117 T.C. No. 1
UNITED STATES TAX COURT
GLAXOSMITHKLINE HOLDINGS (AMERICAS) INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3-01-D. Filed July 5, 2001.
G and R (the applicants) filed a Joint Application
to Perpetuate Testimony Before Commencement of a Case
(joint application) pursuant to Rule 82, Tax Court
Rules of Practice and Procedure. The applicants
propose to take the depositions of two of G’s former
executives, both of whom are septuagenarians, and both
of whom reside in the United Kingdom. The applicants
agree that R is not likely to issue a notice of
deficiency to G in the near future, that the testimony
of the proposed deponents is critical to G’s issues
under examination, and that a trial is likely but not
until 2005 or 2006.
Held: Because there is a reasonable expectation
that the applicants will be adversaries in an action
cognizable in this Court, and there is a significant
risk that critical testimony will be unavailable when a
trial, if any, is commenced, the applicants’ joint
application will be granted.
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John B. Magee and Richard C. Stark, for petitioner.
Theodore J. Kletnick, for respondent.
OPINION
WELLS, Chief Judge: This matter is before the Court on a
Joint Application to Perpetuate Testimony Before Commencement of
a Case (joint application), filed May 7, 2001. Unless otherwise
indicated, section references are to sections of the Internal
Revenue Code, as amended, and Rule references are to the Tax
Court Rules of Practice and Procedure.
GlaxoSmithKline Holdings (Americas), Inc. (Glaxo), and the
Commissioner of Internal Revenue (the Commissioner) filed a joint
application, pursuant to Rule 82, to take the depositions of two
of Glaxo’s former executives. For convenience, we will refer to
Glaxo and the Commissioner, collectively, as the applicants.
Glaxo has no current petition for redetermination of deficiencies
before the Court.
Background
Glaxo is a holding company for a global pharmaceutical
business headquartered in the United Kingdom. In 1992, the
Commissioner began an examination of Glaxo’s tax returns for 1989
and 1990. The Glaxo examination currently encompasses Glaxo’s
tax returns for the years 1989 through 1999.
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Glaxo disagrees with the Commissioner’s proposal to increase
Glaxo’s taxable income pursuant to section 482 for the years
under examination. Since 1994, the applicants have attempted to
resolve their differences through the Advance Pricing Agreement
Program and through the Internal Revenue Service’s Office of
Appeals.
In December 1999, Glaxo formally requested relief from
double taxation for the taxable years 1989 through 1997 under the
mutual agreement procedures (or so-called competent authority
process) provided in article 25 of the Convention for the
Avoidance of Double Taxation, Dec. 31, 1975, U.S.-U.K., 31 U.S.T.
5668, 5688, as amended by Second Protocol, Apr. 25, 1980, 31
U.S.T. 5707, 5708. The applicants anticipate that the competent
authority process could be protracted.
The Commissioner has not issued a notice of deficiency to
Glaxo for the years under examination. Because of their
commitment to the competent authority process, the applicants do
not anticipate that the Commissioner will issue a notice of
deficiency to Glaxo in the near future. Assuming that the
Commissioner issues a notice of deficiency to Glaxo, the
applicants expect that the matter will proceed to trial but not
until 2005 or 2006.
The applicants seek permission to take the depositions of
Sir Paul Girolami (Mr. Girolami) and Sir David Jack (Mr. Jack),
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former Glaxo executives. Messrs. Girolami and Jack reside in the
United Kingdom. Mr. Girolami, presently 75 years of age, served
as Glaxo’s controller, finance director, chief executive, and
chairman of worldwide operations, during the period 1966 through
1994. Mr. Jack, presently 77 years of age, served vital roles in
Glaxo’s research and development efforts during the period 1961
through 1987. The applicants agree that Messrs. Girolami’s and
Jack’s testimony will be critical to the resolution of the
section 482 adjustments that the Commissioner has proposed for
the years under examination.
Citing Messrs. Girolami’s and Jack’s advanced ages, the
importance of their testimony, their foreign residences, and the
substantial delay anticipated in any trial, the applicants
contend that, to prevent a failure of justice, the Court should
issue an order authorizing Messrs. Girolami’s and Jack’s
depositions for the purpose of perpetuating their testimony. The
applicants report that Messrs. Girolami and Jack consent to the
granting of the joint application.
The applicants expect to conduct the proposed depositions at
the offices of Glaxo’s counsel in Washington, D.C., so long as
Messrs. Girolami and Jack are capable of traveling to the United
States. The joint application includes a description of the
substance of the testimony that the applicants expect to elicit
from the proposed deponents. The joint application states that
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the proposed depositions will be videotaped and that the
applicants agree to begin Mr. Girolami’s deposition on or about
May 14, 2002, and Mr. Jack’s deposition on or about June 4, 2002.
The applicants have further agreed to a so-called discovery
schedule to permit the Commissioner to make reasonable requests
for information from Glaxo, consult with experts, and make
further preparations in advance of the proposed depositions.
This matter was called for hearing at the Court’s motions
session held in Washington, D.C. Counsel for both parties
appeared at the hearing and offered argument in support of the
joint application. Glaxo filed a Rule 50(c) statement indicating
that: (1) Actuarial studies suggest that there is an
approximately 40-percent probability that Mr. Girolami will not
survive to the end of 2006 and an approximately 50-percent
probability that Mr. Jack will not survive to the end of 2006;
and (2) health and aging studies suggest that, even if they do
survive to the end of 2006, there would be a significant
likelihood that they would be suffering from substantial memory
lapses or other forms of mental impairment at that time.
Discussion
Rule 82 provides 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”. Rule 82 is derived from rule 27(a) of
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the Federal Rules of Civil Procedure, and we are guided by
judicial interpretations of Fed. R. Civ. P. 27 in the absence of
our own precedent. See Reed v. Commissioner, 90 T.C. 698, 700
(1988).
Rule 82 states that an application must show: (1) The facts
showing that the applicant expects to be a party to a case
cognizable in this Court but is at present unable to bring it or
cause it to be brought; (2) the subject matter of the expected
action and the applicant’s interest therein; and (3) all matters
required to be shown in an application under paragraph (b)(1) of
Rule 81 except item (H) thereof. Rule 81(b)(1), as is relevant
here, requires the applicant to show the reason for deposing a
person rather than waiting to call the person as a witness at
trial and the substance of the testimony that the applicant
expects to elicit. Rule 82 further provides:
If the Court is satisfied that the perpetuation of the
testimony or the preservation of the document or thing
may prevent a failure or delay of justice, then it will
make an order authorizing the deposition and including
such other terms and conditions as it may deem
appropriate consistently with these Rules. * * *
The instant application states that the applicants expect to
be adversaries in a case cognizable in this Court and that the
case will likely concern, among other items, adjustments to
Glaxo’s taxable income pursuant to section 482. Although the
Commissioner has not issued a notice of deficiency to Glaxo, and,
therefore, Glaxo presently is unable to file a petition with the
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Court, we are satisfied that it is likely that the dispute
between Glaxo and the Commissioner over the Commissioner’s
adjustments to Glaxo’s tax returns will proceed to litigation.
See DeWagenknecht v. Stinnes, 250 F.2d 414, 417 (D.C. Cir. 1957).
The central question posed in the instant application is
whether the perpetuation of the proposed deponents’ testimony may
prevent a failure or delay of justice. Although no objection to
the proposed depositions has been made, this Court has the
inherent authority to protect the integrity of its Rules
regardless of an objection by a party. See Masek v.
Commissioner, 91 T.C. 1096, 1100 (1988), supplemented by 92 T.C.
814 (1989). Accordingly, we will briefly review relevant caselaw
regarding Rule 82.
In Reed v. Commissioner, supra, we held that the mere
showing that an applicant is currently unable to commence an
action in the Tax Court is insufficient to justify granting an
application under Rule 82. In denying the application in that
case, we stated in pertinent part: “The relief provided for by
Rule 82 is an extraordinary measure and invoked only to prevent
the failure or delay of justice. We will continue to apply the
test * * * which requires that the applicant show that the
testimony will, in all probability, be lost before trial.” Id.
at 701.
In Masek v. Commissioner, supra, the applicant/taxpayer
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sought to take the depositions of two third-party witnesses. The
two witnesses were 62 and 69 years of age, respectively. Upon
review of the application, we explained that the procedure under
Rule 82 was not intended to be used as a discovery device. See
Ash v. Cort, 512 F.2d 909, 911 (3d Cir. 1975). We also stated
that, where an application under Rule 82 suggests that the
proposed deposition might be used for discovery purposes, our
decision whether to grant such an application will turn on a
weighing of the discovery aspects of the deposition against the
applicant’s need to perpetuate testimony. See Masek v.
Commissioner, 91 T.C. at 1100. In denying the application in
that case, we concluded that the proposed depositions of third-
party witnesses reflected “more than a trace of discovery” and
the applicant/taxpayer had not shown (through medical records or
otherwise) that the proposed deponents’ testimony would likely be
lost before trial. Id. at 1100-1101.
In our Supplemental Opinion, Masek v. Commissioner, 92 T.C.
814 (1989), we denied the applicant/taxpayer’s motion to
reconsider our earlier opinion, stating that our focus under Rule
82 “is directed to the risk that the testimony will be
unavailable when a trial commences, and the applicant must
establish that that risk is significant.” Id. at 815.
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With the foregoing as background, we consider the instant
application. As previously discussed, the application states
facts showing that the applicants reasonably expect to be
adversaries in an action cognizable in this Court. Because the
matter involves a complex examination concerning numerous issues,
the issuance of a notice of deficiency to Glaxo will be delayed,
and the case is not likely to go to trial until 2005 or 2006.
Against this backdrop, we note that the proposed deponents,
Messrs. Girolami and Jack, are both residents of the United
Kingdom. Mr. Girolami is presently 75 years of age, and Mr. Jack
is presently 77 years of age. The applicants agree that the
proposed deponents’ testimony will be critical to the issue of
Glaxo’s policies concerning intercompany transfer pricing during
the years under examination.
There is no evidence that either of the proposed deponents
is presently ill or otherwise suffering from a chronic medical
condition, see Masek v. Commissioner, 91 T.C. at 1100-1101;
however, other factors support the proposition that there is a
significant likelihood that the proposed deponents’ testimony
will be unavailable when a trial commences in this matter. In
particular, the proposed deponents’ advanced ages, their
residences abroad, and the potential for substantial delay in a
trial of the Federal tax issues presented in the examination of
Glaxo’s 1989 through 1999 tax returns are all factors which
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suggest that there is a high probability that critical testimony
will be lost.
There is no indication that the applicants are attempting to
use the proposed depositions as a discovery device. Although the
applicants have agreed that the Commissioner will be given an
opportunity to request information from Glaxo in order to prepare
for the depositions, such an exchange of information in advance
of the depositions is perfectly understandable given the
complexity and magnitude of the examination.
The circumstances presented in the instant application are
somewhat analogous to those presented in Texaco, Inc. v. Borda,
383 F.2d 607 (3d Cir. 1967), where Borda brought a civil
antitrust suit against Texaco which was stayed pending the
determination of a criminal action in which Texaco was named as a
coconspirator. The District Court had denied Texaco’s
application to take Borda’s deposition in advance of the trial in
the civil case. On appeal, the Court of Appeals for the Third
Circuit held that the District Court had erred in denying
Texaco’s application to take Borda’s deposition, considering that
Borda was 71 at the time, the events underlying the civil action
dated back some 11 years, and the trial of the matter would not
be conducted in the foreseeable future. Cf. DeWagenknecht v.
Stinnes, supra (application to take deposition to perpetuate
testimony of witness 74 years of age was granted where claimant
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was unable to bring action immediately and claim concerned events
and transactions which had taken place many years earlier).
In sum, the application shows that there is a reasonable
expectation that the applicants will be adversaries in an action
cognizable in the Court and there is a significant risk that
critical testimony may be lost over the next several years
because of Messrs. Girolami’s and Jack’s advanced ages.
Consistent with the preceding discussion, and with the intention
of preventing a failure of justice in this matter, we will grant
the applicants’ Joint Application to Perpetuate Testimony Before
Commencement of a Case, with appropriate terms and conditions to
be set forth in our order. Insofar as the applicants request
that we include a discovery schedule in our order, we deny the
request.
To reflect the foregoing,
An order will be issued
granting the applicants’ Joint
Application to Perpetuate
Testimony Before Commencement
of a Case.