In a pair of related rulings in Tucker v. United States, 2012 U.S. Dist. LEXIS 43154 (ND WV 2012), here, and Tucker v. United States, 2012 U.S. Dist. LEXIS 43155 (ND WV 2012), here, the court rejected the plaintiff's claims for damages for alleged Section 6103 violations made by IRS CI special agents interviewing witnesses while assisting in a grand jury investigation. Section 6103, here, prohibits the IRS from disclosing "return information." (This section has numerous exceptions that go on page after page, but none appear applicable here.) Section 7431, here, affords a civil remedy for improper disclosures of return information.
The relevant facts, highly summarized, are: A grand jury was investigating the plaintiff for potential tax crimes. Two IRS CI agents were assisting the grand jury, as is usually the case in tax grand jury investigations. (There is no indication of whether these agents had previously conducted an IRS administrative criminal investigation of the plaintiff.) Incident to the grand jury investigation, the CI Agents interviewed plaintiff and certain third-party witnesses. The plaintiff alleged that the CI Agents improperly disclosed to the witnesses the following: (i) that they were investigating plaintiff pursuant to a grand jury investigation of plaintiff; and (ii) that the plaintiff "was going to jail for tax evasion" or some variant thereof. The witnesses they interviewed appeared as witnesses in the case for the plaintiff and testified somewhat consistently with the plaintiff's allegations. The CI Agents denied the allegations.
The court first dismissed the first type of allegations -- identifying that the CI agents were investigating pursuant to a grand jury investigation of the plaintiff -- because the court felt the allegations had not been timely made by the plaintiff. The court dismissed the second type of allegations -- that plaintiff was going to jail -- finding that plaintiff's witnesses not credible and the CI agents credibly denied the allegations.
The case seems straight-forward, but it seems to me the issue is more nuanced than presented. I have encountered a similar pattern before so I am just going to provide a high level summary to illustrate some nuance. Section 6103 applies to tax return information gathered by the IRS functioning as the IRS. Section 6103 does not apply to information gathered by a grand jury, and I think this is true even if IRS CI agents are assisting the grand jury investigation and, as often occurs, actually interview witnesses and gather documents. Grand jury information is covered by a different "secrecy" provision, Rule 6(e), Federal Rules of Criminal Procedure, here. Thus, for example, the fact that the CI Agents were assisting in a grand jury investigation is grand jury information and not IRS return information.
Tax grand juries invariably get information from the IRS that the IRS has gathered in its normal function of administering the tax laws (including any prior CI administrative criminal investigation). That information certainly is return information and does not lose its status as return information when given to the grand jury. As I understand it, when that information is sent to DOJ Tax for use in grand jury investigations, CI carefully identifies it to show that it is information the IRS possessed independent of the grand jury investigation so that, in the future, the IRS can use that information independent of the secrecy requirement of Rule 6(e). See, e.g., 25.1.5.3, (01-15-2010) Cooperating Grand Jury Examiner/Revenue Officer Procedures, here, at par. 3.A.. In other words, vis-a-vis the IRS's ability to use the information in the future, that information does not become tainted Rule 6(e) grand jury information simply because the IRS sent it to DOJ Tax for the grand jury's use. Vis-a-vis the rest of the world, the information is grand jury information, but vis-a-vis the IRS it is not, so that, when the grand jury investigation is concluded, the information can be used by the civil function of the IRS to determine and assess tax liability. The information is, of course, return information because that is what it was when the IRS sent it forward for grand jury use. So, in the grand jury's hands, it is both return information and grand jury information (the latter at least as to all the world except the IRS).
Applying these concepts, it appears to me that the fact that the CI Agents are conducting interviews pursuant to a grand jury investigation is grand jury information and is not IRS return information. The complaint for that claim of improper disclosure seems to me to implicate grand jury secrecy and not Section 6103 because, while assisting the grand jury, the IRS agents do not seem to be acting in their capacities as IRS CI Agents. But, there is another way of looking at it. The IRS records would show that there is a grand jury investigation and that the CI Agents are assisting the grand grand jury, and in that sense I suppose the information could also be IRS information return information as well as grand jury information. So, viewed, the case authority holds that it is tax return information subject to Section 6103. See Snider v. United States, 468 F.3d 500, 508 (8th Cir. 2006) (although the Eight Circuit's holding is cryptic). Nevertheless, the Government argued the identifying the IRS CI Agents and the capacity in which they served were authorized disclosures under Section 6103(k)(6), citing in its Memorandum Roebuck
v. United States, 1999 WL 501003 at *4 (E.D. N.C.) aff’d, 1999 WL 1128884 (4th
Cir. 1999); 26 C.F.R. § 301.6103(k)(6)-1(a)(3); Internal Revenue Manual §
9.5.2.5.3.
As to the second type of allegations as to whether the plaintiff would go to jail, it seems to me that the allegation -- had it been found true -- would not be tax return information per se in any event. If the statement were made (the court found it was not made), it is just a statement of conclusion and not fact. But the conclusion does implicate the information underlying the conclusion and, in a sense, that underlying information might implicate both grand jury information and IRS return information (the latter being the information the grand jury received from the IRS). And, this might particularly be a problem if the CI Agents had participated in the IRS administrative criminal investigation before the case was referred to DOJ Tax for grand jury investigation.
It seems to me that information developed independently by the grand jury and not sourced from the IRS implicates only Rule 6(e) and not Section 6103. In other words grand jury information does not become Section 6103 return information simply because the grand jury investigation is a tax grand jury investigation and simply because IRS CI agents are assisting the grand jury. What this means is that, if the IRS wants to access the grand jury information that the grand jury developed from other sources (i.e., did not get from the IRS), the information is not tax return information and the IRS will have to apply for a Rule 6(e) disclosure order to access it and use it just like everybody else wanted grand jury information. Thus, if the CI Agents' alleged statements had been based only on grand jury information which the grand jury independently developed, the alleged statements -- assuming they had been made, an assumption contrary to fact -- should not implicate Section 6103.
Monday, April 2, 2012
6 comments:
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I have questions rather than comments.
ReplyDeleteAfter the Grand Jury has completed its task, is the non-IRS sourced information accessible to the IRS for the civil process or does it remain subject to the Rule 6(e) disclosure. I suppose there are two scenarios (1) indictment obtained and (2) no indictment.
If so, what are the standards for releasing the information through Rule 6(e) disclosure order. It seems duplicative for the IRS to have to independently gather substantially the same information again to pursue a civil case against the same taxpayer.
What is the incidence of Grand Juries handing down indictments in tax cases?
Are tax cases consolidated with other cases under GJ investigation. I noticed that insider trading indictment situations sometimes seem to have a tax component, which is perfectly understandable--it is unlikely one who engages in illegal securities behavior would report the illegal proceeds to the IRS, or so it seems to me.
Strategically, it might make sense to hold a tax indictment in reserve so as to avoid double jeopardy issues in case the other non-tax component of the case failed?
Perhaps Jack or the knowledgeable reader base might be interested in responding. As a civil practicioner, the interplay of GJs and the IRS civil side is an interesting aspect of the criminal tax process, or, to put it bluntly, how and when does the taxpayer have to pay up in pieces of George.
1. My understanding is that information the grand jury obtains from sources other than the IRS is grand jury matters subject to Rule 6(e)'s secrecy requirement. That information is not available to the IRS without a Rule 6(e) order that is hard to get and may not be obtained at all in some cases. And, since IRS personnel are working on the case (including having access to grand jury information from these other sources), the IRS is supposed to have a Chinese Wall so that none of the information improperly bleeds into the civil function at the IRS.
Delete2. The conditions for the court to order disclosure are set forth in Rule 6(e)(3)(E). As I read those exceptions, there is none for disclosure to the IRS. Subsection (E)(i) does permit -- permit rather than require -- disclosure "preliminarily to or in connection with a judicial proceeding," but I don't think a civil IRS audit would meet that requirement. Accordingly, the IRS in the civil audit would have to duplicate the work of the grand jury (other than the work-product the grand jury received from the IRS), and without any "leads" for doing so from the grand jury. Of course, if the fruits of the grand jury investigation are in the public record as is often the case at trial, the IRS civil function can then use the information. The net of all this is that information may get buried in the grand jury, but I suspect the IRS / DOJ has some work arounds (e.g., a document dump into the public record at trial or perhaps a long plea statement by the AUSA that the defendant agrees to).
I will address other questions in separate replies.
Jack Townsend
3. I am not sure what you are asking as to the incidence of tax indictments. When the grand jury does not indict (either because the grand jury declines to indict or the Government ultimately does not request an indictment), the public is not notified, so I don't think there is public information about that.
Delete4. Tax investigations can be conducted with other investigations in a grand jury. DOJ Tax has to approve any tax indictments.
5. There might be some double jeopardy issues if the tax indictment is held in abeyance and other charges are tried first. The Rigas cases first out of the Second Circuit and then out of the Third Circuit had variations on this theme. But usually the tax charges would be sufficiently disconnected to the other charges that double jeopardy would not apply.
6. I did not understand your last paragraph.
Thanks for all your contributions to this blog.
Jack Townsend
Many thanks Jack,
DeleteEnlightening and helpful as always.
What I meant to say in the last paragraph (6) is when is the taxpayer going to be hit by additional taxes, interest and civil penalties and such like (pieces of George=pieces of George Washington = dollar bills) that are due and owing by the taxpayer over and above the amount levied in the criminal case, whether for the same tax years or others.
The point I was (poorly) making is when is the final assessment of amounts owed and can this process be expedited by the IRS civil examiners using information gathered in the GJ investigation rather than going through a separate investigation of the taxpayer, thereby wasting time and valuable resources.
Apologies for the opaque references!
Patrick,
DeleteThe IRS may not have all the information gathered in the grand jury investigation. In some cases where my client has been in cooperation mode during the audit, I have supplied the civil agent some information otherwise not available to him or her. And, of course, the civil agent can summons the information and then we may have to fight about attorney-client or work product privileges.
But, I have been involved in cases where the civil agent went through an essentially new investigation, picking up bits and pieces from the criminal case as best he or she could and finding new opportunities to assert civil tax liability.
Keep in mind that it is often the case that the tax computation charged in the criminal case and used for sentencing purposes is essentially the criminal number -- i.e., the tax due to fraud. The civil number can include a lot of adjustment that was not charged -- either because the adjustments are civil in nature only or the criminal case just did not include them for some other reason. Now the underlying grand jury files may have information about these other adjustments, but if the agent cannot access the grand jury matters, he or she just may have to develop them independently. In this regard, of course, the civil agent will have access to the IRS CI administrative investigation files that may have a lot of this information about nonfraudulent adjustments.
Jack Townsend
By the time there is a GJ investigation under way as to tax offenses or a broader inquiry (embracing tax as well as non-tax offenses), the return of an Indictment is, for the most part, a foregone conclusion. It is not so much if a given target/putative defendant will be indicted but rather when will he/she be indicted and how many tax and non-tax counts will be charged.
ReplyDeleteThe IRS's administrative and civil investigation is, at least for the years embraced in the USDOJ crininal tax referral and subsequent GJ proceedings, put in abeyance pending disposition of the criminal proceedings. If the accused is acquitted, the IRS can resume its administrative/civil proceedings including appropriate enforced collection action. If the accused is convicted, he/she is usually required to make disclosures and pay taxes (previously assessed and subsequently due/payable) as part of the conditions of probation and/or post-incarcerative supervised release. The court may also impose requirements to pay restitution, fines and appropriate costs.
Although there are a number of non-constitutional and non-statutory pre-indictment "conference opportunities" with the IRS CID supervising agent, a supervising criminal tax investigation attorney in the office of the IRS's Counsel, a supervising trial attorney in the USDOJ's Tax Division for the appropriate geographical or functional trial section and a local Assistant US Attorney, it appears that such endeavors aimed at attaining the so-called "Holy Grail" of declination of criminal tax prosecution often amounts to a rather expensive exercise in futility.
Criminal tax and other white collar defense strategies are hardly "once-size-fits-all." Defense counsel must tailor his/her strategies to the specific facts and circumstances of a given case.
One discernible trend that has emerged is that it has become increasingly apparent that astute defense counsel would prefer to forego such "conferences" in favor of mostly damage control (meaning: pleading to the offense(s) associated with the least amount of incarcerative and other consequences), or in some relatively rare instances, effectively preparing to defend his/her client during various complicated pretrial, trial (and if the client is convicted, post-trial, sentencing, appellate and collateral relief) proceedings.
Please understand the foregoing comments are no more than a rather cursory treatment of some very complicated matters. It is definitely not any kind of substitute for thorough legal research, or if the reader deems it necessary, legal advice/guidance from an experienced white collar criminal defense attorney licensed in the appropriate jurisdiction.