Have you ever been asked a question that you should probably know the answer to, but you don’t fully know the answer or have access to information to find the actual answer? This is a frequent occurrence when it comes to litigation and, in particular, tax litigation.
The litigation discovery process involves exchanging relevant information between parties. Procedural rules dictate what information must be provided and when. But despite the general discovery rules, applying discovery rules is rarely straightforward.
Even though there are rules that apply, the application of those rules is often not all that clear. This is particularly true when the government issues an ambiguous discovery request and is dissatisfied with the response. What is a taxpayer to do when they receive these types of requests? The court recently addressed this situation in Wildish v. United States, No. 2:2022cv00203 (D. Idaho 2024), involving vague requests for information.
Facts & Procedural History
This case involves the IRS’s efforts to collect income taxes from the taxpayers for the 2009 tax year.
The IRS certified the delinquent tax liability and the Secretary of State issued a hold on their passports. The taxpayers filed suit seeking to invalidate the delinquent certification. They filed suit without having an attorney. The government filed a counterclaim in the suit for a money judgment for the amount of the 2009 taxes.
The taxpayers dismissed their lawsuit, leaving only the government’s counterclaim. The issue in the counterclaim was whether the 10-year collection statute had expired. The question was whether the 10 years were tolled or suspended and thereby extended by the taxpayers having submitted an installment agreement request.
The government issued formal discovery requests, including interrogatories and a request for production of documents, to get information and records regarding the installment agreement. The taxpayers denied that there was an installment agreement, and did not provide clear answers as to why this was. The taxpayers noted that the IRS’s records were not clear on this point:
Plaintiffs’ contention is based on the convoluted, cryptic, vague and ambiguous nature of the IRS’ own documents produced in this action which prevent determining whether or not the ten-year limitations period was stayed at any time (and, if so, when and for how long). For example, IRS records (at WIL-USA state, for January 19, 2011, that there is both an installment agreement pending and an installment agreement no longer pending (with no independent records to confirm either one of these statements). Plaintiffs cannot be expected to decipher these records and it is very likely that, especially due to the passage of time, anyone else can either.
The government also sought to depose the taxpayer’s CPA and attorney to obtain this information. The court opinion suggests that they cooperated, but minimally so as they refused to provide documents and terminated the deposition early.
The district court granted the government’s motion for sanctions to enforce proper discovery responses. No doubt the taxpayers will respond and, given that the requests ask them to prove something they do not believe happened, the responses will again be back before the court at some point.
This fact pattern raises the question as to how you respond to a discovery request in the litigation process when the request asks for an answer that you do not have the information to answer.
The IRS’s Collection Statute
The starting point for evaluating discovery request responses is the context of the information sought. To understand that, we have to pause to consider the IRS collection statute and the dispute.
The IRS’s 10-year collection period is set out in Section 6502. This section says the IRS generally has 10 years after the date of assessment to collect the tax through levies or court proceedings.
The date of assessment is generally the date that the IRS records the liability on its books. There are nuances here, but this is often the date that the IRS records the tax return as being filed. If the IRS conducts an audit or otherwise proposes an adjustment, the assessment date for that adjustment may start the assessment period for the amount assessed.
So in a typical case, for year 1, the taxpayer files the tax return in year 2. The IRS’s 10-year collection statute would start running in year 2.
Pausing for an Installment Agreement
Section 6502 goes on to say that the collection statute is paused for the period that the taxpayer and IRS agree to when they enter into an installment agreement.
In the past, the IRS used to require taxpayers to extend the statute for every installment agreement. This often allowed the IRS employee to close their case as they could make the repayment period so long that the taxpayer could afford the payments. The taxpayers did get smaller monthly payments given the longer repayment period; however, they also ended up with very long repayment periods. It was common to see the statute extended for 20, 30, or more years.
These lengthy installment agreements were one of the complaints in the Congressional hearings in the late 1990s about IRS abuses. It is in this context that the IRS still, to this day, restricts extensions of the collection statute for installment agreements to 15 years (10 years plus one 5-year extension). In most cases, the IRS does not request any extension.
Absent an extension by agreement, there is still the newer extension provided in Section 6331(k)(3). This section says that the 10-year collection period is suspended for the period during which a taxpayer’s request for an installment agreement for unpaid tax is pending with the IRS, plus 30 days thereafter. It is also extended for 30 days after a denial or termination of an installment agreement.
When is an Installment Agreement Requested?
The regulations explain when an installment agreement is requested.
Section 301.6159-1(b)(2) of the regulations states that an installment agreement is pending when it is accepted for processing. While this provides an answer, the answer is less than clear.
Consider the situation where a taxpayer fills out the installment agreement form and drops it in the mail. The IRS responds by letter four or five months later by mailing a letter to the taxpayer, but the taxpayer does not receive the letter. Alternatively, the taxpayer calls the IRS and requests an installment agreement and is granted one right there on the phone. Alternatively, the taxpayer is working with an IRS revenue officer and makes various written requests for an installment agreement which are never fully addressed by the revenue officer.
With each of these scenarios, no entry is made in the IRS’s computer system and no notations show up on the taxpayer’s IRS transcripts. When is the collection statute suspended and for how long? The short answer, there is no short answer.
The Motion to Compel
This brings us back to this case. The government filed a motion to compel discovery responses. When faced with evasive or incomplete discovery responses, the discovering party may file a motion to compel under Rule 37.
On a motion to compel, the party seeking discovery must first show that the requests are within the scope of discovery and properly seek relevant information. The burden then shifts to the resisting party to explain why discovery should not be allowed or how the requests are inappropriate.
If a court grants a motion to compel discovery, Rule 37 requires that the court impose monetary sanctions on the non-complying party to reimburse the movant’s costs and fees incurred, unless certain exceptions apply. Sanctions may be avoided if:
- The movant did not try in good faith to obtain responses without court action;
- The objection or non-response was substantially justified; or
- Other circumstances make an award of expenses unjust.
See Fed. R. Civ. P. 37(a)(5).
When responding insufficiently due to an inability to fully answer, a party should consider these provisions.
The Unanswerable Request
The court found the taxpayer’s responses to be inadequate. It did not, however, consider the law and administrative issues noted above. Taking the taxpayer’s side of this, what if the request truly is unanswerable? What is the taxpayer to do when they receive this type of request?
The answer is that when faced with a discovery request that demands information that is unknowable or unattainable, the prudent course is to object in writing and explain why, in good faith, a complete response cannot be provided. It may also include filing to request a protective order.
In this case, the taxpayers could have explained that based on the ambiguity of the IRS’s records and the lack of clear guidance on what constitutes a “pending” installment agreement request, they do not have definitive facts to offer.
A good faith response would outline the legal uncertainty and lack of documentation that prevents proving or disproving the government’s allegations. It could even cite the applicable regulations and note the inherent difficulty they create for the taxpayers to meet their burden.
While the court may still find such a response insufficient, it focuses the dispute on the true impediment—the system’s failure to generate clear records—rather than the taxpayers’ conduct. This posture is more likely to avoid sanctions and may even compel the court to press the government on whether and how it could prove its claims without relying wholly on the taxpayers’ evidence.
Moreover, explaining the nature of an unanswerable request frames the issue for appeal if sanctions are wrongly imposed. It places the blame where it likely belongs—on an unfair burden under the circumstances. Though not guaranteed to succeed, this practical approach makes the best of the puzzle some discovery requests can create.
As this court case shows, when faced with an ambiguous discovery request seeking potentially unknowable facts, a party should object and then respond in good faith by outlining what information they cannot provide and why. In doing so, they should cite legal uncertainty and lack of access to records as barriers to a complete response. Though not guaranteed to avoid sanctions, this practical approach focuses blame on the inherent limitations rather than accusing the party of misconduct. By framing the impediments concisely, an unanswerable request may reveal itself as an unreasonable demand. In the end, cooperation and transparency regarding what can and cannot be disclosed make the best of a tricky situation.