Robert v. U.S., 03-1603.

• Decision Date: 29 April 2004
• Docket Number: No. 03-1603.,03-1603.
• Citation: 364 F.3d 988
• Parties: Mary A. ROBERT, Plaintiff — Appellant, Siegel-Robert, Intervenor, v. UNITED STATES of America, Defendant — Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

364 F.3d 988

Mary A. ROBERT, Plaintiff — Appellant, Siegel-Robert, Intervenor, v. UNITED STATES of America, Defendant — Appellee.

No. 03-1603.

United States Court of Appeals, Eighth Circuit.

Submitted: December 15, 2003.

Filed: April 29, 2004.

James F. Bennett, argued, St. Louis, MO (Kathleen R. Sherby and Anthony S. Gasaway, on the brief), for appellant.

Bridget M. Rowan, argued, U.S. Dept. of Justice, Tax Div., Washington, DC (Frank P. Cihlar, U.S. Dept. of Justice, Tax Div., on the brief), for appellee.

Before MELLOY, McMILLIAN, and BOWMAN, Circuit Judges.

MELLOY, Circuit Judge.

Mary A. Robert appeals the district court's¹ adverse grant of summary judgment in her action to quash four separate third-party IRS summonses. We agree with Ms. Robert that the summonses issued as a result of improper ex parte communications between the IRS Appeals Office and Examination Division. See Internal Revenue Service Restructuring and Reform Act (Restructuring Act) of 1998, Pub.L. No. 105-206, 112 Stat. 68 (charging the Commissioner of Internal Revenue with the duty to provide an independent Appeals Office and prohibit ex parte communications that appear to compromise the independence of the Appeals Office); Rev. Proc.2000-43, 2000-2 C.B. 404 (setting forth guidelines for implementation of the restriction on ex parte communications). We find, however, that in this case, the ex parte communications do not prevent enforcement of the summonses. The judgment of the district court is affirmed.

I. Facts

Ms. Robert, in her capacity as the trustee and income beneficiary of a marital trust established by her late husband, owned approximately seven million shares out of a total of twelve million outstanding shares of Siegel-Robert, Inc.² In 1998, she transferred 1,800,000 shares from the trust to her children in exchange for promissory notes structured as non-recourse debt. She secured the notes with Siegel-Robert stock and established a mechanism to execute on the stock through a stock redemption agreement between herself, Siegel-Robert, and her children. Ms. Robert claimed that the promissory notes were worth as much as the transferred stock and characterized the transfers as related party sales under I.R.C. § 267. Also, during 1998 and 1999, she transferred 29,750 shares to her children and other relatives. She characterized these additional transfers as gifts.

Ms. Robert listed minority share values of $21.73 and $23.67 for the Siegel-Robert stock on her 1998 and 1999 gift tax returns, respectively. Ms. Robert used a private appraiser to arrive at these values. Although she maintains that her valuation was accurate, she concedes that, if inaccurate, any resultant increase in valuation of the transferred stock must be treated as a gift.

In 2000, the IRS began an audit of Ms. Robert's 1998 and 1999 gift tax returns. Ms. Robert cooperated and provided financial information. The IRS Estate Tax Examiner assigned to Ms. Robert's case, Paul Latt, disagreed with Ms. Robert's valuation and determined that an IRS appraisal was needed. IRS Financial Analyst Ernest Gruenfeld conducted an appraisal and determined that the appropriate minority share prices for the 1998 and 1999 transfers were $55.52 and $44.17, respectively. Based on Mr. Gruenfeld's appraisal and the number of shares that Ms. Robert transferred, Mr. Latt determined that Ms. Robert owed the IRS a deficiency payment of approximately $34 million regarding the 1998 transfers and $233,000 regarding the 1999 transfers. Mr. Latt was aware of a one million share decrease in the number of outstanding shares during 1998 but did not know what happened to those shares. Mr. Latt did not incorporate this share decrease into his valuation and deficiency determination as set out in his examination report.

On March 2, 2001, Mr. Latt sent Ms. Robert a "thirty-day letter" to propose these deficiencies. The letter was accompanied by Mr. Latt's examination report and Mr. Gruenfeld's appraisal. The March 2, 2001 letter was not a statutory deficiency notice.

On April 2, 2001, Ms. Robert replied with a letter of protest in which she set forth arguments contesting the IRS findings and requested an appeals conference. On May 18, 2001, the Appeals Office assigned IRS Appeals Officer Daniel Mannion to handle Ms. Robert's appeal. Mr. Mannion previously had worked on a gift tax case that involved Ms. Robert's deceased husband and a dispute over the value of Siegel-Robert stock. In addition, Mr. Mannion was familiar with the opinions from this court and the Eastern District of Missouri in which we approved a method for determining the "fair value" of Siegel-Robert stock. See Swope v. Siegel-Robert, Inc., 74 F.Supp.2d 876, 879-910 (E.D.Mo.1999), aff'd in part and rev'd in part by 243 F.3d 486 (8th Cir.2001).

Mr. Mannion claims that, on August 12, 2001, he conducted an initial review of Ms. Robert's file and determined that Mr. Gruenfeld's appraisal was inadequate because it did not follow the methodology set forth in the Swope case. "Shortly after" this review, Mr. Mannion contacted Mr. Latt on an ex parte basis to tell Mr. Latt that Mr. Gruenfeld's appraisal was inadequate. In addition, Mr. Mannion sent Mr. Latt a copy of Ms. Robert's protest with instructions to forward the protest to Mr. Gruenfeld for review so that Mr. Gruenfeld could revise the IRS appraisal.

On September 10, 2001, Ms. Robert's attorney called Mr. Mannion to request a meeting. Mr. Mannion did not tell Ms. Robert's attorney about the August ex parte communications with Mr. Latt. Ms. Robert's attorney stated that Mr. Mannion set a meeting date for October 3, 2001, because Mr. Mannion claimed it would take approximately three weeks to review Ms. Robert's file.

At the October 3 meeting, two of Ms. Robert's attorneys discussed the case with Mr. Mannion and provided a written critique of Mr. Gruenfeld's appraisal. Mr. Mannion asked about the unaccounted-for one million share decrease in outstanding Siegel-Robert stock during 1998. Ms. Robert's attorneys stated that the marital trust redeemed the one million shares of Siegel-Robert stock for cash so that the trust could diversify its holdings. Mr. Mannion believed this redemption potentially raised a new gift tax issue. In addition, he suggested that the IRS obtain an outside appraisal to value the stock. Again, Mr. Mannion did not tell Ms. Robert's attorneys about the August ex parte communications with Mr. Latt, nor did he tell them of his intention to conduct future ex parte communications with Mr. Latt. Mr. Mannion concluded the meeting by telling Ms. Robert's attorneys that he would contact them in January of 2002 to discuss resolution of the protest.

On October 3, 2001, after meeting with Ms. Robert's attorneys, Mr. Mannion called Mr. Latt to tell him about the new information concerning the 1998 one million share decrease and to let him know that Ms. Robert's attorneys had submitted a written critique of Mr. Gruenfeld's appraisal. On October 4, 2001, Mr. Latt met with Mr. Mannion and received a copy of the written critique. On October 15, 2001, Mr. Mannion referred the new information regarding the one million share decrease to Mr. Latt's IRS Examination Supervisor, Chris Mezines, and suggested that this decrease might involve the same bargain sale/gift issues already under examination.

On October 29, 2001, Mr. Latt sent a letter to Ms. Robert's attorneys to ask for information about the one million share decrease. Mr. Latt's letter referred to the fact that the Appeals Office requested that he gather information about the one million share transfer. In December 2001, Mr. Latt sent Ms. Robert's attorneys another letter to explain that the IRS had retained a private appraiser and to request additional financial information. In a follow-up call, Mr. Latt told Ms. Robert's attorneys that Mr. Mannion believed Mr. Gruenfeld's initial appraisal was inadequate. Ms. Robert's attorneys challenged Mr. Latt's authority because the Appeals Office had jurisdiction over the case and Mr. Mannion had last told them that he would contact them in January to resolve the case.

On January 11, 2002, Mr. Latt called Ms. Robert's attorneys and left a telephone message. Ms. Robert's attorneys saved the recorded message and prepared a transcript of the message. In the message, Mr. Latt made clear that Mr. Mannion was still in charge of the case; the examination division was going to be "doing the leg work" for Mr. Mannion to collect financial data and obtain a private party appraisal; and Mr. Mannion had stated the "in house appraisal was not going to do the job as far as the IRS was concerned."

Ms. Robert's attorneys then arranged a January 23, 2002 meeting with Mr. Mannion and his supervisor, Chris Roth, to discuss the ex parte communications between Mr. Mannion, Mr. Latt, and Mr. Mezines. At the January 23 meeting, Mr. Mannion stated that, during the October 3, 2001 meeting, Ms. Robert successfully refuted the valuation that Mr. Gruenfeld prepared for the IRS. On January 29, 2002, Ms. Robert's attorneys met again with Mr. Mannion and Mr. Roth. Mr. Latt, Mr. Mezines, and IRS counsel were present for this meeting. Ms. Robert's attorneys suggested that, as a remedy for the ex parte communications, the IRS should either assign a different appeals officer to review the record independently or issue a statutory notice of deficiency. Mr. Roth stated that he would coordinate the IRS response to these proposals. Several days later, Mr. Roth called Ms. Robert's attorneys and stated that instead of assigning a new appeals officer, the IRS would assign a new examiner and start a new audit.

The IRS assigned a new examiner, John Crowe, to conduct the new audit. Mr. Crowe requested the financial records necessary for a third-party appraisal of the Siegel-Robert stock. He then issued the four summonses that are the subject of the current action. Mr. Crowe directed these summonses to Siegel-Robert...