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United States v. Salmon

United States District Court, E.D. North Carolina, Western Division

August 16, 2017



          LOUISE W. FLANAGAN United States District Judge.

         Before the Court is the United States' motion requesting an order compelling the Defendant, Tanisha Chambers a/k/a Tanisha Salmon, to provide initial disclosures required by Fed.R.Civ.P. 26(a)(1) and a written response to the government's First Set of Requests for Production of Documents, along with all responsive documents.

         I. Background

         In this lawsuit, the United States seeks injunctive and other equitable relief pursuant to 26 U.S.C. §§ 7402(a), 7407, and 7408, claiming that the Defendant, through the preparation of federal tax returns, engages in conduct that interferes with the enforcement of the internal revenue laws and that injunctive relief is necessary to prevent a recurrence of that conduct. The United States also seeks an order requiring the Defendant to disgorge the ill-gotten gains she received for the preparation of tax returns making false claims.

         On May, 16, 2017, the United States served 39 requests for production of documents on the Defendant. The Defendant did not respond. The Defendant also failed to provide Rule 26(a)(1) mandatory disclosures on or before May 15, 2017, as required by the Court's scheduling order. (Docket no. 11.) The Defendant subsequently provided the names of individuals likely to have discoverable information that she may use to support her claims or defenses, but has not made any of the other disclosures that Fed.R.Civ.P. 26(a)(1) requires.

         The United States filed its motion on July 18, 2017, and the Defendant failed to respond. The Court will grant the United States' motion.

         II. Discussion

         Under Rule 26, a party “may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed.R.Civ.P. 26(b)(1). Evidence is relevant if “it has any tendency to make a fact more or less probable than it would be without the evidence” and “the fact is of consequence in determining the action.” Fed.R.Evid. 401. When, as here, a party fails to respond to discovery seeking relevant information, under Rule 37 “[a] party, upon reasonable notice to other parties and all persons affected thereby, may apply for an order compelling disclosure or discovery.” Fed.R.Civ.P. 37(a). A party waives its objections if it fails to respond to discovery requests within the allotted time. See Merriweather v. Radio Shack, 2012 WL 4578695, at *1 (E.D. N.C. Oct. 1, 2012).

         The United States' requests for production of documents seek information relevant to the government's claims and they are proportional to the needs of the case. To obtain the relief it seeks, the government must show that 1) the relief sought is necessary or appropriate for enforcement of the internal revenue laws; 2) the Defendant acted recklessly or negligently with respect to the preparation of tax returns or engaged in any other deceptive conduct which substantially interferes with the administration of the Internal Revenue laws; or 3) the Defendant advised, or assisted in the preparation of a tax return knowing (or having reason to believe) that it would be used in connection with any material matter arising under the internal revenue laws and would result in an understatement of another person's tax liability. See United States v. Stinson, ___ F.Supp.3d ___, 2017 WL 881839, *18 (M.D. Fla. Mar. 6, 2017) (internal citation omitted); United States v. Renfrow, 612 F.Supp.2d 677, 691 (E.D. N.C. 2009); United States v. Preiss, 2008 WL 2413895, at *5 (M.D. N.C. June 11, 2008).

         The Defendant, by failing to timely respond, waived any objections other than to privilege. As explained below, the government's document requests seek material relevant to the government's claims for relief and the Defendant shall be compelled to respond to the requests in writing and to produce responsive documents.

         Requests 1, 2, 3, 4, and 9 seek copies of tax returns prepared by the Defendant or her employees, and also her “customer files” (whether in paper or electronic format), which are records that tax return preparers maintain, such as Forms W-2 and 1099, or receipts for income or expenses, provided by the customer for use in preparing the tax return. These records may show whether the claims made on customers' tax returns are supported or contradicted by the information that the customers provided.

         Request 5 seeks documents showing the fees received by the Defendant, which is relevant to the government's claim for disgorgement of ill-gotten gains. Additionally, requests 6, 7, and 8 request franchise agreements, employment agreements, and other documents related to employees, which are relevant to identify potential witnesses and also to show whether the Defendant is a “tax return preparer” as defined in 26 U.S.C. § 7701(a)(36).[1]

         Request 10 seeks records of communications between the Defendant and the IRS to show any notice that the Defendant may have received regarding errors on tax returns that she prepared.

         Request 11 seeks documents showing the Electronic Filing Identification Numbers that the Defendant and her tax preparation stores used when filing tax returns. These records may enable the government to identify all of the stores owned by the Defendant and identify all of her employees who may have registered EFINs with the IRS. Moreover, the government may identify returns filed using those EFINs and compare IRS records of filed tax returns with any other records (i.e. customer files and related electronic records) provided by the Defendant to determine whether the filed ...

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