Dvorak v. Comm'r of Internal Revenue, Docket No. 7480-73.

• Decision Date: 07 August 1975
• Docket Number: Docket No. 7480-73.
• Citation: 64 T.C. 846
• Parties: NENA L. MATAU DVORAK, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

64 T.C. 846

NENA L. MATAU DVORAK, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 7480-73.

United States Tax Court

Filed August 7, 1975.

Joel Yonover, for the petitioner.

Alan M. Jacobson, for the respondent.

Rules 70 and 72, Tax Court Rules of Practice and Procedure.— Petitioner filed a motion under Rule 72 for production of third-party affidavits taken by special agents of respondent. Held, the affidavits were not prepared in anticipation of litigation and are accordingly not protected by the ‘work product’ doctrine. P. T. & L. Construction Co., 63 T.C. 404 (1974), followed.

OPINION

WILES, Judge:

Respondent has objected to petitioner's motion under Rule 72, Tax Court Rules of Practice and Procedure,¹ for production of three affidavits of third parties taken by special agents of respondent.

This case began when the Intelligence Division of the Internal Revenue Service investigated Milton N. Baromich (hereinafter Baromich) for filing false income tax returns for 1963 through 1965. During those years, Baromich was trustee of Calumet Township, Lake County, Ind. He failed to report kickbacks received from grocery store owners handling poor relief food orders issued by his office, resulting in his indictment for filing false income tax returns for 1963 through 1966. He pleaded guilty for 1963 and was sentenced on March 12, 1971.

Before sentencing, the court ordered Baromich to furnish information regarding kickbacks received by employees in his office while he was trustee. Petitioner, an employee of that office from 1964 through January 1966, was named by Baromich as being such a recipient, and an investigations of petitioner resulted. As part of that investigation, special agents of respondent obtained affidavits from Gerald Clement, Jerry Maroules, and Aron Pankowski, all of whom allegedly paid kickbacks to petitioner. Petitioner was indicted on June 10, 1971, for willfully and knowingly filing a false 1965 income tax return and was convicted on November 10, 1971, on a plea of nolo contendere. The explanation of adjustments in a notice of deficiency dated July 23, 1973, made the following statements regarding the alleged kickbacks received by petitioner:

(a) It is determined that during the taxable years 1964 and 1965, as an employee of the Calumet Township Trustee's Office, you received ‘kickbacks' in connection with fictitious purchase orders, supposedly for recipients on poor relief, in the amounts of $4,800.00 and $7,800.00, respectively, which was not reported on your income tax returns for said years. Accordingly, your taxable income is increased $4,800.00 for 1964, and $7,800.00 for 1965. The sources of the unreported income are as follows:

+-------------------------------------+
                ¦                       ¦1964  ¦1965  ¦
                +-----------------------+------+------¦
                ¦Gerald Clement         ¦      ¦      ¦
                +-----------------------+------+------¦
                ¦d/b/a Jerry's Superette¦$1,800¦$1,800¦
                +-------------------------------------+
                

Jerry Maroules
                d/b/a Public Super-Mart 3,000 3,400
                

George Comsa
                d/b/a George's Foods   2,400
                

Aron Pankowski
                d/b/a Three Star Super Market       200
                Totals                        4,800 7,800
                

Respondent accordingly determined deficiencies in petitioner's income taxes of $988.55 and $1,601.59 for 1964 and 1965 and additions to tax for fraud for those years under section 6653(b)² of $494.27 and $800.79, respectively. ³

On January 29, 1975, petitioner's counsel requested permission to inspect and copy or photograph any written or recorded statements made by Clement, Maroules, or Pankowski which were within the possession, custody, or control of respondent. Respondent objected on the grounds that the statements in question were prepared in anticipation of litigation and that portions thereof constitute or contain references to materials that would be used primarily for impeachment purposes. On March 17, 1975, petitioner accordingly moved under Rule 72 for an order requiring respondent to accede to petitioner's request.

Respondent now objects to production of these affidavits on the additional grounds that petitioner already has sufficient knowledge of the evidence which respondent relies upon and that all three affiants were available for interview by petitioner's counsel.

The case of P. T. & L. Construction Co., 63 T.C. 404 (1974) (hereinafter P. T. & L.), is dispositive of and adverse to respondent's contentions. One of three documents sought for discovery therein was a transcript of an interrogation of a third-party witness. As in this case, fraud penalties under section 6653(b) were at issue, but no criminal prosecution resulted from an investigation by the Intelligence Division of the Internal Revenue Service.

Respondent contended in P. T. & L. that production of the third-party interrogation transcript was unwarranted because that interview was prepared in anticipation of litigation and because taxpayers' testimony might be modified in accordance with that document. This Court held that none of the material was prepared in anticipation of litigation, relying principally on Abel Investment Co. V. United States, 53 F.R.D. 485 (D. Neb. 1971).

In Abel, taxpayer sought discovery of reports prepared by various employees of respondent, including a revenue agent and an appellate conferee. The court listed five factors, particularly relied on by this Court in P. T. & L., which led to its conclusion that such reports were not prepared in anticipation of litigation, as follows (53 F.R.D.at 489):

1. The reports are routinely prepared in each case and before filing of any lawsuit;

2. They are not prepared by or at the direction of an attorney who would actually try the case if litigation should develop;

3. If the reports are impartial as between the taxpayer and the government, they are not designed to be adversary in nature;

4. The documents in all probability do not fix the government's theory of the case to be used at trial, because trial counsel should and undoubtedly would set the defense from all available facts and theories whether or not conceived and expressed by personnel at the various stages of the settlement process;

5. The reports are not the result of the government's own investigative work but of evidence submitted both by the taxpayer and by the government.

The holding of P. T. & L. with respect to the third-party interrogation transcript therein is dispositive of respondent's contention that these affidavits need not be produced because they were prepared in anticipation of litigation. At least three factors stated in Abel and relied upon in P. T. & l. are present here: (1) The affidavits were not prepared at the direction of an attorney who would try this case; (2) the affidavits are statements of fact, not adversary in nature;⁴ and (3) the affidavits do not fix the Government's theory of the case because they are not made by attorneys, agents, or representatives of respondent and are merely statements of fact; indeed, the affidavits in this case stand on even a stronger basis than the question and answer transcript in P. T. & L., since in that case questions were propounded by employees of respondent. As to the other two factors of Abel, respondent has not shown whether affidavits are routinely prepared in every investigation of potential fraud, when affidavits are generally prepared in such cases, or indeed when the affidavits were prepared in this case. Although these affidavits did result from respondent's own investigative work, that one factor is insufficient to overcome the other factors cited above.

Respondent argues that P. T. & L. is distinguishable on two grounds. First, respondent has presented the facts and circumstances surrounding the third-party statements to support the claim that these statements were obtained in anticipation of litigation, whereas in P. T. & L. only conclusionary statements were offered. Although respondent has shown that specific grounds existed to investigate petitioner for possible fraud violations, we cannot equate such grounds with anticipation of litigation. Many investigations of possible fraud are closed without consequence to the taxpayer, and whether criminal or civil litigation will result in a particular case is certainly speculative when such an investigation commences. In P. T. & L., for example, respondent also believed sufficient grounds existed to initiate an investigation for possible fraud, yet no criminal charges resulted. We accordingly find that the facts presented to not support respondent's position on this point.

Respondent also seeks to distinguish P. T. & L. on the ground that counsel for petitioner has located the three individuals involved, whereas in P. T. & L. one witness could not be located even with information furnished to petitioner's counsel by respondent. Petitioner, on the other hand,...