Friday, June 7, 2013

Obtaining Tax Return Information in Non-Tax Criminal Cases (6/7/13)

One of the core concepts of our internal revenue law is that the information that IRS gathers from and about taxpayers will not be freely disseminated outside the IRS.  IRC Section 6103, here, insures that such information can be viewed and used both within the IRS and outside the IRS only in certain narrow and specific circumstances, and then subject to some controls.

Obviously, in tax cases -- civil and criminal -- that reach a court and tax grand jury investigations that reach the grand jury, the tax information can be shared with DOJ Tax CES personnel and then used by them in presenting cases to the court or grand jury.  But, what about cases which are not tax cases.  Is the information available to the Government prosecutors or attorneys?

In United States v. Ajudua, 2013 U.S. Dist. LEXIS 73003 (D NM 2013), here, the Court dealt with that issue and discusses a method by which tax return information may be obtained by prosecutors for use in criminal cases (both at the grand jury and at the criminal trial).  The defendant was "indicted and charged with a violation of the following: (i) conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349; (ii) aiding and abetting bank fraud in violation of 18 U.S.C. § 1344; and (iii) aiding and abetting aggravated identity theft in violation of 18 U.S.C. § 1028(A)."  The charges related to the defendant's "involvement in a conspiracy to steal the identities of unwitting victims and to use those stolen identities to fraudulently obtain access to bank accounts and lines of credit."  The United States filed a sealed motion under Section 6103(i) to obtain the defendant's tax return information "in order to establish that the income and return information provided is inconsistent with a legitimate business."

I link to Section 6103 above, but since it is a sprawling provision, I will Court's discussion of the legal background as well as its holding.  As summarized by the Court in Ajuda, Section 6103(i) provides:
Subsection (i)(1) authorizes federal officers and employees to obtain a court order to obtain returns and return information from the IRS. Subsection (i)(1) authorizes disclosure by the IRS only to federal officers and employees for their limited use in preparation for specified non-tax criminal proceedings,  any investigation which may result in such proceeding, or any federal grand jury proceeding pertaining to such a statute. See 26 U.S.C. § 6103(i)(1)(A). Subsection (i)(1) specifically provides that the information shall be disclosed upon the grant of an ex parte order by a federal district court judge or magistrate judge. See 26 U.S.C. § 6103(i)(1)(A). 26 U.S.C. § 6103(i)(4) governs such disclosure beyond those working on an investigation, and relates to the use of returns and return information in judicial or administrative proceedings. Subsection (i)(4) provides that returns and taxpayer return information may be disclosed in a judicial or administrative proceeding if: (i) the court makes certain findings regarding their probative value; or (ii) disclosure is required by court order pursuant to 18 U.S.C. § 3500 or by rule 16 of the Federal Rules of Criminal Procedure. See 26 U.S.C. § 6103(i)(4)(A). Thus, when the records need to be disclosed to people other than those tasked with the investigation, a specific court finding regarding their probative value, or 18 U.S.C. § 3500,2 or rule 16, governs the disclosure.
With regard to returns or return information that is disclosed to federal officers or employees for the purpose of the administration of federal laws not relating to tax administration, see 26 U.S.C. § 6103(i); 26 C.F.R. § 301.6103(i)-1, returns and taxpayer return information obtained under 26 U.S.C. § 6103(i)(1) or (7)(C) may be disclosed in any judicial or administrative proceeding pertaining to the enforcement of a specifically designated federal criminal statute or related civil forfeiture -- not involving tax administration -- to which the United States or a federal agency is a party if the Court finds that such return or taxpayer return information is probative of a matter in issue relevant in establishing the commission of a crime or the guilt or liability of a party, see 26 U.S.C. § 6102(i)(4)(A). There are, likewise, other ways to secure the information once the matter is the subject of a criminal case. A court in a criminal case may order disclosure of such materials pursuant to a discovery order under 18 U.S.C. § 3500 or rule 16, see 26 U.S.C. § 6103(i)(4)(A)(ii), if the court gives due consideration to the congressional policy favoring the confidentiality of returns and return information, see 26 U.S.C. § 6103(i)(4)(D). Return information other than taxpayer return information obtained under 26 U.S.C. § 6103(i)(1), (2), 26 U.S.C. § 6103(i)(3)(A) or (C), or 26 U.S.C. § 6103(i)(7) may be disclosed in any judicial or administrative proceeding pertaining to the enforcement of a specifically designated federal criminal statute or related civil forfeiture -- not involving tax administration -- to which the United States or a federal agency is a party. See 26 U.S.C. § 6103(i)(4)(B). Except in accordance with a discovery order in a criminal case, no return or return information may be admitted into evidence if the Secretary of the Treasury determines and notifies the Attorney General, or his or her delegate, or the head of the appropriate federal agency, that admission of the evidence would identify a confidential informant or seriously impair a civil or criminal tax investigation. See 26 U.S.C. § 6103(i)(4)(C). It is not proper for a district court to admit return or return information into evidence by entering an order authorizing the disclosure under 26 U.S.C. § 6103(i)(1)(B) after the fact when there has been no application for the order by an appropriate official. See United States v. Mangan, 575 F.2d 32, 38-41 (2d Cir. 1978). 
In United States v. Barnes, 604 F.2d 121 (2d Cir. 1979), the United States Court of Appeals for the Second Circuit rejected the argument that the defendants "were entitled to have the information upon which the court issued its order and to a hearing on their motion to obtain it." 604 F.2d at 146. As the Second Circuit related: "There is nothing in the statute providing for notice to the taxpayer, a hearing on the application, or disclosure of the information on which the judge acted. In short, the procedure specified is Ex parte." United States v. Barnes, 604 F.2d at 146. In Weinstein v. Mueller, 563 F. Supp. 923 (D.C. Cal. 1982), the United States District Court for the Central District of California found that objection by a taxpayer who has been arrested on drug related charges, to the disclosure of information by the IRS to the United States Attorney prosecuting the case, on the ground that the court order allowing the disclosure was a "secret order," is without merit where: (i) information was disclosed pursuant to the district court's ex parte order, because 26 U.S.C. § 6103 specifically provides for ex parte orders; and (ii) there were no irregularities in the order itself or the manner in which it was obtained. 563 F. Supp. at 931-32. There is a qualified privilege that limits disclosure of federal tax returns for use in grand jury proceedings. See 26 U.S.C. § 6103(i)(1)(A)(iii); In re Grand Jury Subpoena, 144 F. Supp. 2d 541-42 (W.D. Va. 2001).

The Court granted the application finding:
1. Based upon information furnished by the Federal Bureau of Investigation ("FBI") that is believed to be reliable, reasonable cause exists to believe that specific criminal acts have been committed, namely, violations of 18 U.S.C. § 1349: Conspiracy, 18 U.S.C. § 1344: Bank Fraud, and 18 U.S.C. § 1028(A): Aggravated Identity Theft. See 26 U.S.C. § 6103(i)(1)(B)(i).
2. Reasonable cause exists to believe that the information in the Tax Materials is or may be relevant to a matter relating to the commission of such acts. See 26 U.S.C. § 6103(i)(1)(B)(ii).
3. The Tax Material is sought exclusively for use in a federal criminal investigation or proceeding concerning the above described acts, and the information sought to be disclosed cannot reasonably be obtained, under the circumstances, from another source. See 26 U.S.C. § 6103(i)(1)(B)(iii).
4. The United States Attorney's Office for the District of New Mexico and its assigned attorney(s) are employees of the Department of Justice and one or more of its assigned attorneys are personally and directly engaged in (i) preparation for a judicial or administrative proceeding pertaining to the enforcement of a specifically designated criminal statute (not involving tax administration) to which the United States or such agency is or may be a party; (ii) an investigation relating to such a proceeding; or (iii) an additional federal grand jury proceeding pertaining to enforcement of such a criminal statute to which the United States or such agency is or may be a party. See 26 U.S.C. § 6103(i)(1)(A).
Finally, the Court ordered:
IT IS THEREFORE ORDERED that: (i) the Internal Revenue Service (a) disclose to the United States Attorney's Office, District of New Mexico, the requested certified copies of Tax Materials as to: 
returns, return information, and taxpayer information for:
NAME: DAVID AJUDUA
ADDRESS: xxxxxx, Alpharetta, Georgia
DOB: xx/xx/xxxx
SSN: xx-xx-XXXX
[SEALED PORTION REMOVED] 
for tax years: 2008, 2009, 2010, and 2011; (b) certify where returns described above have not been filed, or are not on file with the Internal Revenue Service, or that no such returns have been filed or are on file; (c) disclose such returns and return information described above as come into possession of the Internal Revenue Service subsequent to the date of this Order, but for not longer than ninety (90) days thereafter; (d) disclose no tax returns, return information or taxpayer return information; (e) deliver the Tax Materials to the United States Attorney's Office, District of New Mexico, as collected; 
(ii) such Tax Material may be disclosed to officers and employees of any Federal agency who are personally and directly engaged in: (a) preparation for a judicial or administrative proceeding pertaining to the enforcement of a specifically designated federal criminal statute (not involving tax administration) to which the United States or such agency is or may be a party; (b) an investigation relating to such a proceeding; or (c) an additional Federal grand jury proceeding pertaining to enforcement of such a criminal statute to which the United States or such agency is or may be a party. Disclosure shall be limited to the use of such officers and employees in such preparation, investigation, or grand jury proceeding. 26 U.S.C. § 6103(i)(l)(A). Authorized use includes necessary disclosure to clerical and supervisory personnel for the Department of Justice or other Federal agency, as well as court reporters. 26 C.F.R. § 301.6103(i)-l (b)(2). 
The following personnel from the United States Attorney's Office, are among those authorized to discuss this application and order with IRS disclosure personnel:
John C. Anderson, AUSA 
Fred J. Federici, Supervisory AUSA
[SEALED PORTION REMOVED] 
Further, to the extent necessary, in connection with any additional federal grand jury proceeding, or the proper preparation for a proceeding (or in connection with an investigation relating to such a proceeding) disclosure of this Tax Material to other persons, regardless whether they are employees of the Department of Justice or other Federal agency, may be made under the following circumstances: (i) to properly obtain the services of persons having special knowledge or technical skills (such as, but not limited to, handwriting analysis, photographic development, sound recording enhancement, or voice identification); (ii) to properly interview, consult, depose or interrogate or otherwise obtain relevant information from, the taxpayer to whom such return or return information relates (or such taxpayer's legal representative) or any witness who may be called to give evidence in the proceeding; or (iii) to properly conduct negotiations concerning, or obtain authorization for, disposition of the proceeding, in whole or in part, or stipulations of fact in connection with the proceeding. Disclosures listed in the preceding sentence may be made only if such purpose or activity cannot otherwise properly be accomplished without making such disclosures. 26 C.F.R. § 301.6103(i)-1(b)(1). 
(iii) no disclosures be made to any other person except in accordance with this Order, and the provisions of 26 U.S.C. § 6103, and 26 C.F.R. §301.6103(i)-1. 
(iv) upon the United States' request, and it appearing that the United States' application and this Order may reveal the existence of confidential tax information, the Ex Parte Application and this Order for disclosure of Tax Materials are hereby sealed until further order of the Court.

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