Winters v. Comm'r of Internal Revenue (In re Estate of Yaeger)

• Decision Date: 26 January 1989
• Docket Number: Docket No. 9795-85.
• Citation: 92 T.C. 180,92 T.C. No. 10
• Parties: ESTATE OF LOUIS YAEGER, DECEASED, JUDITH WINTERS, ABRAHAM K. WEBER, RAPHAEL MEISELS, THE BANK OF NEW YORK, EXECUTORS, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

92 T.C. 180

92 T.C. No. 10

ESTATE OF LOUIS YAEGER, DECEASED, JUDITH WINTERS, ABRAHAM K. WEBER, RAPHAEL MEISELS, THE BANK OF NEW YORK, EXECUTORS, Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9795-85.

United States Tax Court

Filed January 26, 1989.

R filed a motion to compel P, Y's estate, to produce certain books and documents pertaining to P's financial status and P cross-filed a motion for a protective order to prevent R from giving the requested materials to Mrs. Y, the widow and a beneficiary under the decedent's will. P maintained that if Mrs. Y obtained the requested materials she would harass P with spurious litigation. R maintained that sec. 6103(e) authorized him to give the requested materials to Mrs. Y and that this Court was not empowered to limit or condition the authority granted under sec. 6103(e). HELD: Although sec. 6103(e) would ordinarily authorize R to transfer the requested materials to Mrs. Y we can condition and restrict R's use of materials which are produced under our order and direction. HELD FURTHER: a review of the facts in this case indicates that P's request for a protective order is appropriate and will be granted. Richard A. Levine and Albert Rosenblum, for the petitioners.

Kevin M. Flynn, for the respondent.

OPINION

WRIGHT, JUDGE:

On January 28, 1988, the estate of Louis Yaeger (hereinafter referred to as petitioner or the estate) represented by the executors, Judith Winters, Raphael Meisels, Abraham K. Weber and the Bank of New York (hereinafter referred to collectively as the executors), filed a motion with this Court for a Protective Order pursuant to Rule 103(a). ¹ Petitioner's motion was accompanied by several attached affidavits and a supporting memorandum of law. On April 1, 1988, respondent filed a notice of Objection To Petitioner's Motion for a Protective Order with a supporting Memorandum of Law. On May 2, 1988, petitioner filed a reply memorandum.

In the Motion for a Protective Order, petitioner requests that we adopt its attached protective order which would prevent respondent from disclosing any confidential information obtained from petitioner in pretrial discovery. Specifically, petitioner's protective order would require respondent to obtain permission from the Court if respondent wishes to share the confidential information with anyone other than Mrs. Betty Yaeger, the decedent's widow, unless that person would agree to comply with the terms of the protective order. Further, in order to give the information to Betty Yaeger or her representatives, respondent would have to get permission from petitioner or an order from this Court. Finally, the protective order would require respondent to return all documentary evidence to the executors and have the record sealed when the trial was completed.

In the motion for a protective order and accompanying affidavits, petitioner explained its concern. The decedent, who died on May 11, 1981, left by will a large portfolio of stock and other property to his daughter, Judith Winters, and left only a relatively small bequest to his wife, Betty Yaeger. The will reflected a prenuptial agreement which decedent and his wife had signed limiting the amount of his estate she would inherit. Betty Yaeger has brought several actions against the estate since the decedent's death attempting to overturn the will and the prenuptial agreement. All have proved fruitless. ²

The estate timely filed an estate tax return Form 706 (hereinafter referred to as the Form 706) on February 10, 1982, and on January 24, 1985, respondent issued a statutory notice of deficiency determining a deficiency in estate tax in the amount of $26,667,562. The estate timely filed a petition on April 22, 1985. The main substantive issue in dispute between the parties is the proper fair market value of a large block of stock although there are also questions about the deductibility of certain estate administration expenses. On December 1, 1986, respondent sent petitioner a First Request for Production of Documents asking for all decedent's documents pertaining to stock holdings in a certain corporation. ³ Petitioner responded with a proposal that respondent keep the requested information confidential. Respondent's counsel refused to agree to petitioner's proposal which prompted petitioner to file the motion which we address here.

Petitioners' primary concern is that the information which respondent requests might ultimately be given to Betty Yaeger. Petitioner complains that defending the estate against Betty Yaeger's suits has needlessly wasted both time and money. In affidavits from Judith Winters, an executor, and Edward J. Reilly, counsel for the estate in the New York actions brought by Betty Yaeger, petitioner established that Betty Yaeger's recent activities demonstrate that she is eager to obtain a larger portion of decedent's wealth than that available to her under the will either through successful litigation or through coercive settlement with petitioner. Furthermore, petitioner maintains that Betty Yaeger would be far more likely to pursue this goal if she discovered the contents and value of decedent's estate. ⁴

Until the filing of this motion, petitioner has been largely successful in denying Betty Yaeger access to the financial statements of the estate. In a case before this Court involving joint income tax deficiencies for the decedent and Betty Yaeger, she was removed from the case and respondent agreed not to disclose information to her about the estate's holdings. We ordered the record sealed. Although our report in that case, Estate of Yaeger v. Commissioner, T.C. Memo. 1988-264, was filed on June 21, 1988, and revealed much about the decedent's wealth near the time of his death, petitioner maintains that much valuable and confidential information remains unpublished and petitioner seeks to protect this information from Betty Yaeger. ⁵ Petitioner was further motivated to make this motion upon learning that respondent had given the estate's Form 706 to Betty Yaeger when she had requested it.

In its motion, petitioner noted that Betty Yaeger is able to obtain any information she needs through formal discovery procedures once she files a claim against the estate. Petitioner, by affidavit, established that Betty Yaeger did receive requested documents on at least one prior occasion. However, petitioner requests us to issue the protective order to compel Betty Yaeger to obtain information directly from the estate pursuant to the rules of civil discovery rather than by way of a casual perusal of the entire contents of respondent's files.

The sole issue for our consideration in this proceeding is whether to issue a protective order pursuant to Rule 103(a)(7) ⁶ to prevent Betty Yaeger from acquiring material and information from respondent which she might use to pursue further meritless and burdensome actions against the estate. Petitioner urges us to grant such an order based on our discretionary power under Rule 103(a) and on the statutory foundation of section 7461(b). ⁷ Petitioner argues that the material respondent requests is confidential information within the meaning of the rule and the statute and thus, ought to be protected from disclosure.

In opposition to petitioner's motion, respondent argues that, as the wife of the decedent and a beneficiary under the will, Betty Yaeger has a material interest in the information within the meaning of section 6103(e)(1)(E) ⁸ and disclosure to her is permissible. Respondent further maintains that the decision to disclose information to Betty Yaeger is solely within his discretion. Because Congress specifically authorized the disclosure of information to the category of named persons in section 6103(e), respondent argues that it would be improper for us to vitiate Congress' clear goal of delegating the determination of this issue to the Secretary of the Treasury.

Section 6103(a) was enacted to protect taxpayers' private financial information contained within the files of the Internal Revenue Service (the Service) from other governmental and private inquiries by establishing a general policy of nondisclosure. Chamberlain v. Kurtz, 589 F.2d 827, 835 (5th Cir. 1979); Stokwitz v. United States, 831 F.2d 893, 895 (9th Cir. 1987), cert. denied ___ U.S. ___, 108 S.Ct. 1592 (1988). ⁹ The statute was designed to protect taxpayers' privacy and, therefore, to encourage the taxpayers' free and open disclosure to the Service. Lampert v. United States, 854 F.2d 335, 336 (9th Cir. 1988). A taxpayer's return or return information generally may not be revealed to a third party unless such disclosure is specifically authorized under section 6103. Martin v. Internal Revenue Service, 857 F.2d 722 (10th Cir. 1988). Ordinarily, once the information has been revealed in a courtroom and becomes part of the record it can no longer be protected by section 6103. Lampert v. United States, supra at 337, relying on Nixon v. Warner Communications, Inc., 435 U.S. 589, 597 (1978).

We must first consider whether section 6103(e) would apply to the material which respondent seeks to obtain from petitioner if the information were in respondent's possession and Betty Yaeger made a proper request to obtain it from respondent. Section 6103(e) provides for disclosure of ‘returns and return information‘ to a limited group of persons, including, in the case of an estate, a beneficiary under the will. Section 6103(e)(7) specifically allows for return information of an estate to be given to a beneficiary under the will, if he can show that he has a material interest which will be affected by the information in the return. Furthermore, return information can only be given to such a person if the Secretary determines that disclosure would not seriously impair Federal tax administration. Sec. 6103(e)(7). Because Betty Yaeger is clearly a beneficiary under the decedent's will and respondent has determined that...