1. Does DOJ Tax have authority to conduct a criminal tax investigation independent of a grand jury investigation?
2. Does DOJ Tax have authority to prosecute or authorize prosecution of a federal tax crime if the IRS does not agree with the prosecution?
Each of these questions have a context that I shall discuss. Suffice it to say at this point that I made a FOIA request to DOJ Tax (here) to try to obtain answers to these questions. The DOJ Tax FOIA response (here) is quite cryptic and simply refers to the provisions of 28 CFR Section 0.70 (online version here). (Actually, the copy of the CFR provision enclosed with DOJ Tax's response is an earlier version than the current one I link to, but I don't think there were any changes in the later version, other than that redesignating the provision as subpart M rather than subpart N in the earlier version provided by DOJ Tax.) The DOJ Tax response also refers generally to the IRS Internal Revenue Manual ("IRM") (access here) without specific citation; I have been unable to discern how the IRM could possibly establish DOJ Tax authority in the subject areas, since the IRM deals with internal IRS procedures.
In this blog, I will address the first question -- DOJ Tax have authority to conduct criminal tax investigations independent of grand jury investigation. The CFR provision to which DOJ Tax provides in part here pertinent:
The following functions are assigned to and shall be conducted, handled, or
supervised by, the Assistant Attorney General, Tax Division
* * * *
(b) Criminal proceedings arising under the internal revenue laws [with exceptions not here material].The key word is "proceedings." Does the word "proceedings" encompass criminal tax investigations independent of a grand jury? I do note that it is clear that the delegation of authority does include DOJ Tax attorney participation in grand jury proceedings involving criminal tax investigations. The question though is whether, independent of DOJ Tax attorneys' participation in a grand jury investigation, DOJ Tax attorneys can conduct a criminal tax investigation? I can find no authority directly on the point, but the question is whether "proceedings" includes criminal tax investigations independent of the grand jury? I find no definition of the word proceedings, but the context suggests that no such authority is granted. The grant of authority seems to encompass proceedings either in court or in a grand jury.
The authoritative Webster Report (Webster Commission, Review of the Internal Revenue Service's Criminal Investigation Division (April 1999) from William H. Webster and the Criminal Investigation Division Review Task Force (often referred to as the “Webster Report”)) says in the Executive Summary, p. 1: "CI [IRS Criminal Investigation function] is the only agency that can investigate potential criminal violations of the Internal Revenue Code." (The portion of the Webster Report quoted is here.) This statement is echoed in other documents [e.g., TIGTA 2005 CI Report, p. 1 (“The CI function is the only law enforcement organization with the authority to investigate criminal tax violations.”)]. And the statement is made on an IRS web page titled "Criminal Investigations (CI) at a Glance," here, which says (as of 12/29/14): "IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code." So, from all that I have been able to find, DOJ Tax is not authorized to conduct a criminal tax investigation.
Now, you might ask, who cares and why would this be important. I cannot know all contexts in which these questions arise, but in the KPMG criminal case, it appeared that the criminal tax investigation was not initiated by the IRS but rather by DOJ attorneys. The IRS had referred a summons enforcement matter to DOJ Tax for the limited purpose of enforcing summonses against KPMG. The DOJ Tax civil section attorney assigned to handle that limited function took it upon himself to invite DOJ Tax criminal section attorneys to the party, and thereafter the DOJ Tax criminal section attorneys began activity that seems to have been a criminal tax investigation not connected to a grand jury investigation and not pursuant to a request from the IRS. From their activities, the KPMG criminal case unfolded, even thought the IRS initially was unwilling to have it turn criminal. So the question was whether the DOJ Tax criminal section attorneys had improperly left the reservation, and, if they had, whether that tainted the resulting indictments. This issue never got resolved.
There are, of course, other issues involved in this scenario. For example, when the IRS made the limited referral to DOJ Tax for the summons enforcement, did the DOJ Tax civil section attorney assigned to the matter have authority to invite the criminal section attorneys to the party wholly independent of the issue of whether the criminal section attorneys could investigate a tax crime? Specifically, § 6103 unequivocally precludes the IRS from sharing IRS tax return information with DOJ except upon referral. When a limited referral is made, I doubt that that referral would be considered authority for any DOJ attorney working on the referral to then broadcast that information throughout DOJ Tax beyond the attorneys involved in the matter that was referred. But let's not get sidetracked on that issue right now. The district court in the criminal case recognized the issue, but declined to decide it because, it concluded, even if there were a § 6103 violation, the requested dismissal of the indictments was not an appropriate remedy. See United States v. Stein, 2008 U.S. Dist. LEXIS 74030 (S.D.N.Y. Sept. 10, 2008), here.
There is also a more directly related question. That question is whether any attorney in DOJ can conduct a criminal tax investigation independent of a grand jury investigation. I think the answer to that also has to be no for the reason noted in the Webster Report that IRS CI is the only agency authorized to conduct a tax investigation. Now, you might ask, why is this important and who cares? Well, the USAO attorneys (including Special AUSAs from DOJ Tax) assigned to assist the grand jury in the KPMG grand jury investigation claimed also that they were conducting a criminal tax investigation unrelated to the grand jury investigation in which they were assisting. Why did they claim that? So that the information they gathered in forced proffer sessions with subjects of the grand jury investigation could be obtained, they claimed, free of the secrecy requirement of Rule 6(e) of the Federal Rules of Civil Procedure. This claim is ludicrous if the USAO attorneys had no authority to investigate outside the grand jury context, so that whatever investigation they were undertaking in order to have the proffer sessions in the first place was the grand jury investigation we know they were undertaking.
And, even if arguendo they did have some authority to investigate tax crimes independent of the grand jury investigation, how could they separate their actions in one investigation of the same scope as the other. A similar issue of bleeding between investigation arises when IRS CI personnel (usually Special Agents) are assigned to assist the grand jury. There is no question that IRS CI personnel are authorized to investigate tax crimes independent of the grand jury. But, where they assist the grand jury, they are prohibited from conducting any IRS investigation within the scope of the grand jury investigation because of the danger -- virtual certainty -- that grand jury information would bleed into the IRS investigation. This point appears at several places in the IRM, but here is one:
188.8.131.52.3 (11-05-2004)JAT Note: I updated this discussion on 12/29/14.
Civil or Non-Grand Jury Use of Grand Jury Material
1. Grand jury information may not be used for civil purposes unless the IRS obtains the information independently of the grand jury or through a Rule 6(e) order.
2. To prevent doubt about the origins of information available for civil use, the SSA should ensure the segregation of information prior to the receipt of any grand jury information and have such material clearly marked as non-grand jury. After the grand jury investigation begins, any information obtained independently of the grand jury should be kept separate and clearly identified as an independent source. The Grand Jury Guidelines included in Exhibit 9.5.2-1 may be used in the classification of information.
3. Field personnel should consult CT Counsel when questions arise in the segregation process. The ultimate decision, however, to release evidence acquired during a grand jury investigation falls within the purview of the attorney for the government. Information deemed to be non-grand jury in nature should not be released unless the responsible DOJ attorney reviews the material and they authorize the release. The government attorney's approval should be documented in the respective case file.
4, In general, IRS personnel who have received grand jury information subject to the secrecy provisions of Rule 6(e) will exclude themselves from involvement in non-grand jury matters concerning the individuals, entities, and subject matter of the grand jury information.
5. The SAC and other CI managers may not use grand jury information to direct a non-grand jury investigation.