Mayo Clinic v. United States of America
ORDER: Defendant's objection to the magistrate judge's December 15, 2017 order [ECF No. 61 ] is OVERRULED. The magistrate judge's order [ECF No. 53 ] is AFFIRMED. (Written Opinion) Signed by Judge Joan N. Ericksen on 3/7/2018. (CBC)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
MAYO CLINIC, a Minnesota
Corporation, on its own behalf and as
successor in interest to Mayo
Case No. 16-cv-3113 (JNE/KMM)
UNITED STATES OF AMERICA,
This case is before the Court on Defendant’s objection to a December 15, 2017 order
from United States Magistrate Judge Katherine M. Menendez granting in part and denying in
part Plaintiff’s motion to compel discovery responses. Based on a review of the record, the Court
affirms the magistrate judge’s order.
Mayo Clinic (“Mayo”) alleges that it was improperly assessed more than $11 million in
federal income taxes between 2003 and 2012. Specifically, Mayo contends that it was overtaxed
because the IRS did not designate it as an “educational organization,” as defined in 26 U.S.C.
¶ 170(b)(1)(A)(ii) and that statute’s implementing regulation, 26 C.F.R. § 1.170A-9(c)(1). Mayo
filed administrative claims for a refund on these grounds, but the IRS disallowed those claims. In
September 2016, Mayo filed suit, arguing that either (1) the implementing regulation is invalid
and Mayo meets the requirements for an educational organization under the statute, or, (2) the
regulation is valid and Mayo meets the requirements for an educational organization under the
On October 16, 2017, Mayo filed a motion to compel written discovery responses. Mayo
made two general sets of requests. One sought information relating to the government’s
interpretation of ¶ 170(b)(1)(A)(ii) and § 1.170A-9(c)(1) in matters involving other taxpayers.
The other sought information relating specifically to the IRS’s consideration of Mayo’s refund
request. The United States objected to those requests on both relevance and proportionality
The magistrate judge granted in part and denied in part Mayo’s motion. The magistrate
judge found that all of the information requested was relevant, but that some of Mayo’s requests
needed to be narrowed. The government now objects to the portion of the magistrate judge’s
order requiring production of the non-privileged portions of the IRS’s Technical Advice
Memorandum (“TAM”) File and its Chief Counsel File relating to Mayo’s refund claim. It
contends that the magistrate judge erred in concluding that those materials were relevant and in
her proportionality assessment.
STANDARD OF REVIEW
The standard of review applicable to an appeal of a magistrate judge's order on
nondispositive pretrial matters is “extremely deferential.” Roble v. Celestica Corp., 627
F.Supp.2d 1008, 1014 (D. Minn. 2007). Such an order should be reversed only if it is clearly
erroneous or contrary to law. 28 U.S.C. § 636(b)(1)(A); Fed.R.Civ.P. 72(a); D. Minn. LR
72.2(a). “A finding is clearly erroneous when ‘although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite and firm conviction that a mistake
has been committed.’” Lisdahl v. Mayo Found., 633 F.3d 712, 717 (8th Cir. 2011) (quoting
Anderson v. City of Bessemer City, 470 U.S. 564, 573, (1985)). “A decision is contrary to law
when it fails to apply or misapplies relevant statutes, case law or rules of procedure.” Knutson v.
Blue Cross & Blue Shield of Minn, 254 F.R.D. 553, 556 (D. Minn. 2008) (internal quotation
The United States makes three arguments related to the magistrate judge’s relevance
findings. As discussed below, none of those arguments reveal a clear error in the magistrate
First, the government argues that IRS analyses and conclusions are irrelevant in a taxrefund suit because the trial court’s role is to determine the taxpayer’s liability de novo. Citing
Blansett v. United States, 283 F.2d 474, 478 (8th Cir. 1960), the government contends that
because the trial court can sustain the IRS’s assessment on “any legal ground supporting it” –
even one that the IRS did not rely upon – discovery of IRS analyses and conclusions are
irrelevant. Obj. to Order at 8-9. But this misreads the Eighth Circuit’s holding in Blansett.
Blansett stands for the proposition that the IRS’s analysis is not binding upon the trial court –
i.e., that the court should determine the taxpayer’s liability “anew.” Blansett at 478. It does not
say, as the United States suggests, that the IRS’s conclusions are “of no significance” at all
within the context of discovery. The magistrate judge’s finding along these lines was neither
clearly erroneous nor contrary to law.
Second, the United States argues that the magistrate judge erred in relying upon Hermann
v. United States, 127 Fed. Cl. 22 (2016). In that case, the plaintiffs asked the court to compel the
IRS to produce internal documents used in its determination of their tax liability. As it has done
here, the government objected on the grounds that the documents were irrelevant because taxrefund cases are de novo proceedings. The court disagreed, finding instead that for the purposes
of discovery, such documents are relevant because they may help plaintiffs overcome the
presumption of correctness afforded to IRS tax liability determinations. Hermann at 41-42.
Here, the magistrate judge found the Hermann decision to be persuasive on the relevance
issue, in large part because it draws a distinction between discoverability and admissibility.
Order at 12. The government does not identify any binding precedent that conflicts with
Hermann, nor does it adequately explain why that case is distinguishable. Accordingly, the
magistrate judge’s reliance on Hermann was not contrary to law or clearly erroneous.
Third, the government argues that the magistrate judge erred in ruling that the internal
IRS documents were relevant to Mayo’s ability to challenge the presumption of correctness. An
IRS determination is entitled to the presumption of correctness unless it is an arbitrary or
“naked” assessment. Day v. C.I.R., 975 F.2d 534, 537 (8th Cir. 1992). The United States argues
that Mayo’s complaint concedes that the IRS’s determination was not arbitrary, and that, as a
result, there is no need for discovery of evidence that could be used to overcome the presumption
This argument fails, however, because nothing in Mayo’s complaint amounts to an
admission that would preclude or obviate the need for discovery. The complaint alleges, inter
alia, that the IRS conducted an audit and that it used Form 4549 to communicate to Mayo the
basis for its decision. The government takes these allegations to be an admission by Mayo that
the assessment was not arbitrary. But these allegations, particularly within the broader context of
the complaint, do not rise to the level of “formal concessions” that the determination was not
arbitrary. Banks v. Yokemick, 214 F. Supp. 2d 401, 406 (S.D.N.Y. 2002). Discovery could still
reveal that the assessment was arbitrary, even if Mayo’s allegations are correct. Accordingly, the
magistrate judge’s determination that the requested documents were relevant to Mayo’s efforts to
challenge the presumption of correctness was neither clearly erroneous nor contrary to law.
The United States also argues that the magistrate judge erred in overruling its
proportionality objections. The government takes the position that the court should have ordered
it to produce only those documents necessary to show the IRS’s basis for its assessments, not
those that might capture statements made after the assessments. But the government does not
articulate – nor, perhaps, could it – why this constituted a clear error by the magistrate judge. To
the contrary, post-assessment statements – for example, a document reassessing Mayo’s status as
an educational organization – could be precisely the kinds of documents that would enable Mayo
to show that the IRS’s initial conclusion was incorrect. Therefore, the Court therefore finds no
basis for reversing the magistrate judge on this objection.
Based on the foregoing, all the records, files, and proceedings herein, IT IS HEREBY
1. Defendant’s objection to the magistrate judge’s December 15, 2017 order [ECF No. 61]
2. The magistrate judge’s order [ECF No. 53] is AFFIRMED.
Dated: March 7, 2018
s/ Joan N. Ericksen
JOAN N. ERICKSEN
United States District Judge
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