IRS Asserts Sanctions Inappropriate; Can't Reveal Taxpayer Information

IN SUPPORT THEREOF, the Respondent respectfully shows unto the Court:

1. Petitioner's Motion to Compel Discovery and to Review Responses to Requests for Admissions Regarding Advance Pricing Agreements ("Pet'r. Motion to Compel"), as retitled by the Court, and filed January 24, 2006, seeks, inter alia, to require Respondent to answer in full Petitioner's First Request for Admissions (Pet'r. Motion to Compel, Ex. 27).

2. The Court, by Order dated February 3, 2006, inter alia, directed that, on or before March 1, 2006, the Respondent show cause why the Court should not sanction Respondent for refusing to provide the information sought in Petitioner's discovery and requests for admissions by deeming admitted the matters set forth in Petitioner's First Request for Admissions.

3. Respondent is concurrently filing with this document Respondent's Notice Of Objection To Petitioner's Motion To Compel Discovery And To Review Responses To Requests For Admissions Regarding Advance Pricing Agreements, together with an accompanying memorandum of law in support of each of the documents.

4. Respondent objects to each of Petitioner's sixteen requests (plus subdivisions) in Petitioner's First Request for Admissions on the basis that each request asks the Respondent to admit or deny specific allegations concerning taxpayer information contained in APAs and related files. Admitting or denying Petitioner's requests would, therefore, reveal return information causing Respondent to violate section 6103.

5. Respondent further objects to each of Petitioner's sixteen requests (plus subdivisions) in Petitioner's First Request for Admissions on the basis that each request, which seeks information regarding the manner in which Respondent entered into APAs with other taxpayers and Respondent's APA policies, cannot lead to admissible evidence.

6. Moreover, Respondent additionally objects to Petitioner's requests nos. 8, 14 and 15 on the basis that the Deliberative Process privilege protects the information sought, which is predecisional and deliberative, and admitting or denying these requests would significantly impede or nullify governmental agency action in carrying out a government responsibility or function.

7. The sanction of deeming the requests in Petitioner's First Request for Admissions as admitted should not be granted as it would severely impair the administration of taxes. At trial, Petitioner would rely on the allegations deemed admitted, and Respondent would be prevented from receiving a fair trial on the merits of the true facts at issue in these consolidated cases.

8. The Respondent is concurrently filing a detailed Memorandum of Law in response to the Court's Order to Show Cause.

WHEREFORE, it is prayed that the Court should issue an order that the Respondent has shown cause why the matter set forth in Petitioner's First Requests for Admissions should not be deemed admitted.