Geodesco, Inc. v. Commissioner
| Decision Date | 18 December 1990 |
| Docket Number | Docket No. 36394-87.,Docket No. 43972-86. |
| Parties | Geodesco, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Randall S. Goulding, 77 W. Washington St., Chicago, Ill., for the petitioner. William E. Bogner, for the respondent.
Memorandum Findings of Fact and Opinion
These cases are before the Court to decide respondent's Second Motion for Entry of Default Judgment or Dismissal and petitioner's objection thereto. The sole issue presented by respondent's motion is whether the subject cases should be dismissed or, alternatively, whether petitioner should be held in default and decision entered against it for its refusal to stipulate and to answer reasonable discovery requests made by respondent, and for its blatant disregard of two explicit orders of the Court that it do so.
These cases involve two notices of deficiency. In the first, the notice at issue in the case at docket No. 43972-86, respondent determined a deficiency of $893,225 in petitioner's Federal income tax for its fiscal year ending November 30, 1982. Respondent's determination is based upon a single adjustment which the notice describes as follows:
It is determined that gross income on your tax return for the fiscal year ended November 30, 1982 was not properly reflected. Of the $4,485,726.00 shown as deferred supply commitment, $2,010,111 should be included as part of gross income on your tax return. Accordingly, gross income for fiscal year ended November 30, 1982 is increased by $2,010,111.00.
In the second notice of deficiency, the one at issue in the case at docket No. 36394-87, respondent determined a deficiency of $556.95 in petitioner's Federal income tax for its fiscal year ending November 30, 1983. This determination is based upon the same adjustment as the deficiency determined for the prior year and is described in the second notice as follows:
It is determined that for the fiscal year ended November 30, 1983, income from Deferred Commitments should have been $2,216,820.00. Since you reported $502,041.00, taxable income is increased $1,714,779.00.
In both of the subject fiscal years, petitioner was engaged in an activity involving the sale or lease of solar energy heating equipment. The adjustments determined by respondent, as described above, are based upon his determination that certain amounts treated by petitioner as deferred income should properly have been accrued and subjected to current tax.
By notice setting case for trial, dated September 16, 1987, the Court set the case at docket No. 43972-86 for trial on February 22, 1988. The Court's notice contained the following instruction and warning to the parties:
Your attention is called to the Court's requirement that, if the case cannot be settled on a mutually satisfactory basis, the parties, before trial, must agree in writing to all facts and all documents about which there should be no disagreement. Therefore, the parties should contact each other promptly and cooperate fully so that the necessary steps can be taken to comply with this requirement. YOUR FAILURE TO COOPERATE MAY ALSO RESULT IN DISMISSAL OF THE CASE AND ENTRY OF DECISION AGAINST YOU.
Shortly thereafter, respondent's attorney telephoned Ms. Eldeen Carpenter, who signed the petition as "Attorney for Petitioner and President," to discuss the case and to seek petitioner s cooperation with informal discovery, as required by the Rules of Practice and Procedure of this Court. Rule 70(a)(1); see Branerton Corp. v. Commissioner [Dec. 32,479], 61 T.C. 691 (1974). (All Rule references are to the Tax Court Rules of Practice and Procedure, unless stated otherwise.) Respondent's attorney followed his telephone call to Ms. Carpenter with a letter dated November 4, 1987, in which he enclosed informal interrogatories and an informal request for the production of documents.
After respondent's informal discovery requests had been outstanding for approximately two weeks, respondent received formal discovery requests from petitioner. Respondent's attorney felt compelled to initiate formal discovery himself. Accordingly, respondent served interrogatories and a request for production of documents on petitioner.
Respondent's interrogatories consist of the following four questions:
1. With respect to the following investors in the 1981 program, state whether or not Geodesco, Inc., assigned end users to solar energy investment property purchased by the investors. If your answer is "yes" that an assignment occurred, state also the date of the assignment.
Assigned: Date of
Yes or No Assignment
1. Abatangelo
2. Barry
3. Berry
4. Buckley
5. Evans
6. Flick
7. Fohrman
8. Hason
9. Kavka
10. Kellog, Partnership
11. Krauss
12. Lacassa
13. Lewis
14. Midstate, Terminal
15. Morreale
16. Nathan
17. Pearlman
18. Restaino
19. Reynolds
20. Smith
21. Wenz
2. With respect to each of the following investors in the 1981 program, provide the amounts of supply contracts, rebates, contract costs, loans and options amounts and the identity of the end user. We have listed the number of units; if you disagree with the number, indicate the correct number. Use the following format for your answers. We have given one investor (Abby Builders) as an example of the information we are seeking.
3. Provide the completion dates of equipment installation for each customer of Geodesco, Inc. for the 1981 program.
4. Identify all bank and other savings institution accounts (including certificates of deposit) by institutional name and address, account type and account numbers held by Geodesco, Inc. during any part of the fiscal year ended November 30, 1982.
Respondent's request for production of documents consists of the following ten specifications:
1. The consumer execution documents for each customer of Geodesco, Inc. for the 1981 program. These documents include, but are not limited to, the following: [Emphasis in the original.]
a. Consumer Execution Documents (the cover page);
b. Supply Agreement;
c. Security Agreement;
d. Installment Promissory Note;
e. Authorization to Solargistics Corp. to Disburse Proceeds from Rebate;
f. Option Agreement;
g. Supply Agreement Summary (Exhibit 1 to the Supply Agreement);
h. Credit Application;
i. Certificate of Completion and photograph of each exterior installation of the solar energy investment property;
j. Any and all other certificates, contracts, leases, or notes and agreements of whatever nature executed or prepared with respect to the 1981 program.
2. All correspondence between Geodesco, Inc. and investors in the 1981 program.
3. All correspondence between Geodesco, Inc. and end users of the solar energy investment property in the 1981 program.
4. All correspondence between Geodesco, Inc., and all distributors and retailers of the solar energy investment property in the 1981 program.
5. The corporate minute book, stock ledger, and articles of incorporation of Geodesco, Inc., and all amendments thereto. This request is to cover all documents described from the formation of Geodesco, Inc. through November 30, 1984.
6. A complete copy of the Promotion and Installation Agreement between Geodesco, Inc. and Solar Development, Inc., Northwest.
7. A complete copy of the Purchase Agreement between Solargistics and Solar Development, Inc., Northwest.
8. All check receipts received by Geodesco, Inc., from Solargistics pursuant to the 1981 program.
9. All financial statements, journals, ledgers, and all other accounting books and records (including accountant's workpapers) for Geodesco, Inc. for the fiscal year ended November 30, 1982.
10. All correspondence in your possession or control to, or from, the following individuals:
a. Randall S. Goulding;
b. Sheldon Drobny;
c. Richard Sparks;
d. Blake Demuzio;
e. Gerald Habinak;
f. Reuben Rosenberg;
g. Robyn L. Rosenberg;
h. Jay B. Gale;
i. Gerald S. Goldberg;
j. William J. Speare
Petitioner failed to respond to the request for production of documents within 30 days after service of the request, as required by Rule 72(b). Petitioner also failed to answer the interrogatories within 45 days after service, as required by Rule 71(c). Accordingly, as contemplated by Rules 72(b) and 71(c), respondent filed a motion to compel petitioner to respond to each discovery request or to impose sanctions. Petitioner answered respondent's motion to compel, as ordered by the Court, and objected to it on the grounds: (1) that petitioner had previously furnished all the documents requested; (2) that "all of petitioner's records are now in storage" so that producing the records again would be "unreasonably burdensome and virtually impossible" to accomplish before the scheduled trial...
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