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By Erin McManus
May 20 — The IRS must allow former Paulson hedge fund manager Mina Gerowin to depose a revenue agent responsible for an audit of Paulson Europe LLP.
On May 20, a federal court ordered the Internal Revenue Service to allow Gerowin to depose IRS agent Joseph Scott in her lawsuit to obtain a refund of $7.86 million assessed against Gerowin and her husband after the IRS determined that the $18 million bonus Paulson paid Gerowin for her performance in 2008 was a partnership distribution.
Judge Charles F. Lettow of the U.S. Court of Federal Claims ruled May 20 that the IRS misused its testimony-authorization process to limit the scope of Scott's deposition. Treasury regulations cited by the IRS may place internal restrictions on Scott as an IRS employee, but those regulations have no bearing on the court's procedures under its own rules or those of the Federal Rules of Evidence, the judge said.
“To allow the government to use the Treasury Regulations as a basis to limit Mr. Scott’s testimony beyond the procedural safeguards already provided by the court’s rules would be tantamount to creating ‘a separate privilege or basis to withhold IRS records or information,' which the regulations themselves expressly prohibit,” Lettow said.
The judge also ordered the IRS to produce documents requested by Gerowin, saying “the government misapprehends the relevant inquiry at this stage in the case by asserting that IRS records are not relevant to the court’s de novo determination of” Gerowin's and her husband's tax liability.
Lettow said case law cited by the government didn't prevent Gerowin and her husband “from discovering information and records used by the IRS in making its determination of their tax liability before, during, and after the audit of PELLP. And that is especially true when a plaintiff alleges a violation of law regarding notice and opportunity to be heard, as here.”
In a 2015 ruling, Lettow allowed Gerowin's lawsuit to proceed, saying that it remained to be determined whether Gerowin was in fact a partner, whose rights under the Tax Equity and Fiscal Responsibility Act were violated, when the IRS excluded her from material participation in the Paulson Europe audit (206 DTR K-3, 10/26/15).
Nathan E. Clukey of King & Spalding LLP in Washington represents Gerowin. Matthew D. Lucey of the Department of Justice Tax Division represents the government.
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Text of the order is in TaxCore.
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