In Uncategorized on 05/20/2020 at 11:43

The answer for Mr F. (name omitted) is “No,” and Judge Courtney (“CD”) Jones will tell you why not in Sunil S. Patel & Laurie McAnally Patel, et al., Docket No. 24344-17, filed 5/20/20.

It’s not that Mr. F shouldn’t be subpoenaed as a non-party witness. “Respondent represented, and petitioners did not dispute, that Mr. F served as a wealth management advisor to petitioners and, in that capacity, played a significant role in setting up the micro-captive arrangement.” Order, at p. 1. Clearly relevant and material, and Mr F as a non-party is not subject to a Branerton play-nice.

On background, micro-captives are purported insurers of a single enterprise, or controlled group of enterprises. Micros have often been used to take big deductions. Policies are massively overwritten (premiums greater than any actuarial risk). The micro then cookie-jars the “premium” cash against liabilities that (a) never happen, or (b) are laid off on macro insurers, so the micro runs no economic risk, thus not really insurance. Not saying that happened here; let’s see what happens as the case proceeds.

IRS first claims they served Mr. F, with the subpoena duces tecum, to show up and bring papers. Then they say, “sorry, my bad, didn’t serve.”

Judge CD: “the Court ordered respondent to file a copy of the subpoena duces tecum, including verification of the date of service. Respondent filed a response… admitting that he had not served the subpoena duces tecum on Mr. F, apologizing to the Court for the incorrect representation, and explaining how it occurred.” Order, at p. 1.

But IRS’ attorneys never lacked resourcefulness (some, less charitable, might say chutzpah, if you’ll pardon an arcane technical term). “He nevertheless asked the Court to compel a virtual deposition of Mr. F (in the light of concerns related to COVID-19), albeit without the documents.” Order, at pp. 1-2.

Now IRS did properly serve the Rule 74 deposition notice before COVID-19 shut everything down. So IRS’ counsel is not out on a limb when he asks for a Zoomathon sans documents.

But Judge CD says Rule 147 is not off the table.

“The record establishes that Mr. F’s deposition is warranted and that respondent served Mr. F with a notice of deposition…pursuant to Rule 74(c)(2). But respondent has not met the requirements of Rule 147 because he has not served Mr. F with a subpoena to require his testimony and/or production of documents listed in the attachment at the deposition described in the notice. As a result, respondent has not done what is necessary to compel Mr. F to testify and/or to produce documents at the deposition.” Order, at p. 2. (Name omitted, emphasis added).

Judge, two things bother me. First, IRS’ counsel doesn’t want no documents. Second, what’s with the “and/or” bit? See my blogpost “Ran the Checklist,” 4/6/20.

I praised you then, in these words. “Again Judge CD joins in rebuking the bureaucratic responsibility-ducking language of the form shootdown letter. “The WBO’s form letter contained the same ‘and/or’ conjunction that led to a lack of clarity in Lacey v. Commissioner, 153 T.C. __, __ (slip op. at 33) (Nov. 25, 2019). In this case, the record establishes that all of the reasons stated in the letter are justified. So the general lack of clarity attendant to the “and/or” conjunction is inconsequential here. But the Court continues to be concerned that, in a closer case, this form text may create confusion when we review a summary rejection of a whistleblower claim. See Alber v. Commissioner, T.C. Memo. 2020-20, at *8-9 n.5.” Order, at p. 2, footnote 5.” Loc. cit., as my high-priced Zoomer colleagues would say.

I most respectfully submit that this is a case where “and/or” definitely lacks clarity and creates confusion.

Of course, Judge CD is right about COVID-19. “Respondent’s failure to serve Mr. F. with a subpoena is made more problematic by the current crisis surrounding COVID-19. The Court is concerned that it is not currently safe to serve him.” Order, at p. 2. Both the process server and Mr F are at risk with personal service.

But why deny IRS’ motion to take the deposition sans documents? Even without prejudice, as here, insisting on personal service of a subpoena that IRS is willing to do without only delays the case indefinitely. If IRS is playing games and seeking a double shot at Mr F, first without documents and then afterward with documents, then at that time a protective order requiring a showing of special circumstances for a rematch (and COVID-19 is expressly not one such), or a flat denial shuts the game down.







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