United States of America v. Tate & Lyle North American Sugars, Inc.

The law firm of Burt, Maner, and Miller (the law firm) represented Tate & Lyle North American Sugars, Inc. (Tate & Lyle) (defendant) in tax audits conducted by the Internal Revenue Service (IRS) (plaintiff). In 1990 Tate & Lyle’s director of taxes sent the IRS a letter and payment of $6,497,710 for a tax adjustment. The letter stated that the payment should be treated as a cash bond. The IRS ultimately determined that Tate & Lyle had overpaid its taxes. The IRS sent Tate & Lyle a refund of the $6,497,710 paid and mistakenly included interest—even though a taxpayer was not entitled to interest on the return of a cash bond. After the IRS notified Tate & Lyle’s tax director of the error, Tate & Lyle refused to return the interest, arguing that Tate & Lyle did not consider the payment a cash bond. The IRS brought suit to recover the interest payment. Tate & Lyle argued that the tax-adjustment payment that it made in 1990 was not a cash bond, because the tax director lacked authority to designate the payment as such. The IRS filed a motion to disqualify the law firm as counsel under the advocate-witness rule because the IRS expected to call members of the law firm as witnesses at trial. The IRS asserted that the attorneys’ testimony would substantially prejudice Tate & Lyle because it would contradict Tate & Lyle’s arguments by showing that the law firm’s failure to take action ratified the tax director’s letter. Tate & Lyle responded that the IRS had not identified specific testimony it planned to elicit from the attorneys nor had it explained how the testimony would prejudice Tate & Lyle or why the testimony was necessary.