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Part 34. Litigation in District Court, Bankruptcy Court, Court of Federal Claims, and State Court

Chapter 7. Pre-Trial Procedures

Section 1. Pre-Trial Procedures

34.7.1  Pre-Trial Procedures

34.7.1.1  (08-11-2004)
Monitoring Litigation — Contact With and Assistance to the Department of Justice

  1. Discussions between Field Counsel and the Department of Justice (DJ) attorney assigned to a case referred to DJ are necessary for Field Counsel to stay fully informed of the progress of a suit. These discussions can be useful in determining whether further factual development or an explanation of the Service’s legal position is needed.

34.7.1.1.1  (08-11-2004)
Informal Discussions and Modifications To Suit Or Defense Letters

  1. A Field Counsel attorney should not informally modify a position taken in a suit or defense letter, or a supplemental suit or defense letter, without the express approval of a supervisor. See CCDM 34.7.1.2. When the DJ attorney poses complex questions, ask the DJ attorney to put the request in writing for formal consideration. If the suggested change involves a technical question that had previously been coordinated with an Associate Chief Counsel office, coordinate the modification as well.

  2. When the DJ attorney provides significant information, whether factual or legal, Field Counsel should note the information in a memorandum to the file. Memoranda are useful as aids to the attorney’s memory, they allow the attorney’s supervisor to keep abreast of developments in the case, and they provide a full record for any attorneys subsequently assigned to the case.

  3. On occasion, informal modifications of a position taken in a suit, defense, or supplemental letter are necessary because of time constraints. In those cases, in addition to noting the modification in a memorandum to the file, send a confirming letter to the DJ attorney. Confirming letters avoid misunderstandings because they allow the attorneys the opportunity to confirm that they agree on the exact nature of the modification.

  4. The DJ attorney may prepare the confirming letter, but Field Counsel must read it carefully to ensure that it reflects the agreement accurately.

34.7.1.1.2  (08-11-2004)
Document Requests

  1. In order to develop a suit for trial, the DJ attorney may make informal requests for the assistance of Service personnel or for tax returns and other documents. See CCDM 34.7.1.2. In evaluating requests from DJ for additional returns, transcripts of account, etc., Field Counsel should always consider whether the material requested can be supplied under section 6103. It is the responsibility of Field Counsel to ensure that disclosure is proper.

  2. Rather than processing such requests routinely, however, without thought to the time and expense involved, Field Counsel should consider whether the request for assistance is reasonable. Factors to consider in determining whether the request is reasonable are:

    • The time Service personnel must devote to providing the information

    • The expenses involved in gathering the information

    • The amount of tax involved in the suit

    • The precedential value of an opinion in the case

    • The impact on the case should the request not be fulfilled

    • Whether similar requests have been fulfilled in the past

  3. Field Counsel should resolve doubts as to reasonableness in favor of complying with the request. If the attorney determines that the request is unreasonable, however, the attorney should confer with a supervisor. If the supervisor determines that the request is unreasonable, inform the DJ attorney of that determination and try to modify the request to the satisfaction of both. If no satisfactory modification is reached, arrange a telephone conference with both attorneys and their reviewers.

34.7.1.1.3  (08-11-2004)
Conferences

  1. The DJ attorney may also ask Field Counsel to attend conferences with Government expert witnesses or with opposing counsel and their expert witnesses. Field Counsel should try to accommodate such requests. After attending a conference, Field Counsel should note in a memorandum to the file the names and identities of the participants attending the conference and the details of the discussion.

34.7.1.2  (08-11-2004)
Further Factual Development

  1. The duties of Field Counsel in handling a suit referred to DJ do not end once the suit or defense letter is prepared. Field Counsel has a duty to assist DJ attorneys in preparing a defense, which may include further development of the facts of the case.

34.7.1.2.1  (08-11-2004)
Supplemental Investigations — Definition & Scope

  1. In many instances, the materials available to Field Counsel at the time the suit or defense letter is prepared do not provide sufficient facts or enough detail to permit a proper analysis of a litigating position or litigation hazards. When Field Counsel believes that further development in the case is needed, he or she should initiate action to develop the facts and evaluate the legal analysis contained in the suit or defense letter.

  2. When, in the light of subsequently determined facts, the legal analysis portion of the suit or defense letter is incomplete or must be reevaluated, Field Counsel should write a supplemental suit or defense letter.

34.7.1.2.2  (08-11-2004)
When Supplemental Investigation Is Warranted

  1. In preparing a suit or defense letter, Field Counsel will on occasion become aware that critical facts have not been ascertained while the case was pending administratively. The suit or defense letter should describe the factual development necessary and request that the DJ attorney decide whether to develop the facts by way of discovery or supplemental investigation.

  2. A supplemental investigation is a further investigation conducted by Service personnel, usually a revenue agent, to gather additional facts or more details with regard to one or more issues. Although a supplemental investigation is usually formally requested by a letter from the DJ attorney, informal requests are sometimes made.

  3. In addition, the DJ attorney, upon receipt and review of the suit or defense letter, may determine that further factual development is needed and request a supplemental investigation.

34.7.1.2.3  (08-11-2004)
Procedure for Supplemental Investigation

  1. Approval from DJ. Before any supplemental investigation is conducted, the Field Counsel attorney should have the express approval of the DJ attorney.

  2. Formal Requests. Make a request for a supplemental investigation by memorandum with the following sections.

    1. Addressee. Normally the memorandum requesting a supplemental investigation is addressed to the Area/Industry Director for the Area/Industry in which the case arose. Field Counsel should be aware, however, that the information sought may be in another Area/Industry. If possible, indicate in the attention line of the memorandum the name of the revenue agent who will conduct the supplemental investigation.

    2. Body. The amount and type of tax in the suit as well as the taxable periods should be stated at the beginning of the memorandum, preferably in the first paragraph. The scope of the supplemental investigation is spelled out in the memorandum. If, however, DJ in its letter requesting the supplemental investigation describes the desired investigation in sufficient detail, the memorandum may merely refer to the DJ letter and request compliance. In suits filed in district courts, where the plaintiff is represented by counsel, the memorandum should advise the revenue agent to approach the plaintiff only after prior arrangements have been made with the U.S. Attorney and only through the plaintiff’s counsel. The revenue agent may approach persons other than the plaintiff without prior notification to opposing counsel or the U.S. Attorney. In Court of Federal Claims cases, where the plaintiff is represented by counsel, the plaintiff should be approached only through the plaintiff’s counsel; as with district court cases, persons other than the plaintiff may be approached without prior contact with opposing counsel. Always provide the name and telephone number of the attorney initiating the request. Questions can then be directed by telephone to him or her without the need of written correspondence, which might delay the investigation.

    3. Signature. The memorandum is usually prepared for the name of Area Counsel. Subject to local rules, attorneys who have been with Chief Counsel for one year or more are authorized to sign the memorandum in a byline.

    4. Enclosures. Field Counsel should decide what parts of the administrative file should accompany the supplemental investigation request. Only the portion of the file necessary for the agent to complete the investigation should be sent. To maintain the integrity of the administrative file, Field Counsel may send copies of its contents in lieu of originals.

  3. Telephone Requests. On rare occasions, it may be necessary to initiate a supplemental investigation by telephone call. Always confirm telephone requests with written memorandum.

34.7.1.2.3.1  (08-11-2004)
Coordination with Area/Industry Director

  1. Although a supplemental investigation entailing only a day or two of a revenue agent’s time requires no advance coordination or clearance with the Area/Industry Director, requests requiring a large number of interviews and significant time, expense, and documentation require clearance with the Area/Industry Director.

  2. When Field Counsel receives an expansive request, he or she should first determine whether it is reasonable in light of the amount of money at risk in the suit and the need for the information. If the attorney determines that the request is reasonable, he or she should coordinate the request with the Area/Industry Director through the Area Counsel. In the event time does not permit written coordination, coordination may be by telephone. If Field Counsel determines that a supplemental investigation is unreasonable, the attorney should, before seeking clearance from the Area/Industry Director, contact the DJ attorney and discuss modification of the request.

34.7.1.2.3.2  (08-11-2004)
Request to Associate Chief Counsel (International) for Information Located Abroad

  1. For procedures relating to obtaining information from abroad, see CCDM 34.6.3.7.

34.7.1.3  (08-11-2004)
Further Legal Development

  1. Field Counsel may on occasion be unable to determine the legal position of the Service when the suit or defense letter is written or the letter’s legal discussion becomes obsolete due to subsequent factual or legal developments. For example, cases may have been decided subsequent to the writing of the suit or defense letter. Field Counsel should first coordinate technical issues with the appropriate Associate offices. Field Counsel then must reevaluate the position stated in the defense letter and write a supplemental defense letter.

34.7.1.4  (08-11-2004)
Requests for Miscellaneous Assistance

  1. In developing a refund or collection case, Field Counsel may use a number of resources other than revenue agents for the following services:

    • Recomputations of tax liabilities

    • Expert opinions on matters of depreciation, depletion, valuation questions, etc.

    • Expert opinions from actuaries

    • Expert opinions from economists

    • Investigations to be conducted abroad. See CCDM 34.7.1.3.

34.7.1.4.1  (08-11-2004)
Recomputation of Tax Liability

  1. Generally, Appeals offices can recompute the taxpayer’s tax liability pursuant to proposed settlements, finalized settlements, and adverse opinions or judgments. If, however, Appeals is unable to recompute the tax liability, Field Counsel can ask the Area Director from the area in which the case arose to do so.

  2. Field Counsel should include the following items in a memorandum requesting a recomputation:

    1. A subject line with the caption of all cases for which a computation is requested

    2. The periods in suit, the type of tax involved, and the amount of any refund that the taxpayer is seeking

    3. The issues and the disposition of each issue

    4. A request that the recomputation show the amount of tax refundable and the allocable portion of the assessed interest and penalties that is refundable

    5. The administrative files which include the revenue agent’s report with computation showing how the Service initially readjusted the plaintiff’s tax liability

  3. Field Counsel should send the memorandum requesting a recomputation within three working days of the date the Field attorney receives the request from DJ.

  4. When Counsel receives recomputations from Appeals, he/she should verify that the recomputation is correct and should look for the following:

    • Inclusion of all the requested adjustments

    • In what years the Service owes the taxpayer any refunds

    • Assessed interest and additions to tax that are set out separately and apportioned correctly

  5. Field Counsel should send DJ three copies of each recomputation

34.7.1.4.2  (08-11-2004)
Actuarial Reports

  1. Field Counsel should send all requests for actuarial assistance, other than assistance for treatment of pension, profit sharing, stock bonus, annuity, and other benefit compensation plans to the Chief, General Actuarial Branch. The General Actuarial Branch provides assistance for the following:

    • Tax treatment of annuities

    • Tax treatment of life insurance

    • Tax treatment of accident and health plans and contracts

    • Valuation of life estates

    • Valuation of remainder interests

    • Valuation of contingent interests

    • Valuation of reversionary interests

    • Deductions for amounts paid or accrued on indebtedness by insurance companies

  2. Field Counsel should send all requests for actuarial assistance for pensions, profit sharing, stock bonus, annuity, and other benefit compensation plans to the Chief, Pension Actuarial Branch.

34.7.1.4.3  (08-11-2004)
Expert Reports Other Than Actuarial

  1. Field Counsel may, while preparing a litigation report, realize that he or she might need an expert in the following areas:

    • Depreciation

    • Depletion

    • Valuation of art objects

    • Valuation questions arising in oil and gas, mining, timber, pulp and paper, industrial, public utilities, real estate, personal property, and other commercial fields

  2. The Office of Appraisal Services can provide engineering and valuation experts in these areas. Field Counsel should promptly request the expert’s services but should not postpone completing the litigation report while waiting for an expert report from the Office of Appraisal Services. Field Counsel should state in the litigation report that he needs an expert opinion. Counsel should get the approval of the DJ attorney before requesting an in house expert because the DJ attorney may prefer to use an expert from the private sector.

    1. The Office of Appraisal Services, as part of the Appeals Division, is composed of two sections, Financial/Engineering Services and Art Advisory Services. The Office of Appraisal Services can provide information for supplemental litigation reports, trial preparation, and its personnel can also testify as expert witnesses. If necessary, the office can assist the attorney in finding an outside expert.

    2. Field Counsel should initially contact the Office of Appraisal Services for assistance by telephone and follow-up with a memorandum.

  3. Field Counsel should request economists’ reports from the Field Specialists’ Office in Washington, DC. Economists may serve as expert witnesses or may identify and locate independent witnesses or consultants to provide expert testimony on economic matters.

  4. Field Counsel should request an economist’s assistance as it is determined that such assistance is needed. Counsel should not ask for an economist for general statistical data, the identity of companies engaged in similar activities, or other information generally available in local libraries. An economist can help with:

    • Identification and evaluation of potential issues

    • Determination of the areas that should be explored

    • Recognition of the economic data needed to support the issues

    • Analysis, evaluation, and interpretation of the economic and statistical information in the file

    • Determination of whether an adjustment is based upon sound economic concepts, is reasonable in amount, and is consistent with recommendations made in similar situations.

  5. Field Counsel should use the following guidelines while writing a memorandum requesting an expert and/or an economist:

    1. Include the periods in suit, type of tax involved, and the amount the taxpayer is seeking to recover.

    2. Generally include only the issue on which the expert report is being requested.

    3. Describe the exact nature of the expert and the type of report needed. Enclose, if applicable, the letter from DJ requesting assistance that contains a sufficient description of the desired expert and report.

    4. State any deadlines for obtaining an expert and/or having the expert complete his/her report.

    5. Send either a copy of the portion of the administrative file that contains facts appropriate to the report or a duplicate administrative file.

  6. Field Counsel should review any report that the examination division or the Office of Appraisal Services prepared. If an expert has made an error, Counsel should informally contact the expert for clarification and, if necessary, correction. Counsel should resubmit the revised report to DJ. If there are no errors in the report, Counsel should send it to DJ, commenting on the report as necessary or appropriate. See CCDM 34.7.1.5. The Field attorney does not have to repeat or summarize the findings contained in the report.

34.7.1.5  (08-11-2004)
Supplemental Litigation Reports

  1. Field Counsel can write a supplemental litigation report completing or reevaluating the discussion in the initial litigation report. The supplemental letter modifies and/or affirms the recommendation of the litigation report in light of subsequent factual or legal developments. Field Counsel should always try to prepare a timely and complete litigation report. Occasionally, however, due to time limitations, unavailability of pertinent facts, or the nature of the legal issue involved, Field Counsel cannot include a definitive statement of facts, legal analysis, and recommendation in the litigation report. When this occurs, Field Counsel should write a supplemental litigation report.

  2. Even if Field Counsel initially writes a complete litigation report, a supplemental litigation report may be used to discuss subsequent factual or legal developments. There is no general rule for the length or content of a supplemental litigation report. It should, however, include the case classification in the lower right hand corner of the first page. See CCDM 34.5.1.1.1 for a complete discussion of case classification.

    1. If Field Counsel changes the classification of a case, he should explain why in the concluding paragraph.

    2. If an issue is discussed in the supplemental litigation report which had been included in the initial litigation report, the prior discussion should be summarized but not repeated in the supplemental litigation report.

    3. If never discussed, Field Counsel should thoroughly discuss the issue and reach a conclusion in the supplemental litigation report.

34.7.1.5.1  (08-11-2004)
Mandatory Supplemental Litigation Reports

  1. Supplemental litigation reports are required when:

    1. There have been additional factual or legal developments; or

    2. The taxpayer files an amended complaint.

34.7.1.5.1.1  (08-11-2004)
Additional Factual Or Legal Development

  1. During the pendency of a suit, Field Counsel may receive additional information requiring a reevaluation of the Service’s position on one or more of the issues in the litigation report. This may occur as a result of a supplemental investigation, report of an expert, or information that the DJ attorney gives to the Field Counsel attorney. Field Counsel should monitor all information received about the suit and determine whether to reevaluate the position taken in the initial litigation report. If reevaluation of the position taken is necessary in light of new information, Counsel should prepare a supplemental letter whether or not the DJ trial attorney requests one. Field Counsel may also become aware of changes in the law or Service position on an issue after preparation of the initial litigation report.

  2. Field Counsel should prepare a supplemental litigation report whenever it is necessary to reevaluate the initial legal analysis in light of subsequent legal developments or changes in the Service’s position. The supplemental letter does not have to be extensive if the Field Counsel attorney can incorporate by reference and attach a document that includes a complete and well reasoned statement of the law or Service position. If this occurs, Field Counsel should evaluate the new material’s effect and make a definitive recommendation. The supplemental letter should also include the case classification and include an explanation of any changes in the case classification. See CCDM 34.5.1.1.1 for a complete discussion of case classification.

34.7.1.5.1.2  (08-11-2004)
Amended Complaint

  1. If the taxpayer files an amended complaint, Field Counsel should prepare a supplemental litigation report. If the taxpayer is merely seeking relief similar to the original complaint for other periods and there are no new issues, Field Counsel can prepare a brief supplemental letter.

  2. If the taxpayer is seeking different relief or is raising a new issue, Field Counsel should discuss extensively the new matter as if it were the original litigation report.

34.7.1.6  (08-11-2004)
Trial Assistance

  1. The DJ trial attorney may request the following:

    1. Assistance and testimony of a revenue agent at the trial; or

    2. Special technical assistance, including charts and diagrams, hand writing analysis, laboratory analysis, or the translation of documents into English from a foreign language.

34.7.1.6.1  (08-11-2004)
Assistance of Service Personnel at Trial

  1. The DJ trial attorney may request the assistance of Service personnel immediately prior to and during the trial. When the DJ attorney makes this request, preferably in writing, the Field Counsel attorney should, if possible, contact by telephone the appropriate Area Director and follow with a confirming memorandum. Counsel should refer to CCDM 34.7.1.2.1, Supplemental Investigations, to determine when to comply with the request and how to write the memorandum. Field Counsel should give Service personnel as much advance notice as possible when DJ needs their assistance.

  2. Field Counsel should use the following guidelines in obtaining the assistance of service personnel.

    1. Include the name of the case, type of tax involved, taxable periods involved, and a reference to DJ’s request in the memorandum, and attach any written request from DJ for assistance.

    2. State if DJ is requesting the assistance of a specific employee but request a substitute in the event the named employee is not available.

    3. Clearly state in the memorandum that the employee will assist the DJ trial attorney in trial preparation and/or at trial.

    4. State in the memorandum the date and place where the employee will assist the DJ attorney.

    5. Specify in the memorandum whether the DJ trial attorney will contact the employee or the employee is expected to contact the DJ trial attorney.

    6. Include the DJ trial attorney and Field Counsel’s telephone number.

    7. An attorney may not have to coordinate in advance a supplemental investigation entailing only a day or two of a revenue agent’s time. Prior to making a formal request, however, Field Counsel should coordinate with the affected Area Director extensive requests requiring a large number of interviews and an extraordinary amount of time, expense, and documentation. When Counsel receives such a request, he/she should determine whether it is reasonable given the amount of money in dispute and the actual need for information. If Field Counsel determines that the request is reasonable, he/he should contact the revenue agent who undertook the original investigation or his/her supervisor to ascertain if the agent or a substitute can comply with the request. Counsel should confirm by memorandum any agreement with the Area Director. If Counsel determines a supplemental investigation requested by DJ is unreasonable, they should contact the DJ trial attorney and seek to persuade him/her to modify the supplemental investigation request. This should be done prior to contacting the Examination Division.

34.7.1.6.2  (08-11-2004)
Requests for Depositions or Testimony

  1. The Chief Counsel is authorized to honor requests for the testimony of Service personnel without referring the request to the client if the request is for testimony on behalf of the Government; however, where the request for testimony, or depositions, although forwarded to the Office of Chief Counsel by DJ, is for testimony on behalf of the taxpayer, the Area Director and appropriate disclosure personnel must authorize such testimony. Therefore, when Field Counsel receives such a request, they should first determine whether the requested testimony will be on behalf of the Government or the taxpayer. If necessary, they should initiate the request for authorization.


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