Company Protected Against Forced Disclosure of Tax Returns
In Casa W LLC v. Superior Court of Los Angeles County et al., Kyle Madison, his former wife Marjan Madison, and their friend Michael Theodore were the members of Casa W, LLC. Casa W owned and operated a property in Cabo San Lucas, Mexico. Theodore was the sole manager of Casa W, and Theodore was also the sole owner Casa Theodore, LLC, which owned an adjacent property.
In April 2011, Kyle filed an action against Theodore and Casa W, LLC alleging that Theodore engaged in “abuse of authority, self-dealing and pervasive fraud” as the managing member of Casa W, LLC. Kyle claimed that Theodore failed to provide financial records for the Casa W property and failed to provide any records regarding his disbursements, expenditures, and loans on behalf of Casa W, LLC.
During litigation, Kyle sent discovery requests to Theodore to obtain financial records of Theodore, Casa W, LLC, and Casa Theodore, LLC, as well as Casa Theodore’s tax returns. Kyle wanted to see if there was any commingling of funds between Casa W, LLC and Casa Theodore, LLC. Kyle’s attorney had requested the bank statements, but they were apparently not getting them. As a result the trial court stated, “You’re not getting the bank accounts. I’m going to order these [tax] returns” for the expert to analyze.
On appeal, the court held that Casa Theodore’s bank accounts were privileged and not subject to production. The court held that none of the exceptions to the taxpayer privilege applied. Focusing on the public policy factor, the court held that the third exception is narrowly applied and Kyle did not identify any “legislatively declared public policy that would justify the production” of Casa Theodore’s tax returns.
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