The following papers were read on Petitioner's letter application to compel Respondent to produce his personal tax returns for the years 2000 through 2006 and to compel Respondent to provide authorization to permit Petitioner to obtain said returns from the Internal Revenue Service:

Letter of Michael G. Levin, Esq. dated September 11, 2007;

Letter of William J. Birney, Esq. dated October 2, 2007; [*2]

Transcript of deposition of Walter Miller dated August 8, 2007;

Letter of Michael G. Levin, Esq. dated October 3, 2007.

Petitioner, Allen Lipp ("Lipp"), seeks an order compelling Respondent, Robert Zigman a/k/a Robert Aronson a/k/a Robert Arenson ("Zigman"), to produce copies of his personal income tax returns for the years 2000 through 2006 and to provide authorizations to Lipp to permit him to obtain copies of Zigman's income tax returns for these years directly from the Internal Revenue Service. Lipp also seeks authorizations to obtain copies of the income tax returns filed by Collision Depot, Inc. with the Internal Revenue Service for the same period.

The special proceeding was commenced seeking the judicial dissolution of Collision Depot.

Collision Depot was incorporated in 1998. It operated an auto body shop in Oceanside. Zigman and Lipp are each fifty percent (50%) shareholders in Collision Depot.

Lipp claims that, in late February 2005, Zigman locked him out of the business. Since that time, Lipp has been denied access to Collision Depot's premises as well its its books and records and has not received a salary or any distribution from the operation of the business.

Zigman asserts Collision Depot was losing money. Zigman claims Lipp knew Collision Depot was losing money and walked away from the business. Zigman claims that Lipp agreed to permit Zigman to form a new auto body business in which Zigman would be the sole shareholder. This new corporation would use Collision Depot's facilities and equipment and use Collision Depot as a trade name.

The petition filed herein and the order to show cause seek judicial dissolution of Collision Depot pursuant to Business Corporation Law §1104. Petitioner does not specify the subdivision of Business Corporation Law §1104 pursuant to which he seeks dissolution.^[FN1]

Lipp did not petition to dissolve Collision Depot pursuant to Business Corporation Law §1104-a, which compels production of the business records for the three preceding years of the filing of the petition. [*3]

In addition to seeking the judicial dissolution of Collision Depot, Lipp seeks replevin of personal property he kept at Collision Depot's premises. If this property could not be recovered, Lipp seeks money damages for conversion of this personal property.

Lipp also alleges causes of action in the nature of shareholder derivative claims by asserting that Zigman misappropriated or diverted corporate funds and opportunity and breached his fiduciary duty to Collision Depot. Lipp seeks money damages on these causes of action.

Lipp asserts that Zigman's assets and lifestyle belie his claim that Collision Depot was losing money and had been losing money for many years. Zigman owns real property in Pennsylvania. In 2003, Zigman purchased the property upon which Collision Depot's business is located for more than $600,000. Zigman's wife drives a new luxury car.

The dissolution of Collision Depot appears to have become a secondary issue in this action. Collision Depot stopped doing business in 2004. Its accountant, Walter Miller ("Miller"), testified at his deposition that the 2004 tax returns he prepared and filed on behalf of Collision Depot were its final returns and so advised Lipp.

Miller testified that he filed amended tax returns for Collision Depot for the years 1998 through 2000 which showed additional income. Although Miller did not have the returns available to him when he testified, he believed these returns also showed significant additional expenses. He did not believe these returns showed increased profitability for Collision Depot for those years.

Collision Depot was subject to a sales tax audit which resulted in a large assessment. Lipp infers the sales tax audit resulted in a large assessment because Collision Depot had significant unreported income.

Lipp also infers that the business was producing more income than reported because the accountant relied upon the information provided to him by Zigman in preparing Collision Depot's financial statements and tax returns.

The accountant based Collision Depot's income and expenses upon information derived from the business bank statements and checkbook. The only income was reflected by deposits made into the account reflected on the monthly bank statement. The only expenses were those reflected by checks written from the business account. Miller never checked the deposit slips to verify deposits or invoices to verify if all revenue generated by Collision Depot's operation was being deposited into the checking account. Lipp claims Miller never checked invoices to confirm whether all bills were being paid out of the corporate bank account or whether the items paid out of the corporate account were actually corporate expenses.

The only time Miller actually reviewed Collision Depot files was in connection with the sales tax audit.^[FN2] [*4]

Lipp also asserts that Zigman maintained two sets of books for Collision Depot, the official set that was used by the accountant and a second set that contained the accurate information regarding the Collision Depot's actual income and expenses.Lipp claims Zigman would cash checks issued to Collision Depot at a check cashing facility rather than depositing them into the corporate bank account.

Miller testified that, as of 2001, Zigman no longer cashed checks payable to Collision Depot at a check cashing facility. Zigman further assured Miller that, from 2001 forward, all corporate income was deposited into the corporate account.

Miller was brought in as Collision Depot's accountant in 2001 to straighten out Collision Depot's books and tax returns in connection with prior litigation involving the corporation on the recommendation of Lipp's attorney in that action.

In determining whether the material sought through discovery is "material and necessary", the court must determine if the demanded material has any bearing on the issues raised in the case and whether the demanded documents will "...sharpen the issues and reduce delay and prolixity." The test is one of usefulness and reason. Allen v. Crowell-Collier Publishing Co., 21 N.Y2d 403, 406 (1968).

Discovery is permitted of material that may not be admissible in evidence provided that the production of such information may lead to the disclosure of admissible evidence. Southampton Taxpayers Against Reassessment v. Assessor of the Village of Southampton, 176 AD2d 795 (2nd Dept. 1991); and Fell v. Presbyterian Hospital in the City of New York, 98 AD2d 624 (1st Dept. 1983).

Discovery is permitted of documents that are not admissible in evidence provided that the production of such documents may lead to the disclosure of admissible evidence. Southampton Taxpayers Against Reassessment v. Assessor of the Village of Southampton, supra; and Fell v. Presbyterian Hospital in the City of New York, supra.

The party seeking discovery has the burden of establishing that the demanded material may lead to the discovery of admissible evidence while the party opposing the production has the burden of establishing that the material is irrelevant, privileged or confidential. Crazytown Furniture, Inc. v. Brooklyn Union Gas, 150 AD2d 420 (2nd Dept.1989); and Herbst v. Bruhn, 106 AD2d 546 (2nd Dept. 1984).

Disclosure of income tax returns is disfavored since income tax returns contain confidential and private information. Walter Karl, Inc. v. Wood, 161 AD2d 704 (2nd Dept. 1990); and Briton v. Knott Hotels Corp., 111 AD2d 704 (2nd Dept. 1985). The party seeking to obtain production of income tax returns must make a strong showing of necessity and an inability to obtain the information contained in the income tax return from any other source. Abbene v. Griffin, 208 AD2d 483 (2nd Dept.1994); and Cosentino v. Schwartz, 155 AD2d 640 (2nd Dept. 1989). A party will not be required to produce an income tax return if the information may be obtained from any other source. Samide v. Roman Catholic Diocese of Brooklyn, 5 AD3d 463 (2nd Dept. 2004).

When the court cannot determine if the demanded material is discoverable, the court should direct an in camera inspection of the disputed material. Chebere v. Johnson, 3 AD2d 365 (1st Dept. 2004); and Nationwide Ins. Co. v. Crisano, 286 AD2d 670 (2nd Dept. 2001). [*5]

Zigman's income tax returns may well contain information that is relevant to this action.

Miller testified that the tax returns which he prepared for Collision Depot for 2004 were its final tax returns Thus, the Court questions whether information contained in Zigman's 2005 or 2006 income tax returns would be relevant to this action.

The Court cannot make the determination of whether the information contained in Zigman's personal return is relevant or subject to discovery without reviewing them.

Zigman's personal income tax returns filed for the years 2000 through 2006 shall be produced for an in camera inspection.

To assure that the returns provided to the Court are the returns actually filed by Zigman for the years in question, Zigman shall promptly obtain copies of those returns directly from the Internal Revenue Service.

However, the cost for obtaining copies of the tax returns should be borne by Lipp. Schroeder v. Centro Pariso Tropical, 233 AD2d 314 (2nd Dept. 1996); and Rubin v. Alamo Rent-a-Car, 190 AD2d 661 (2nd Dept. 1993).^[FN3]

Lipp also requests authorization to obtain copies of the corporate income tax returns filed by Collision Depot.

Miller testified that he prepared and, had Collision Depot file, amended returns for certain years. Lipp asserts that, based upon this testimony, he is not sure which returns are the actual returns filed by Collision Depot. To clear up any questions regarding this, he seeks authorizations to obtain copies of the returns and amended returns filed by Collision Depot.

Lipp was an officer in Collision Depot. An officer is authorized to bind the corporation can make application to the Internal Revenue Service to obtain copies of corporate income tax returns. See, Specific Instructions, Internal Revenue Service Form 4506. Lipp, therefore, does not need an authorization to obtain copies of Collision Depot's income tax returns. If Lipp was not an authorized officer of Collision Depot, application to obtain copies of the corporate income tax returns and amended corporate income tax returns filed by Collision Depot for the years 1998 through 2004 shall be obtained and processed in the same manner as provided for herein with regard to Zigman's personal returns. However, the Collision Depot Corporate tax returns need not be subject to in camera inspection. Upon their receipt, a copy should be promptly forwarded to opposing counsel.

Accordingly, it is,

ORDERED, that within twenty (20) days of this order, Zigman shall execute all forms and other documentation needed to permit his attorneys to make application with the Internal Revenue Service to obtain copies of his personal income tax returns filed for the years 2000 through 2006; and it is further,

ORDERED, that Zigman's attorneys shall notify Lipp's attorney when they are in [*6]receipt of such forms and documentation within five (5) business days thereafter, Lipp shall forward a check to Zigman's attorney in a sum sufficient to pay the fees charged by the Internal Revenue Service for the reproduction of said income tax returns: and it is further,

ORDERED, that upon receipt of the returns, Zigman's attorney shall forward them to the Court forthwith for in camera inspection on notice to Lipp's attorney; and it is further,

ORDERED, that, in the event that Lipp is not an officer authorized to request corporate tax returns for Collision Depot then Zigman shall execute all necessary documents to cause the Internal Revenue Service within twenty (20) days of his being requested to do so. Upon receipt of the requested Collision Depot corporate tax returns opposing counsel shall be promptly provided with a copy thereof.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

January 24, 2008Hon. Leonard B. Austin, J.S.C.