                       T.C. Memo. 2001-33



                    UNITED STATES TAX COURT



     K & M LA BOTICA PHARMACY, INC., ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket Nos. 10500-99, 17346-99,      Filed February 12, 2001.
                17725-99.



         Held: Petitioners’ motions to compel taking of a
    deposition under Rule 75, Tax Court Rules of Practice
    and Procedure, denied.


    Dennis N. Brager and Howard Rosenblatt, for petitioners.

    Ron S. Chun and Angelique M. Neal, for respondent.




    1
        Cases of the following petitioners are consolidated
herewith: Khaled Ahmed, docket No. 17346-99, and Khaled Ahmed,
docket No. 17725-99.
                                 - 2 -

                        MEMORANDUM OPINION


     NIMS, Judge:   This matter is before the Court on

petitioners’ motions, filed pursuant to Rule 75, to compel taking

of the deposition of Hussein Darwish.      Unless otherwise

indicated, all Rule references are to the Tax Court Rules of

Practice and Procedure, and all section references are to

sections of the Internal Revenue Code.

                              Background

     The facts stated herein are as represented in papers

submitted in connection with the parties’ discovery efforts, and

are taken as true solely for the purpose of deciding petitioners’

motions.

     The petitioners in these consolidated cases are an

individual, Khaled Ahmed, and a corporation solely owned by Mr.

Ahmed, K & M La Botica Pharmacy, Inc. (La Botica).      Mr. Ahmed is

a licensed pharmacist in the State of California.      Throughout the

years at issue, La Botica was engaged in the business of

operating pharmacies which sold prescription and over-the-counter

medications and treatments.    Mr. Ahmed is also alleged to have

been involved in the operation of medical service clinics and a

medical laboratory through various nominee entities.

     At some time prior to March of 1999, respondent began an

examination regarding the income taxes of Mr. Ahmed and the

related La Botica corporation.    Thereafter, on March 11, 1999,
                               - 3 -

respondent issued a notice of deficiency with respect to La

Botica’s 1995 taxable year.   The notice reflected a deficiency

attributable in large part to a determination of unreported

income and a penalty under section 6663(a) on account of fraud.

     Then, on June 24, 1999, respondent issued to Mr. Ahmed and

his wife in their individual capacities notices of jeopardy

assessment pursuant to section 6861 for the taxable years 1995

through 1998.   Section 6861(a) provides for immediate assessment

of taxes in the event that the Secretary believes assessment or

collection of a deficiency will be jeopardized by delay.    In

contesting this action, Mr. Ahmed subsequently filed a complaint

in the U.S. District Court for the Central District of California

seeking judicial review of the jeopardy assessment.   A hearing on

the matter was held by the District Court judge in August of 1999

and culminated with oral findings of fact and conclusions of law

wherein the court found and concluded that the assessment met the

criteria of section 7429(b)(3).   In connection with this

proceeding, Hussein Darwish filed an affidavit, was called as a

witness on behalf of respondent, and was subjected to cross-

examination by counsel for Mr. Ahmed.   Mr. Darwish was employed

by Mr. Ahmed at La Botica from August of 1996 until April of

1998, and his testimony related primarily to his experiences with
                                - 4 -

Mr. Ahmed’s business practices, particularly Mr. Ahmed’s

purported dealings in cash and unauthorized use of others’

signatures.

     Also in August of 1999, respondent issued notices of

deficiency to Mr. Ahmed and his wife with respect to 1995, 1996,

1997, and 1998.   For each year, respondent determined tax

deficiencies based on unreported income and penalties for the

filing of fraudulent returns.   The unreported income alleged by

respondent for 1995 largely took the form of constructive

dividends stemming from payment by La Botica of Mr. Ahmed’s

personal expenses, from imputed interest on loans made by Mr.

Ahmed to La Botica, and from retention by Mr. Ahmed of the

proceeds of corporate checks cashed on his behalf at check

cashing services.   For 1996 through 1998, the principal ground

underlying the determined deficiencies was unreported cash sales

by various clinics and pharmacies which respondent characterized

as nominee entities or alter egos of Mr. Ahmed.

     Following the filing of petitions with this Court in

response to each of the above notices of deficiency, these cases

were initially calendared for trial beginning on October 16,

2000.   The cases were later continued, and outstanding discovery

motions, including motions to compel taking of Mr. Darwish’s

deposition, were denied as moot.   At present the cases are set

for the Court’s March 19, 2001, trial calendar, and petitioners
                                - 5 -

have once again filed motions to compel taking of Mr. Darwish’s

deposition, to which are attached the notices of objection

thereto that were previously served by respondent on petitioners.

It is these motions and objections which we consider in the

instant Memorandum Opinion.

     Lastly, we note that concurrently with certain of the tax

proceedings detailed above, a separate civil suit was pending

against Mr. Ahmed in California Superior Court.   On January 4,

1999, Mr. Darwish had filed a complaint naming as defendants Mr.

Ahmed, La Botica, and various other entities.   The complaint

contained causes of action for intentional concealment,

intentional misrepresentation, conspiracy, dissolution of

corporation and accounting, declaratory relief, injunction, and

appointment of receiver.   The factual allegations made in the

complaint parallel in many respects those underlying Mr.

Darwish’s affidavit and testimony in the jeopardy proceeding.

This civil suit was apparently settled out of court, as the

parties thereto requested that it be dismissed in January of

2000.

                              Discussion

     Rule 75 governs the taking of depositions of nonparty

witnesses in instances where the parties cannot or will not agree
                                - 6 -

to permit a consensual deposition.      Specifically, Rule 75(b) sets

forth the standards controlling the availability of this

discovery device, as follows:

          The taking of a deposition of a nonparty witness
     under this Rule is an extraordinary method of discovery
     and may be used only where a nonparty witness can give
     testimony or possesses documents or things which are
     discoverable within the meaning of Rule 70(b) [any
     matter which is not privileged and which is relevant to
     the subject matter involved in the pending case] and
     where such testimony, documents, or things practicably
     cannot be obtained through informal consultation or
     communication (Rule 70(a)(1)) or by a deposition taken
     with consent of the parties (Rule 74). If such
     requirements are satisfied, then a deposition may be
     taken under this Rule, for example, where a party is a
     member of a partnership and an issue in the case
     involves an adjustment with respect to such
     partnership, or a party is a shareholder of an electing
     small business corporation (as described in Code
     Section 1371(b) prior to the enactment of the
     Subchapter S Revision Act of 1982), and an issue in the
     case involves an adjustment with respect to such
     corporation. * * *

     The comments accompanying promulgation of the Rule similarly

reiterate that:

     The new Rule 75 provides an extraordinary method of
     discovery which may be used only where the information
     sought cannot be obtained by informal consultation or
     by other discovery methods. For example, if the other
     requirements of the Rule are satisfied, a deposition
     might be taken under the Rule in a case involving the
     tax liability of a limited partner who does not have
     access to the books and records of the partnership, or
     where a bank or other person possesses records which
     are relevant to the tax liability of a party and are
     otherwise unavailable. [79 T.C. 1141-1142 (1982).]

     In the instant proceeding, petitioners assert that they are

entitled to depose Mr. Darwish on the following grounds:
                                - 7 -

     Petitioner wishes to depose Darwish to test the extent
     of his knowledge and his veracity with respect to the
     allegations he has previously made, and to determine
     whether he claims to know of additional information
     regarding the issues in this case. Petitioners also
     wish to depose Darwish to determine whether he has any
     information, including the names of other potential
     witnesses, who can shed light on the allegations he has
     made.

We, however, are satisfied that these reasons are insufficient in

the circumstances of these cases to meet the standard imposed by

Rule 75 for nonconsensual depositions.

     First, underlying Rule 75 is the principle that it provides

for an extraordinary method of discovery and therefore should be

available only where there exists a specific and compelling basis

for its use.    The examples contained in the Rule itself and in

the above-quoted comments support such an interpretation.    In

each illustration given, the requesting party was seeking

specific and precise factual information essential to that

party’s case.    Conversely, none of the examples was premised on

an inchoate hope of uncovering some vaguely defined form of

potentially useful information.    It follows that Rule 75 does not

sanction “fishing expeditions”.

     In a similar vein, we are satisfied that Rule 75 is not

intended to serve as a substitute for cross-examination at trial.

Rule 75 is an appropriate vehicle for obtaining particular

information from the sole source where that information is likely

to be found; it does not afford an opportunity to question a
                               - 8 -

witness merely for the purpose of probing veracity and

credibility.   As this Court previously stated with disapproval in

another proceeding involving Rule 75:   “It does not appear that

any purpose would be served by deposing Nick except to get Nick’s

testimony before the trial.”   DeLucia v. Commissioner, 87 T.C.

804, 813 (1986).

     Hence, we conclude that before the Court will order a

deposition pursuant to Rule 75, the requesting party must allege

with a greater degree of specificity than has been shown in this

proceeding the nature of the information sought and the grounds

for the party’s belief that such will be forthcoming from a

particular deponent.   Here, the first of petitioners’ reasons for

deposing Mr. Darwish, to test the extent of his knowledge and his

veracity, amounts to little more than a request to cross-examine

Mr. Darwish before trial.   The second reason, to determine

whether Mr. Darwish is aware of any further information or

witnesses which can shed light on his allegations, merely seeks

to interrogate Mr. Darwish generally in the imperfectly formed

hope that something might turn up.

     In addition, from a practical standpoint, we note that there

exists even less justification for such unarticulated probing in

the unique circumstances of this case than might be present in

other scenarios.   Petitioners have already had the opportunity to

review the substance of Mr. Darwish’s allegations in three forms,
                                 - 9 -

two of which entailed sworn statements.       Mr. Darwish’s civil

complaint, his affidavit in the previous jeopardy proceeding, and

his testimony at the jeopardy trial have all served to alert

petitioners of his claims regarding what took place at Mr.

Ahmed’s businesses.

     Even more importantly, petitioners have in fact already been

afforded a chance to cross-examine Mr. Darwish under oath on

matters such as Mr. Ahmed’s cash dealings and unauthorized use of

signatures.   These issues, highly pertinent to the jeopardy

assessment, will be equally relevant in the deficiency context.

     Lastly, we observe that when the primary substantive

questions to be decided in the deficiency cases involve whether

Mr. Ahmed had unreported income and engaged in fraudulent

behavior, the essential information determinative of his tax

liability, as well as of Mr. Darwish’s veracity, is within Mr.

Ahmed’s own knowledge and control.

     For the above reasons, petitioners’ motions to compel taking

of Mr. Darwish’s testimony will be denied.

     To reflect the foregoing,



                                         Appropriate orders will be

                                 issued denying petitioners’ Motions

                                 to Compel Taking of Deposition of

                                 Hussein Darwish.
