Tufts Law Firm News

 

A Federal district court in Texas has rejected an effort on the part of a taxpayer to depose an IRS agent in a case involving Valero Energy Corporation, a Delaware corporation with headquarters in Texas that owns and operates multiple refineries and markets refined oil and gas products.  The IRS is reported as conducting an examination of Valero's 2002 and 2003 federal income tax liabilities and is focused in on large foreign currency losses purportedly resulting in connection with various aspects of the restructuring of Canadian entities and the repayment of certain third-party debt by one of the entities.  In a summons issued to Ernst & Young, the IRS is seeking various documents including documents pertaining to the use of a stapled stock structure to prevent build-up of overall foreign losses (OFLs) and the use of any check-the-box election during the period 1992 through 2003, as well as any other planning, research, analysis performed by Arthur Andersen.  Valero attacked the propriety of the summon issued to E & Y, back in 2006, as well as a summons issued to Deloitte and Touche.  Valero asserts that attorney-client, federal tax practitioner, and work-product privileges prevent the disclosure of certain documetns, and further claims that the requests are vague, overly broad and seek irrelevant information.  Apparently, the United States is seeking documentation and information, on a broader scale, and believes that Valero has interpreted the earlier issued summon too narrowly.  The court found that after a careful examination of the factors, notions of collateral estoppel apply to preclude Valero from reasserting that the summones issued previously to E & Y and Deloitte were overlybroad and fail to meet the requirements under the Powell standard.  In addition, the court found that while Valero may wish to depose the IRS agent, claiming that the summons shows how the agent is wrongly suggesting that there was a promotion of a tax shelter scheme, but the court gives deference to the discretion given to the agency as to how it wishes to conduct its investigation.