SCOTUS Reports

Tag: Perpetuation of Testimony

  • GlaxoSmithKline Holdings (Americas), Inc. v. Commissioner, 117 T.C. No. 1 (2001): Application of Rule 82 for Perpetuation of Testimony

    GlaxoSmithKline Holdings (Americas), Inc. v. Commissioner, 117 T. C. No. 1 (2001)

    The U. S. Tax Court granted a joint application by GlaxoSmithKline and the IRS Commissioner to perpetuate testimony of two former executives before a case officially commences, under Rule 82. The decision emphasizes the necessity of preserving crucial testimony due to the executives’ advanced ages and the anticipated delay in trial, highlighting the court’s discretion to prevent a failure of justice in complex tax disputes.

    Parties

    Plaintiff/Applicant: GlaxoSmithKline Holdings (Americas), Inc. (Glaxo), a holding company for a global pharmaceutical business headquartered in the United Kingdom. Defendant/Applicant: Commissioner of Internal Revenue (the Commissioner), representing the Internal Revenue Service of the United States.

    Facts

    Glaxo, a pharmaceutical holding company, has been under IRS examination since 1992 for its tax returns from 1989 to 1999. The Commissioner proposed adjustments to Glaxo’s taxable income under section 482 of the Internal Revenue Code, which Glaxo disputed. Efforts to resolve the dispute through the advance pricing agreement program and the IRS Office of Appeals were unsuccessful. In 1999, Glaxo sought relief from double taxation for the years 1989 through 1997 under the U. S. -U. K. tax treaty’s competent authority process, which is expected to be protracted. No notice of deficiency has been issued, and trial is not anticipated until 2005 or 2006. Glaxo and the Commissioner jointly applied to the Tax Court to perpetuate the testimony of Sir Paul Girolami and Sir David Jack, former Glaxo executives, due to their advanced ages (75 and 77 respectively), foreign residence, and the critical nature of their testimony to the section 482 adjustments. Both executives consented to the depositions, which were planned to be videotaped in Washington, D. C.

    Procedural History

    Glaxo and the Commissioner filed a joint application pursuant to Rule 82 of the Tax Court Rules of Practice and Procedure on May 7, 2001, to perpetuate the testimony of Sir Paul Girolami and Sir David Jack before the commencement of any case. The application was heard at the Tax Court’s motions session in Washington, D. C. No objections were made to the application. The Tax Court, guided by judicial interpretations of Rule 27 of the Federal Rules of Civil Procedure, considered the application’s merits and granted it on the basis that it could prevent a failure of justice.

    Issue(s)

    Whether the Tax Court should grant the joint application of Glaxo and the Commissioner to perpetuate the testimony of Sir Paul Girolami and Sir David Jack under Rule 82, given their advanced ages, foreign residence, and the anticipated delay in trial?

    Rule(s) of Law

    Rule 82 of the Tax Court Rules of Practice and Procedure allows for the taking of depositions before the commencement of a Tax Court case “to perpetuate testimony or to preserve any document or thing regarding any matter that may be cognizable in this Court. ” The rule is derived from Rule 27(a) of the Federal Rules of Civil Procedure. To grant an application under Rule 82, the court must be satisfied that the perpetuation of the testimony may prevent a failure or delay of justice.

    Holding

    The Tax Court granted the joint application of Glaxo and the Commissioner to perpetuate the testimony of Sir Paul Girolami and Sir David Jack under Rule 82, finding that the perpetuation of their testimony could prevent a failure of justice due to their advanced ages, foreign residence, and the anticipated delay in trial.

    Reasoning

    The court’s decision to grant the application was based on several key factors. First, it recognized that the dispute between Glaxo and the Commissioner over section 482 adjustments was likely to proceed to litigation, despite the absence of a notice of deficiency. Second, the court considered the significant risk that the testimony of Girolami and Jack would be lost due to their advanced ages (75 and 77 years old) and the potential for substantial delay in trial until 2005 or 2006. The court cited actuarial studies indicating a high probability that the executives might not survive or could suffer from mental impairment by the trial date. Third, the court distinguished this case from prior denials of Rule 82 applications, such as Reed v. Commissioner and Masek v. Commissioner, where the applicants failed to show a significant risk of lost testimony. In contrast, the court found that the current application satisfied the test articulated in Reed, which requires a showing that the testimony will, in all probability, be lost before trial. The court also noted that the application did not reflect an improper use of Rule 82 as a discovery device, as the proposed depositions were critical to the central issue of Glaxo’s intercompany transfer pricing policies. Finally, the court referenced Texaco, Inc. v. Borda and DeWagenknecht v. Stinnes as analogous cases where depositions were granted to perpetuate testimony of elderly witnesses in the context of delayed trials.

    Disposition

    The Tax Court granted the joint application to perpetuate testimony before the commencement of a case, with appropriate terms and conditions to be set forth in the court’s order. The court denied the applicants’ request to include a discovery schedule in the order.

    Significance/Impact

    This decision underscores the Tax Court’s willingness to exercise its discretion under Rule 82 to prevent a failure of justice by perpetuating testimony in complex tax disputes. The ruling clarifies that the court will consider the age and health of potential witnesses, the likelihood of trial delays, and the critical nature of the testimony when evaluating such applications. The decision may encourage parties in similar situations to seek early preservation of testimony, particularly in cases involving elderly witnesses and protracted competent authority processes. The case also reinforces the distinction between the proper use of Rule 82 to perpetuate testimony and its improper use as a discovery tool, providing guidance for future applications under this rule.

  • Masek v. Commissioner, 92 T.C. 814 (1989): Criteria for Granting Motions to Perpetuate Testimony

    Masek v. Commissioner, 92 T. C. 814 (1989)

    The U. S. Tax Court will scrutinize motions to perpetuate testimony, particularly when they serve discovery purposes, requiring the applicant to demonstrate a significant risk that the testimony will be unavailable at trial.

    Summary

    John Masek sought to perpetuate testimony in a tax case but was denied by the U. S. Tax Court. The court reaffirmed its prior decision, emphasizing that while discovery aspects do not automatically preclude such motions, they necessitate careful scrutiny of the applicant’s need. Masek failed to show a significant risk that the testimony would be unavailable at trial, and lacked evidence of the deponent’s ill health. This case underscores the court’s protective stance on its processes against potential abuse through discovery motions.

    Facts

    John Masek applied to the U. S. Tax Court for a motion to perpetuate testimony, which had been previously denied. His application was related to an ongoing tax dispute. Masek argued that the health of a key witness, Mr. Davis, was deteriorating, thus necessitating the perpetuation of testimony. However, Masek provided no concrete evidence of Mr. Davis’s health condition. The court had previously noted the discovery aspects of Masek’s motion, which led to a careful review of his need to perpetuate testimony.

    Procedural History

    Masek initially filed a motion to perpetuate testimony, which was denied by the U. S. Tax Court in a decision reported at 91 T. C. 1096. Following this denial, Masek sought reconsideration of the court’s decision, leading to the supplemental opinion in 92 T. C. 814. The court reaffirmed its original decision, denying Masek’s motion for reconsideration.

    Issue(s)

    1. Whether the discovery aspects of a motion to perpetuate testimony should preclude granting such a motion?
    2. Whether Masek demonstrated a significant risk that the testimony of Mr. Davis would be unavailable at trial?

    Holding

    1. No, because while discovery aspects do not automatically preclude granting a motion to perpetuate testimony, they require the court to scrutinize the applicant’s need carefully.
    2. No, because Masek failed to provide evidence of a significant risk that Mr. Davis’s testimony would be unavailable at trial, relying only on counsel’s statements about his health.

    Court’s Reasoning

    The U. S. Tax Court emphasized that while the discovery aspects of a motion to perpetuate testimony do not automatically bar such a motion, they do necessitate careful scrutiny of the applicant’s need to ensure the court’s processes are not abused. The court reiterated that the focus should be on the risk that the testimony will be unavailable when a trial commences. Masek’s failure to provide any concrete evidence of Mr. Davis’s health condition was critical in the court’s decision. The court also noted that previous cases had rejected a lower standard where an applicant merely showed inability to commence an action. The court’s decision was influenced by the need to protect its processes from potential abuse through discovery motions, and it found that Masek did not meet the necessary criteria under Rule 82 of the Tax Court Rules of Practice and Procedure.

    Practical Implications

    This decision reinforces the U. S. Tax Court’s cautious approach to motions to perpetuate testimony, particularly when they may serve as discovery tools. Practitioners must be prepared to provide substantial evidence of the risk that testimony will be unavailable at trial, especially in cases involving health claims. The ruling suggests that courts will closely examine such motions to prevent their misuse for discovery purposes. This case may influence how similar motions are approached in future tax litigation, emphasizing the need for clear and convincing evidence of necessity. Additionally, it highlights the importance of understanding and adhering to specific court rules, such as Rule 82, when seeking to perpetuate testimony.

  • Masek v. Commissioner, 91 T.C. 1096 (1988): Limits on Using Depositions for Discovery Before Case Commencement

    Masek v. Commissioner, 91 T. C. 1096 (1988)

    Rule 82 of the Tax Court Rules of Practice and Procedure may not be used for discovery purposes; an applicant must show a substantial need to perpetuate testimony when there are discovery aspects involved.

    Summary

    John Masek sought to perpetuate the testimony of two witnesses under Rule 82 of the Tax Court Rules, despite no pending case, due to an ongoing IRS investigation into his tax liabilities for 1976-1982. The Commissioner did not object, but the witnesses did. The court held that Rule 82 is not for discovery, and Masek failed to demonstrate a substantial need to perpetuate the testimony of the witnesses, who were not in immediate danger of being unable to testify. This case establishes the importance of distinguishing between discovery and perpetuation of testimony in pre-trial depositions.

    Facts

    John Masek was under investigation by the IRS for unreported income from 1976 to 1982. He sought to perpetuate the testimony of Marvin Davis and Gordon Kalt, shareholders in Crude Co. , believing they had knowledge of transactions related to his disputed income. Masek alleged he needed their testimony because he could not access the company’s financial records and feared that the records and testimony might be lost over time. The Commissioner did not oppose the application, but both Davis and Kalt objected, asserting their good health and no immediate risk of testimony loss.

    Procedural History

    Masek filed an application under Rule 82 of the Tax Court Rules to take depositions of Davis and Kalt. The case was assigned to Special Trial Judge Carleton D. Powell. The court reviewed the application and the objections from the deponents, ultimately adopting the opinion of the Special Trial Judge.

    Issue(s)

    1. Whether the Tax Court has the authority to protect the integrity of its Rules, regardless of a lack of objection by a party.
    2. Whether Rule 82 may be used for discovery purposes.
    3. Whether Masek met the requirement of showing a substantial need to perpetuate the testimony of Davis and Kalt.

    Holding

    1. Yes, because the court has inherent authority to protect the integrity of its Rules, even if a party does not object.
    2. No, because Rule 82 may not be used for discovery; it is intended for the perpetuation of testimony.
    3. No, because Masek failed to demonstrate a substantial need to perpetuate the testimony, especially given the discovery aspects of his application and the good health of the deponents.

    Court’s Reasoning

    The court emphasized the distinction between discovery and perpetuation of testimony under Rule 82, which is derived from Federal Rule of Civil Procedure 27(a). The court noted that Rule 82 requires an applicant to show that the testimony would, in all probability, be lost before trial, a standard not met by Masek’s vague assertions about the potential loss of records and testimony. The court also highlighted the inherent authority to protect its Rules, citing precedent that even without a party’s objection, the court must prevent abuse of its processes. The court rejected Masek’s application due to its discovery aspects and the lack of demonstrated need for perpetuation, given the deponents’ health and the absence of immediate risk to their testimony.

    Practical Implications

    This decision clarifies that Rule 82 depositions are not to be used for discovery in tax cases before a case is filed. Practitioners must be cautious in using pre-trial depositions and should ensure that any application under Rule 82 is strictly for the purpose of perpetuating testimony that is at risk of being lost. This ruling may impact how taxpayers and their counsel prepare for potential litigation, particularly in cases involving complex business transactions where access to records is limited. Subsequent cases may reference Masek to distinguish between legitimate perpetuation of testimony and impermissible discovery attempts before a case is initiated.

  • Estate of Haber v. Commissioner, 91 T.C. 236 (1988): Criteria for Deposition to Perpetuate Testimony

    Estate of Neil I. Haber, Deceased, Flora Jo Haber, Personal Representative, Petitioner v. Commissioner of Internal Revenue, Respondent, 91 T. C. 236 (1988)

    A deposition to perpetuate testimony under Tax Court Rule 81 requires a showing of substantial risk that the witness will not be available at trial.

    Summary

    In Estate of Haber v. Commissioner, the petitioner sought to depose a CPA, Jon Manning, to perpetuate his testimony under Tax Court Rule 81, citing his participation in hazardous sports as a substantial risk to his availability at trial. The U. S. Tax Court denied the request, holding that Manning’s engagement in skydiving, ultralight flying, and motocross did not constitute a sufficient risk of unavailability. The court emphasized the requirement of a “substantial risk” under Rule 81, rejecting the argument that participation in dangerous hobbies alone justifies a deposition.

    Facts

    The Estate of Neil I. Haber filed a petition in response to a notice of deficiency from the IRS, asserting a Federal estate tax deficiency and an addition for fraud. The estate sought to depose Jon Manning, a CPA who prepared the estate’s tax return and was expected to testify about the personal representative’s knowledge regarding the late filing. The estate argued that Manning’s participation in skydiving, ultralight flying, and motocross posed a substantial risk to his availability at trial due to the dangerous nature of these sports.

    Procedural History

    The case was initiated with a petition filed on April 9, 1986, and assigned to a Special Trial Judge. The estate filed an application to take Manning’s deposition on September 3, 1987, which was amended twice. A hearing was held on October 5, 1987, and the court issued its opinion on August 15, 1988, denying the application to depose Manning.

    Issue(s)

    1. Whether the estate’s application to take the deposition of Jon Manning under Tax Court Rule 81 should be granted based on the argument that his participation in hazardous sports constitutes a substantial risk of unavailability at trial.

    Holding

    1. No, because the estate failed to demonstrate a substantial risk that Manning would not be available at trial. The court found that Manning’s participation in hazardous sports did not meet the threshold required by Rule 81 for granting a deposition to perpetuate testimony.

    Court’s Reasoning

    The court applied Tax Court Rule 81, which allows depositions only where there is a “substantial risk” that the witness will not be available at trial. The court found that Manning’s age, health, and lack of plans to leave the country did not suggest a substantial risk of unavailability. The court noted that Manning’s participation in hazardous sports did not equate to the “substantial risk” required under Rule 81, as he appeared healthy and fit. The court distinguished this case from Texaco, Inc. v. Borda, where the deponent’s age and the delay in the case justified a deposition. The court also cited Gauthier v. Commissioner, reinforcing the requirement of a substantial risk for a deposition to be granted under Rule 81. The court concluded that the estate’s evidence of Manning’s hobbies did not meet the necessary standard.

    Practical Implications

    This decision clarifies the stringent requirement of a “substantial risk” for depositions under Tax Court Rule 81. Practitioners must demonstrate more than mere participation in hazardous activities to justify a deposition; factors such as age, health, and plans to be absent from the jurisdiction are critical. The ruling impacts how attorneys approach requests for depositions in Tax Court, emphasizing the need for concrete evidence of unavailability. It also affects estate planning and tax litigation, where depositions may be sought to preserve testimony. Subsequent cases have upheld this standard, reinforcing the court’s interpretation of Rule 81.

  • Reed v. Commissioner, 90 T.C. 698 (1988): Requirements for Depositions to Perpetuate Testimony Before Trial

    Reed v. Commissioner, 90 T. C. 698 (1988)

    To perpetuate testimony before trial under Rule 82, an applicant must demonstrate that the testimony is in danger of being lost before trial.

    Summary

    In Reed v. Commissioner, petitioners sought to depose physicians to preserve testimony regarding the mental state of a testator for potential future litigation over generation-skipping transfers. The U. S. Tax Court denied the request, emphasizing that Rule 82 requires a showing that the testimony is likely to be unavailable at trial. The court found the physicians to be in good health and the case not yet ripe for adjudication, thus not justifying the extraordinary measure of pre-trial depositions. This decision underscores the high threshold for granting pre-trial depositions to perpetuate testimony.

    Facts

    Petitioners, heirs and beneficiaries of a testator’s will, sought to depose two physicians who had treated the testator. The purpose was to preserve testimony about the testator’s mental state and testamentary capacity on specific dates relevant to a potential future tax dispute over generation-skipping transfers. The physicians were middle-aged and in good health, with no immediate threat of unavailability. The underlying tax dispute would only arise if the testator died, an estate tax return was filed, and a deficiency was determined by the respondent.

    Procedural History

    Petitioners filed an Application For Order To Take Depositions Before Commencement of Case under Rule 82 of the Tax Court Rules of Practice and Procedure. A hearing was held, and the matter was taken under advisement. The Tax Court ultimately denied the application.

    Issue(s)

    1. Whether petitioners met the requirements of Rule 82 for taking depositions to perpetuate testimony before the commencement of a case?

    Holding

    1. No, because petitioners failed to demonstrate that the physicians’ testimony was in danger of being lost before trial, a requirement under Rule 82.

    Court’s Reasoning

    The Tax Court emphasized that Rule 82, derived from Rule 27(a) of the Federal Rules of Civil Procedure, is an extraordinary measure intended to prevent the failure or delay of justice. The court applied the test from Gale East, Inc. v. Commissioner, requiring a showing that the testimony would likely be unavailable at trial. The court found that the physicians were middle-aged, in good health, and not subject to any immediate threat of unavailability. The potential for the physicians to move away or for their memories to fade over time was deemed insufficient to meet the Rule 82 standard. The court also rejected a more permissive test from In re Hawkins, as it would render Rule 82 meaningless by allowing depositions for any contemplated lawsuit. The court noted that petitioners could use discovery provisions once a petition is filed or reapply under Rule 82 if the physicians’ availability becomes compromised.

    Practical Implications

    Reed v. Commissioner sets a high bar for granting pre-trial depositions to perpetuate testimony under Rule 82. Attorneys must demonstrate a clear and present danger of testimony being lost before trial, not merely a speculative future risk. This decision impacts how practitioners approach the preservation of evidence in tax cases, particularly when the case’s justiciability is uncertain. It underscores the importance of timing in legal strategy, as parties must wait until a case is ripe for adjudication before seeking to preserve testimony unless extraordinary circumstances exist. Subsequent cases have continued to apply this strict interpretation of Rule 82, affecting both tax litigation and broader civil procedure regarding the perpetuation of testimony.