Bernardo v. Commissioner

In 1986, Bradford and Marybeth Bernardo (plaintiffs) claimed a $593,000 charitable-contribution deduction on their federal income-tax return. The deduction was for the donation of a granite sculpture to the Massachusetts Bay Transportation Authority, with the amount of the claimed deduction relating to the fair market value of the sculpture. In 1987, 1988, and 1989, the Bernardos claimed carryover charitable-contribution deductions for the same donation. The Internal Revenue Service (IRS) (defendant) denied the claimed deductions for the 1987, 1988, and 1989 tax years and issued a notice of deficiency, which the Bernardos challenged in tax court. At the tax-court hearing, the IRS contended that the Bernardos were not entitled to any deductions for the years 1987 through 1989, and, alternatively, that even if the Bernardos were entitled to claim a charitable-contribution deduction for the donation of the sculpture, the value of that donation for deduction purposes was only $100,000. The IRS’s arguments were based on its assessment of the fair market value of the sculpture, which was made by an internal body called the Art Advisory Panel (the panel). The panel was comprised of approximately 25 art experts who acted for the IRS on a voluntary basis, meeting several times a year to review taxpayers’ claimed art valuations. To protect taxpayer privacy, the panel’s sessions were closed to the public. Moreover, the panel’s deliberations were typically kept confidential; only the fair market value it decided upon became part of the IRS’s record. In order to challenge the panel’s conclusions in tax court, the Bernardos sought to compel disclosure of the panel’s session notes on their case. In response, the IRS claimed that the documents were protected by executive privilege. The tax court examined whether executive privilege applied to shield the panel’s internal documents from disclosure to the Bernardos.