Discovery is the pre-trial procedural mechanism by which parties to a litigation obtain relevant evidence, documents, and information from the opposing party or third parties in preparation for trial.
Each of the three tax litigation forums, such as the U.S. district courts, the U.S. Court of Federal Claims, and the U.S. Tax Court, authorizes discovery through different methods.
Let’s understand the discovery procedure in each of these forums separately.
Let’s understand the discovery procedure before the U.S. District Courts in the next section.
Discovery in U.S. District Courts is governed by the Federal Rules of Civil Procedure.
Parties are required to meet early to discuss evidence preservation, discovery scope, timing, proportionality, and prepare a clear discovery plan.
Next, let’s understand the standard components of the discovery process in U.S. District Courts under the Federal Rules of Civil Procedure (FRCP).
First, let’s understand the first tool in the discovery process: the written discovery procedure.
Written Discovery refers to formal written requests for information or documents served on opposing parties.
The following are the two main tools of written discovery, which are as follows:
Interrogatories are written questions that the other party is required to answer in writing and under oath.They are generally sent to parties rather than to outsiders.
Usually, you can ask up to 25 questions, unless the court allows more.
Next, let’s look at another major tool of written discovery: Requests for Production.
Requests for Production are requests asking for documents, electronic records, or physical items.
Here, you can also ask to have the property or land inspected.
The other party is generally required to provide materials they have or control.
Next, let’s look at another major tool of discovery: Depositions.
Depositions are a way to collect evidence by asking a witness questions under oath before trial.
The answers are recorded and can be used in court later.
Under Rule 30 of the Federal Rules of Civil Procedure (FRCP), questions are asked orally. Under Rule 31 of FRCP, questions are asked in writing.
Depositions can be taken from parties and, using a subpoena, from non-parties.
First, let’s understand another tool in the discovery process: Subpoenas
A subpoena is a legal order that requires a person to provide documents, electronic records, or testimony.
It is mainly used to obtain information from non-parties, but in some cases, it can also apply to parties.
For witnesses located outside the United States, special subpoena rules apply.
U.S. courts can issue subpoenas to U.S. citizens or residents abroad under 28 U.S.C. § 1783 of the Walsh Act. However, this is allowed only if the evidence is important and cannot reasonably be obtained otherwise.
The subpoena should be served in accordance with U.S. rules and any applicable international treaties, such as the Hague Service Convention.
If a person does not comply with a valid subpoena, the court may impose contempt penalties.
This process is often used in international tax cases involving former executives, advisors, or record keepers located overseas.
However, U.S. subpoenas generally cannot force foreign nationals outside the U.S. to comply unless a treaty or similar legal process is used.
Now, that we have understood the discovery procedure in the U.S. Tax Court.
Next, let’s understand the discovery procedure before the U.S. Courts of Federal Claims.
The U.S. Court of Federal Claims follows its own Rules of the United States Court of Federal Claims (RCFC). Title V of the RCFC (Rules 26–37) governs disclosures and discovery.
Discovery in tax refund litigation before the U.S. Court of Federal Claims routinely includes the following:
Let’s understand the discovery procedure before the U.S. Tax Court in the next section.
The U.S. Tax Court places greater emphasis on informal discovery and voluntary cooperation before resorting to formal procedures. Parties are expected to attempt to obtain needed information through informal consultation or communication before filing formal discovery requests.
Formal discovery usually cannot begin, without the Court’s permission, until 30 days after the issues are formally joined through the filing of the answer or required reply.
Discovery, including related motions, should normally be completed at least 45 days before the case is scheduled for a trial calendar call.
The Court can compel production of documents (including those held abroad) that are within a party’s possession, custody, or control.
There may be a situation in which discovery is required to access important cross-border evidence located outside the United States. In that case, special foreign discovery tools are available.
Next, let’s dive into the foreign discovery tools.
Foreign discovery tools are legal procedures used during pre-trial proceedings to obtain evidence, documents, electronically stored information, or testimony located outside the United States.
These tools help parties and courts gather information from foreign individuals, corporations, banks, government agencies, and other entities involved in international tax disputes.
Foreign discovery tools may include treaty requests, the Hague Evidence Convention, letters rogatory, depositions abroad, subpoenas in limited situations, and government evidence-sharing procedures.
Next, let’s discuss the first foreign discovery tool, which is the Hague Evidence Convention.
The Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters is a central mechanism for obtaining testimony and documents abroad.
It is often the preferred tool when the witness is outside the United States and unwilling to cooperate voluntarily, because the foreign authority may use its own compulsory powers, provided local law permits. Even so, counsel are required to check whether the destination country is a contracting state and whether there are barriers such as privilege, local secrecy rules, or blocking statutes.
Next, let’s discuss the second foreign discovery tool, which is the Letters Rogatory.
Letters rogatory are a slower and more cumbersome alternative, but they remain important when a country is not a Hague Convention signatory or when compulsory assistance is otherwise needed. They are often used when voluntary cooperation is unlikely, and no more efficient treaty-based option is available. In international tax cases, letters rogatory may be necessary to secure testimony or documents from third parties holding critical offshore evidence.
Next, let’s discuss the third foreign discovery tool, which is the Notice Depositions.
A deposition on notice may be taken only if the witness is willing to testify and local law allows the examination. This method avoids foreign judicial involvement and can be efficient when used with cooperative witnesses, including foreign employees or counterparties. In many cases, notice depositions are taken at a U.S. embassy or consulate, subject to the law of the host country.
Next, let’s discuss the fourth foreign discovery tool, which is the Commissioned Depositions.
A deposition by commission requires the court to appoint a person to take the testimony abroad. This method is also limited to willing witnesses and depends on the law of the foreign country. It can be useful where local practice does not permit a standard deposition on notice but does allow testimony before an authorized commissioner or consular officer.
We now understand the first component of the pre-trial phase: discovery. Next, let’s understand the second component of the pre-trial phase: motions.