No, not another façade easement appraisal case. This is predictive coding, and it doesn’t have anything to do with the late Jean Shepherd’s celebrated Little Orphan Annie Ring, either.

No, predictive coding is how one trains a computer to sniff out certain documents from a heterogeneous mass of bits, bytes, gigs and teras, by having a human review a sample, put the magic discriminators in the search engine, see what the electronic friend turns out, and refine, until the result statistically assures a high level of confidence that what is turned out is what is wanted.

This is new to Tax Court, so we get a full-dress 143 T. C. 9, filed 9/17/14, Dynamo Holdings Limited Partnership, Dynamo, GP, Inc., Tax Matters Partner.

The issue is gift v. loan. Did Dynamo’s owners get gifts from an allegedly-related outfit called Beekman Vista, Inc.? IRS wants a huge load of ESI (electronically stored information) from Dynamo.

Dynamo says it will cost $450K to sort the stuff for privileged info, like HIPAA, personal info, etc. IRS says, OK, give us everything and we’ll give you a “clawback agreement” so you can suppress anything confidential later, without waiver issues.

Dynamo says “let’s use predictive coding. We’ll agree on search terms, train the computer, and for a fifth of the cost of an all-human search, we’ll give you the relevant stuff. ” IRS says, no, unproven technology.

Judge Buch, obviously technologically-hip, goes with Dynamo, and Dynamo’s essentially uncontradicted expert.

But first, a word of caution. Tax Court doesn’t play nanny for discovery.

“Our Rules are clear that ‘the Court expects the parties to attempt to attain the objectives of discovery through informal consultation or communication’ before resorting to formal discovery procedures. Rule 70(a)(1). And although it is a proper role of the Court to supervise the discovery process and intervene when it is abused by the parties, the Court is not normally in the business of dictating to parties the process that they should use when responding to discovery. If our focus were on paper discovery, we would not (for example) be dictating to a party the manner in which it should review documents for responsiveness or privilege, such as whether that review should be done by a paralegal, a junior attorney, or a senior attorney. Yet that is, in essence, what the parties are asking the Court to consider–whether document review should be done by humans or with the assistance of computers. Respondent fears an incomplete response to his discovery. If respondent believes that the ultimate discovery response is incomplete and can support that belief, he can file another motion to compel at that time. Nonetheless, because we have not previously addressed the issue of computer-assisted review tools, we will address it here.” 143 T. C. 9, at p. 10.

And address it he does, and lets the predictivists go at it. There’s lots of buzz in the technology press, other courts have allowed it in the past, and IRS’ expert can’t contradict Dynamo’s expert that it can work. Dynamo is right to worry about handing everything over to IRS, clawback or no clawback, and the cost of doing any eyeball search is staggering. Tax Court Rule 1 is to secure a “just, speedy and inexpensive resolution of every case.”

So go ahead, Dynamo and IRS, predictivize away, and, IRS, if you’re unhappy at close of play, come back and make your motion to compel.