PITTSBURGH (CN) - Bayer pharmaceuticals cannot use statistical sampling to conduct discovery in a massive tax case, a federal judge ruled.
The research and technology giant sued the United States in March 2009, claiming it was owed a nearly $50 million tax refund related to alleged tax credits that the government provides to stimulate productivity and innovation.
Bayer said it was shorted on "qualified research expenses" tax-credits for research it conducted from 1990 to 2006.
But Uncle Sam fired back in September 2009 with a counterclaim, saying Bayer owed more than $80 million in taxes, plus $13 million in interest, in light of adjustments the Internal Revenue Service made to Bayer's return for the 2006 tax year.
In light of the vast number of expenses at issue, Bayer asked the court in March for permission to use statistical sampling for discovery in the case.
Bayer said the contested tax-credits involve millions of individual expenditures, tens of thousands of Bayer employees and 49 research sites.
The German company said it had already collected more than one billion pages of potentially relevant electronic records, and that those records involve just four of the 49 sites.
"If the parties were to try to conduct a detailed investigation of every one of the millions of expenditures, at every one of the forty nine sites...discovery alone would require decades," according to Bayer's March 2011 motion.
In an effort to create "a manageable universe of information," Bayer said pretrial discovery should use statistical sampling that would allegedly "allow the court to decide the entire case in the next two to three years."
Under Bayer's proposed statistical sampling methodology, eight of the 49 research sites generating supposed QREs would be selected for analysis.
For each of those eight sites, two of the contested tax years would be randomly selected for intensive inspection, and the results of those inspections could be used at trial.
While not averse to some form of limited sampling, the government opposed a comprehensive sampling regime, characterizing Bayer's request as a "taxpayer's unwarranted bid to evade its responsibility to prove its entitlement to a refund."
U.S. District Judge William Standish agreed Monday, rejecting Bayer's sampling proposal.
Bayer's plan "would eliminate entirely its burden of proof with regard to all QREs claimed at 41 of the 49 research sites during the credit years," Standish said.
If, as Bayer professes, it would take decades to gather the required documents in support of a refund claim, that's Bayer's own fault, Standish found.
"Bayer's estimate that it will take 'decades' to gather the evidence necessary to support the QREs claimed for the credit years establishes Bayer's failure to comply with its recordkeeping obligation," the 49-page opinion states.
"The court agrees with the government that granting the relief sought in Bayer's ... sampling motion would, in effect, constitute a reward to Bayer for failing to keep evidence regarding research expenses in 'sufficiently usable form and detail,'" as required by federal tax law, Standish wrote.
"Simply put, the court can find no authority for the extraordinary relief sought by Bayer."
The parties will meet with a special master by Feb. 20 to discuss discovery scheduling matters.
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