Third-party tax opinion letters held by IRS are not discoverable.

• Author: Beavers, James

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The Tax Court denied a taxpayer's motion to compel the IRS to produce redacted copies of all third-party tax opinions regarding son-of-boss transactions it had collected, as well as a list of the names and addresses of all law firms and accounting firms known to the IRS to have issued tax opinion letters regarding son-of-boss transactions because the opinion letters and the firm list were not relevant, the request did not appear reasonably calculated to lead to discovery of admissible evidence, and the materials were nondisclosable "return information" per Sec. 6103(b)(2).

Background

James Menighan, through a limited liability company he owned, acquired and contributed offsetting digital options on foreign currency to the 3K Investment Partners partnership (the partnership). On examination, the IRS determined that Menighan formed and used the partnership to engage in a so-called son-of-boss transaction that was designed to artificially inflate Menighan's basis in the partnership. The IRS alleged that the transaction was a prepackaged tax shelter that Menighan purchased from the law firm Jenkens & Gilchrist, P.C. (Jenkens & Gilchrist). As a result of this determination, the IRS issued a final partnership administrative adjustment that made changes to the items reported on the partnership's tax return for the 2000 tax year.

The partnership challenged the IRS's determination in Tax Court. During the proceedings, the partnership requested that the IRS provide it with redacted copies of all third-party tax opinions collected by the IRS regarding son-of-boss transactions (the opinion letters) and a list of the names and addresses of all law firms and accounting firms known to the IRS to have issued son-of-boss transaction tax opinion letters. The IRS objected to the request on the grounds that the opinions and the list were irrelevant and that the request was not likely to lead to the discovery of admissible evidence, was unduly burdensome, and impermissibly sought confidential third-party return information. The partnership filed a motion with the Tax Court to compel the IRS to produce the opinion letters and the list.

The Tax Court's Decision

The Tax Court held that the opinion letters and the firm list were not relevant to the subject matter of the case and the discovery request was not reasonably calculated to lead to the consequent discovery of admissible evidence in the case. Therefore, it denied the partnership's...