report should be forwarded for criminal prosecution.
Schmick also prepared a report based on his work. It contained in the first part a brief history of the petitioner, a discussion of some of the issues present, and a recommendation that the civil fraud penalty be imposed. The second part contained his calculation of the proper tax liability due. To substantiate his recommendation Schmick's report referred to Davis' report.
We do not believe that facts as presented in this case should cause us to believe that these third-party statements or records were gathered in anticipation of litigation. Both Davis and Schmick interviewed individuals to gather information from which they could prepare their reports. These documents represent the raw facts which served as the basis for their recommendations. Despite the joint nature of their investigation there is no indication that it led to reports that were special in nature.
We do not believe that the initial review given to Davis' report changes our conclusion. The record clearly indicates that this report was not prepared for either attorney and that only one minor addition resulted. The review was done to expedite the review process, and while this action is not common, at the same time it is not extraordinary. This report, as did Schmick's, ultimately found its way into the normal chain of review. Both Davis and Schmick testified that their recommendations do not represent the final authority as to whether litigation will be initiated. P. T. & L. Construction Co., supra; Nena L. Matau Dvorak, supra.
Respondent has voluntarily produced his records with respect to one statement made by petitioner (par (1)), but objects to the production of another statement (par (7)) on the grounds that it will be used for impeachment purposes. The substance of the statement in issue relates to the status of pe...
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