                  T.C. Memo. 1997-505



                UNITED STATES TAX COURT



          RICHARD L. BENNETT, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 19775-96.            Filed November 10, 1997.

     P contributed 236 films to a charitable
organization. In accord with an appraisal, P placed a
$236,000 value on the films. R, in the process of
examining P's contributions, had X, an in-house
engineer, to value the films. X opined that the films
had no (zero) value. R then hired Y, an outside
"independent" expert, to value the films. Finally, R
had Z, another in-house engineer, to value the films.
Z opined that 118 of the 236 films were damaged and
were of no value. Z also opined that P had correctly
valued at $1,000 per film those of the films that were
not damaged. R's notice of deficiency to P was based
on Z's valuation. P obtained the valuation reports
(reports) of the in-house engineers (X and Z), but Y's
report was not provided to P.
     In the context of pretrial discovery P sought a
copy of Y's report. R refused to turn over the report
on the grounds that P was seeking to go behind the
notice of deficiency, citing Greenberg's Express, Inc.
v. Commissioner, 62 T.C. 324 (1974). P did not raise
in any pleading or motion the issue of whether the
notice of deficiency was arbitrary or capricious. R,
                                 - 2 -


     also relying on Fed. R. Civ. P. 26(b)(4)(B), argues
     that expert reports should not be discoverable under
     this Court's Rules of Practice and Procedure.
          Held: In the context of this case, P is not
     seeking to "go behind the notice of deficiency" and is
     entitled to discover and obtain a copy of Y's report.

     James W. Childs and Roxann T. Conrad, for petitioner.

     Carol A. Szczepanik and Dennis G. Driscoll, for respondent.


                        MEMORANDUM OPINION

     GERBER, Judge:   We must decide:    (1) Whether, in a pretrial

discovery setting, it was appropriate for respondent to refuse to

produce a document on the ground that petitioner is not entitled

to go behind the notice of deficiency determination, and (2)

whether petitioner is entitled to discover a pre-deficiency-

notice report of respondent’s expert who will not be called as a

witness.

Background

     Petitioner moved to compel production of an independent

expert's report obtained by respondent during the examination

process.   On his 1990 and 1991 Federal income tax returns,

petitioner claimed deductions in the amounts of $76,000 and

$160,000, respectively, for the donation of 236 films to the

Institute for the Advanced Study of Human Sexuality of the Exodus

Trust, a charitable organization.    Seventy-six films were donated

in 1990 and 160 films in 1991.    The films are 8-millimeter,

silent, black and white films which contain erotic material
                               - 3 -


produced in the United States and Europe between 1925 and 1950.

Petitioner obtained a $236,000 appraisal valuing each of the 236

films at $1,000.   Petitioner claimed charitable contribution

deductions in the amounts of $74,667 and $66,513 for 1990 and

1991, respectively, and claimed a carryover charitable deduction

of $97,641 to 1992.

     During the examination of petitioner's 1991 and 1992 income

tax returns, and before issuance of the notice of deficiency,

respondent utilized an in-house valuation engineer (first

engineer), who contacted petitioner's appraiser regarding the

method of valuation used in determining the $236,000 value.

According to the first engineer's report, petitioner's appraiser

determined the films' value using a comparable sales method.

Petitioner's appraiser apparently would not reveal the comparable

films to respondent's first engineer because the "sales * * *

would be illegal, since the films in question were pornographic,

and cannot be sold in the market place."   The first engineer

recommended a zero value for the 236 films donated by petitioner.

Petitioner received a copy of the first engineer's report

pursuant to a Freedom of Information Act (FOIA) request by

petitioner's accountant.   It is not apparent when petitioner

received the first engineer's report.

     Next, respondent hired an outside independent expert

(independent expert), who valued the films in question and
                                - 4 -


provided respondent with a report (expert report).    That expert

report is the subject of petitioner's motion to compel.

Petitioner was not informed of the contents or given a copy of

respondent's independent expert report.

     Respondent then had another in-house valuation engineer

(second engineer) to value the films.    The second engineer

provided an Engineering and Valuation Report (in-house report) on

the donated films.    The second engineer, after physical

inspection of the films, found that approximately 50 percent of

the films had deteriorated due to oxidation of the celluloid.

According to the second engineer, the cost to return the damaged

films to usable condition would be at least $2,000 per film.

Given petitioner's claimed $1,000-per-film value, the second

engineer concluded that repair of the damaged films would not be

economically feasible and, thus, the damaged films had no value.

The second engineer recommended that respondent disallow the

value that petitioner assigned to the damaged films, and

therefore that petitioner's claimed $236,000 contribution

deduction be reduced by 50 percent to $118,000.    The in-house

report also contained the opinion that a $1,000 value was an

acceptable fair market value for the films that were in good

physical condition.    The second engineer's in-house report was

provided to petitioner.
                               - 5 -


     In the notice of deficiency, respondent, apparently relying

on the second engineer, determined that petitioner was entitled

to claim a total of $118,000 as charitable deductions in 1991 and

1992 for the contribution of the 236 donated films.    On the basis

of that determination, respondent disallowed the other half of

the claimed deductions in the amount of $118,000, resulting in

deficiencies for petitioner's 1990 and 1991 taxable years.

Thereafter, petitioner, who at the time resided in Akron, Ohio,

filed a petition with this Court.

     In a letter to respondent's counsel dated April 21, 1997,

petitioner requested documents relating to the appraisal of the

donated films.   Respondent refused to turn over the expert report

and objected to production.   On June 2, 1997, petitioner filed a

motion to compel production of documents relating to the

appraisal of the donated films.   Also, on June 2, 1997,

respondent filed a motion for leave to file amendment to answer

to petition asserting as a new matter that petitioner did not own

the donated films and was not entitled to any charitable

deductions with regard to the films.   This case had been

scheduled for trial in Cleveland, Ohio, on June 2, 1997, and was

continued, and respondent's motion to amend the answer remains

outstanding.

     Petitioner also filed a FOIA request with the Internal

Revenue Service seeking a copy of the expert report.   Petitioner
                                - 6 -


argues that he would be entitled to the independent expert report

under FOIA and that pursuing his motion to compel here causes a

delay in the FOIA matter.    The FOIA matter, however, is separate

from this proceeding and outside this Court's jurisdiction and

therefore has no effect on discovery issues before this Court.

Davis v. Commissioner, 65 T.C. 1014, 1024 (1976); Maple v.

Commissioner, T.C. Memo. 1990-567.

     Respondent, in addition to other grounds, contends that

petitioner's motion to compel production of documents is untimely

under Rule 70(a)(2).1   Rule 70(a)(2) requires discovery to be

completed, unless otherwise authorized by the Court, no later

than 45 days prior to the date set for call of the case from a

trial calendar.   Respondent argues that the case was calendared

for trial on June 2, 1997, and that discovery had to be completed

45 days prior to that date, April 18, 1997.    Accordingly,

respondent maintains that petitioner's request for documents on

April 21, 1997, was not timely.    By order of this Court, this

case was stricken from the June 2, 1997, calendar.    Petitioner

subsequently filed the motion to compel production of documents

at issue here.    Accordingly and due to the continuance of the

trial in this case, it is now irrelevant that petitioner's

     1
       All Rule references are to the Tax Court’s Rules of
Practice and Procedure, and all section references are to the
Internal Revenue Code in effect for the period under
consideration, unless otherwise indicated.
                                - 7 -


discovery request may have been served late, and respondent's

timeliness concerns are moot.

     Petitioner requested production of appraisal documents with

reasonable particularity in accordance with Rule 72, and

respondent objected to production.      Thereafter, petitioner

properly filed the motion to compel production of documents

pursuant to Rule 72.    Petitioner asks for production of

respondent's expert report obtained prior to the issuance of the

deficiency notice.   Respondent contends that the expert report

was not used in the deficiency determination.      Additionally,

respondent points out that the second engineer's report, which

was used as the basis for the deficiency determination, was made

available to petitioner.    Respondent also notes that the

independent expert will not be called by respondent as an expert

witness at any trial.

     Petitioner's discovery request for the expert report did not

contain any delineation of a specific purpose for the request or

intended use of the document.    Following his motion to compel

production of the expert report, petitioner was informed by

respondent that he was not entitled to discovery of the requested

expert report because such discovery would permit petitioner to

go behind the notice of deficiency in violation of the principles

expressed in Greenberg's Express, Inc. v. Commissioner, 62 T.C.

324 (1974).   To counter respondent's contentions, petitioner
                               - 8 -


filed a Supplemental Memorandum of Law posing a two-part position

to counteract respondent's "going behind the notice" defense to

discovery.   In particular, petitioner raised a First Amendment

constitutional claim that respondent's disallowance of the

charitable contribution was based on a moral judgment due to the

pornographic nature of the films, and that there has been a

violation of his right to freedom of speech.    In that same vein,

petitioner argued that respondent's determination was arbitrary

and capricious and that he was entitled to discovery of the

expert report to evaluate whether respondent's disallowance was

based on unconstitutional grounds.

     As a general rule, this Court will not look behind a

deficiency notice to examine the evidence used by the

Commissioner in making the determination or respondent's motives,

administrative policy, or procedures.     Id. at 327.   The rationale

for this rule is that a trial before the Tax Court is a de novo

proceeding, and our decision is based on the merits of the record

before us and not on the merits of the administrative record.

Jackson v. Commissioner, 73 T.C. 394, 400 (1979); Greenberg's

Express, Inc. v. Commissioner, supra at 328.    We recognize an

exception to this rule when there is substantial evidence of

unconstitutional conduct by respondent.     Suarez v. Commissioner,

58 T.C. 792, 813 (1972).
                               - 9 -


     It is unnecessary, however, to decide whether an exception

to the principle of Greenberg's Express, Inc. v. Commissioner,

supra, applies in this case.   In response to petitioner's

discovery request, respondent interposed the principle of

Greenberg's Express and contended that petitioner was attempting

to go behind the deficiency notice.    Petitioner was seeking to

obtain information about the valuation of the subject films.

Greenberg's Express and its principle are directed to the

question of what issues are justiciable before the Court.    So,

for example, it would generally make no difference to the Court

what the position of the Commissioner’s agent was on a particular

issue, even if that view was different from the one set forth in

the notice of deficiency.   That is so because the Commissioner's

determination is set forth in the notice, and a trial de novo is

provided to decide whether that determination is in error.    The

question of whether petitioner is entitled to respondent's expert

report is one, in this setting, to be judged on the basis of

discovery rules of this Court and not on the question of the

admissibility of the expert report.    We note that the pleadings

do not raise an issue of whether the notice issued to petitioner

is arbitrary or capricious.

     The standards governing discovery of documents are set out

in Rule 70.   Rule 70(b) provides that "The information or

response sought through discovery may concern any matter not
                              - 10 -


privileged and which is relevant to the subject matter involved

in the pending case."   Information that would be inadmissible at

trial is discoverable if the information appears reasonably

calculated to lead to the discovery of admissible evidence.    Rule

70(b).   The party objecting to discovery has the burden of

establishing that the documents sought by the other party are not

relevant or that they are otherwise not discoverable.    Rosenfeld

v. Commissioner, 82 T.C. 105, 112 (1984); Rutter v. Commissioner,

81 T.C. 937, 948 (1983); Branerton Corp. v. Commissioner, 64 T.C.

191, 193 (1975).   Accordingly, respondent bears the burden of

showing that the expert report sought by petitioner is not

discoverable.

     Respondent attempts to carry that burden by contending that

petitioner is not entitled to obtain discovery to show whether

the notice is arbitrary or capricious.   We have relied on the

rule in Greenberg's Express, Inc. v. Commissioner, supra, to deny

motions to compel discovery of documents from the administrative

stage of the case when the taxpayers have argued that the

Commissioner's deficiency determinations are arbitrary and

capricious or sought to challenge the Commissioner's motives or

procedures in making the deficiency determination.   See, e.g.,

Healey v. Commissioner, T.C. Memo. 1996-260; Wooten v.

Commissioner, T.C. Memo. 1993-241; Karlin v. Commissioner, T.C.

Memo. 1990-496; Ramsey v. Commissioner, T.C. Memo. 1986-252.      In
                              - 11 -


denying the taxpayers' discovery requests in the above-cited

instances, we reasoned that, because we will not look behind the

notice of deficiency to examine the evidence or procedures used

by the Commissioner in making the deficiency determination or the

Commissioner's motives for the determination, the documents were

not relevant or would not lead to relevant evidence.   Those

holdings are based on the fact that the taxpayers in those cases

had placed in issue the question of whether the notices in those

cases were arbitrary or capricious.

     The question of whether the deficiency notice is arbitrary

or capricious was not placed in issue in this case.    Petitioner

made no allegation other than that respondent's valuation of the

donated films was in error.   The principle of Greenberg's Express

is appropriate when taxpayers improperly seek to go behind the

deficiency notice.   Due to our holding on this point, it is

unnecessary to consider whether petitioner's constitutional claim

is an exception to the Greenberg's Express general rule.     A

request for production of an expert report obtained by the

Commissioner in the pre-deficiency-notice examination of a

taxpayer's return is not per se an attempt to go behind the

notice or a challenge to the basis for a deficiency

determination.   The rule that we will not look behind the notice

of deficiency does not alone preclude discovery of pre-

deficiency-notice matter.   Respondent’s use of the general rule
                              - 12 -


in Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324 (1974),

to deny petitioner access to a document that was created prior to

the issuance of the notice of deficiency is not an appropriate

defense to discovery in this case.

     The expert report is relevant to the subject matter of this

case and appears reasonably calculated to lead to admissible

evidence, which is the threshold requirement of Rule 70(b).     The

only issue presented in this case concerns the fair market value

of the donated films.   The expert report appears to relate to the

value of the films and is relevant.    Although petitioner may not

be able to offer respondent's expert report into evidence and it

may be inadmissible for other reasons, that aspect does not

preclude discovery of the expert report under Rule 70(b) as long

as the expert report appears reasonably calculated to lead to the

discovery of admissible evidence.     Hickman v. Taylor, 329 U.S.

495, 501 (1947); see also United States v. Procter & Gamble Co.,

356 U.S. 677, 682-683 (1958); Zaentz v. Commissioner, 73 T.C.

469, 478 (1979).

     Respondent also argues that the expert report is not

discoverable under rule 26(b)(4)(B) of the Federal Rules of Civil

Procedure (hereafter rule 26(b)(4)(B), which limits discovery

relating to opinions of experts not expected to be called to

testify at trial.   Rule 26(b)(4)(B), generally prohibits the

discovery of experts retained or specifically employed by the
                               - 13 -


opposing party in anticipation of litigation or preparation for

trial.    Under that rule a party may discover opinions of such

nontestifying experts only upon "a showing of exceptional

circumstances under which it is impractical for the party seeking

discovery to obtain facts or opinions on the same subject by

other means."

     Our Rules of Practice and Procedure do not contain a similar

limitation on the discovery of a nontestifying expert witness'

report.    Respondent contends that this Court should adopt a

discovery rule similar to rule 26(b)(4)(B) to protect from

discovery the opinions and reports of experts not testifying at

trial.    Respondent argues that petitioner’s discovery of the

expert report will unjustifiably further petitioner's trial

preparation at the Government's expense and will be inconsistent

with the doctrine of fairness upon which rule 26(b)(4)(B) is

based.

     Rule 71(d)(1) provides for discovery relating to experts who

are to be called as witnesses at trial and requires that a party

intending to call such an expert answer interrogatories about the

expert or produce an expert report.     Rule 71(d)(1) provides:

     By means of written interrogatories in conformity with
     this Rule, a party may require any other party (A) to
     identify each person whom the other party expects to
     call as an expert witness at the trial of the case,
     giving the witness’ name, address, vocation or
     occupation, and a statement of the witness’
     qualifications, and (B) to state the subject matter and
     the substance of the facts and opinions to which the
                                - 14 -


     expert is expected to testify, and give a summary of
     the grounds for each such opinion, or, in lieu of such
     statement to furnish a copy of a report of such expert
     presenting the foregoing information.

Notes of the Rules Committee to Rule 71(d) state that the complex

discovery provisions relating to experts in rule 26(b)(4)(B) are

inappropriate for purposes of litigation in this Court.     60 T.C.

1101.     We are asked by respondent to consider whether to adopt,

in particular, rule 26(b)(4)(B) as part of Tax Court procedure.

     Respondent maintains that the rules of evidence in the

Federal Rules of Civil Procedure are applicable to Tax Court

proceedings pursuant to Rule 143.     Rule 143 governs the question

of admissibility of evidence at trial.     The Notes of the Advisory

Committee on the 1970 amendments of the Federal Rules of Civil

Procedure contain the explanation that rule 26(b)(4)(B) was

promulgated to

     repudiate the few decisions that have held an expert's
     information privileged simply because of his status as
     an expert, e.g., American Oil Co. v. Pennsylvania
     Petroleum Products Co., 23 F.R.D. 680, 685-686 (D.R.I.
     1959). * * * They also reject as ill-considered the
     decisions which have sought to bring expert information
     within the work-product doctrine. See United States v.
     McKay, 372 F.2d 174, 176-177 (5th Cir. 1967). * * *
     [28 U.S.C. app. at 705 (1994).]

        Rule 26 of the Federal Rules of Civil Procedure has not been

specifically adopted by this Court.      In that regard, under Rule

143(a), trials before this Court are conducted in accord with the

rules of evidence applicable to trials without a jury before the

U.S. District Court for the District of Columbia.     See sec. 7453.
                               - 15 -


Following that mandate we are bound by rules of evidence

contained in the Federal Rules of Civil Procedure, but we are not

compelled to follow procedural rules contained in the Federal

Rules of Civil Procedure.    McKenzie v. Commissioner, 59 T.C. 139,

142-144 (1972), affd. without published opinion 486 F.2d 1401

(5th Cir. 1973).   Rule 1(a), however, provides that where there

is no applicable rule of procedure, the Court may prescribe the

procedure, giving particular weight to the Federal Rules of Civil

Procedure.   See Brannon's of Shawnee, Inc. v. Commissioner, 69

T.C. 999, 1001 (1978).

     If we were to follow the FRCP for guidance in this matter,

the critical question that would have to be answered is whether

the expert report in question was obtained by respondent in

anticipation of litigation or preparation for trial.   Rule

26(b)(4)(B) limits discovery, except in unusual circumstances, of

expert opinions obtained solely in anticipation of litigation or

in preparation for trial.   Respondent contends that the expert

report was prepared in anticipation of litigation.   The expert

report was obtained by respondent's agent during the examination

of petitioner's tax returns and prior to the issuance of the

notice of deficiency.    Respondent has not shown that his lawyer

was involved in the administrative process when the independent

expert was hired; that the expert report was prepared at the

direction of an attorney; or that the expert report was in any
                               - 16 -


way prepared in anticipation of litigation.    In a similar vein,

we have held that revenue agents' reports and appellate

conferees’ reports are not prepared in anticipation of

litigation.    Branerton Corp. v. Commissioner, 64 T.C. at 196-199;

P.T.& L. Constr. Co. v. Commissioner, 63 T.C. 404, 408 (1974).

       The question of whether the expert report here was prepared

in anticipation of litigation is a concept that is regularly

dealt with in connection with the work product doctrine.     See

Hickman v. Taylor, 329 U.S. at 510-511.     In Bernardo v.

Commissioner, 104 T.C. 677, 687 (1995), we explained the concept

of anticipation of litigation as follows:

       Litigation is frequently anticipated prior to the time
       a lawsuit is actually commenced. To show that a
       document was prepared in anticipation of litigation "A
       litigant must demonstrate that the documents were
       created 'with a specific claim supported by concrete
       facts which would likely lead to [the] litigation in
       mind,' not merely assembled in the ordinary course of
       business or for other nonlitigation purposes." Linde
       Thomson Langworthy Kohn & Van Dyke, P.C. v. Resolution
       Trust Corp., 5 F.3d [1508] at 1515 (quoting Coastal
       States Gas Corp. v. Department of Energy, 617 F.2d 854,
       865 (D.C. Cir. 1980)).

Respondent, contrary to the position he argues here, has argued

that materials accumulated prior to the issuance of the notice of

deficiency are not in anticipation of litigation.    See Id. at

688.    Generally, respondent's view has been accepted; however, in

the Bernardo case we found that once the taxpayers were aware

that the Commissioner disagreed with the value of their

charitable contribution, "it was reasonable for * * * the
                                - 17 -


[taxpayers] to anticipate litigation concerning those

deductions."    Id.   From that premise we held that the documents

in question in Bernardo were prepared in anticipation of

litigation and protected by the work product doctrine.

     By way of analogy, in cases where grand jury information was

being used by the Government in connection with a related civil

matter, it was required, among other things, that the disclosure

of grand jury information be "preliminarily to or in connection

with a judicial proceeding".    Fed. R. Crim. P. 6(e)(3)(C)(i).

That concept is substantially similar to "anticipation of

litigation".    We consider the following Supreme Court explanation

of "preliminarily to or in connection with a judicial proceeding"

as helpful to our analysis here:

     the Rule contemplates only uses related fairly directly
     to some identifiable litigation, pending or
     anticipated. Thus, it is not enough to show that some
     litigation may emerge from the matter in which the
     material is to be used, or even that litigation is
     factually likely to emerge. * * *
        It follows that disclosure is not appropriate for
     use in an IRS audit or civil tax liability, because the
     purpose of the audit is not to prepare for or conduct
     litigation, but to assess the amount of tax liability
     through administrative channels. * * * [United States
     v. Baggot, 463 U.S. 476, 480 (1983); fn. ref. omitted.]

See also Kluger v. Commissioner, 83 T.C. 309, 326-327 (1984).

     We accept the general concept that, normally, the audit or

examination process is not conducted in anticipation of

litigation.    If a particular matter has been singled out for

litigation and Government lawyers become involved to begin
                              - 18 -


formulating trial strategy, then it is possible that some part of

the audit or examination process may be in anticipation of

litigation, and documents prepared may also be protected under

the work product doctrine.

     In the case before us, neither party appears to have

anticipated litigation before the issuance of the notice of

deficiency.   In particular, respondent's first engineer, after

inability to obtain information from petitioner's expert, reached

a zero value.   Respondent, however, was not content with that

result and obtained the expert report of an outside expert.     In

that connection, the report of the first engineer came into

petitioner's possession, but there is no indication in the

information provided by the parties whether it was received by

petitioner before or after the issuance of the notice of

deficiency.   The outside expert's report was not provided to

petitioner and, for reasons which are not apparent, respondent

obtained the assistance of the second engineer, whose report was

provided to petitioner.

     Accordingly, there has been no adequate showing that

respondent and/or petitioner anticipated litigation at the time

the independent expert's assistance was sought and used and his

expert report issued to respondent.    In other words, no

controversy had been formulated between the parties until, at

very least, the second engineer's report was provided to
                              - 19 -


petitioner.   Also there is no indication that respondent's

lawyers were involved in the administrative process at the time

the independent expert was hired and/or the time the independent

expert issued the expert report.   Under those circumstances, we

are unable to find that the expert report was prepared in

anticipation of litigation or at the direction of respondent's

legal representative.   Therefore, the expert report would not be

protected under the work product doctrine.

     Accordingly, the outcome of this discovery dispute would be

the same if we followed rule 26(b)(4)(B) or our usual discovery

standards under the work product doctrine.    That is so because

the expert report in question did not meet the anticipation of

litigation or in preparation for trial requirement of rule

26(b)(4)(B) or the work product doctrine.    Because rule

26(b)(4)(B) is not a rule of evidence and because it would not

change the outcome of this case, there is no need to decide

whether this Court should adopt, as argued by respondent, those

principles into this Court's Rules of Practice and Procedure.

     Respondent has not established that the expert report is in

any way privileged.   Nor has respondent argued that the expert

report is irrelevant and/or that the expert report is not

reasonably calculated to lead to the discovery of admissible

evidence.   Accordingly, petitioner's motion to compel production

of the expert report will be granted.
- 20 -


          An appropriate order

     will be issued.
