Summons Enforced Against Prominent U.S. Director, Producer, Writer and Convicted Felon After OVDP Termination for Not Disclosing Foreign Indictment (12/7/20)

In United States v. Agrama, 2020 U.S. Dist. LEXIS 226136 (C.D. CA 2020), CL here, the Court enforced a summons issued with respect to an IRS investigation commenced after the taxpayer was terminated from the 2009 OVDP because the taxpayer failed to notify the IRS that he was under criminal tax indictment by Italy.  

Some background which I have drawn (sometimes by inference) from the Agrama opinion and from Agrama’s Wikipedia page, here:  Wikipedia opens with a summary description of Agrama as “an American director, producer, writer, and convicted felon.”   The Wikipedia page says that the Italian tax evasion indictment was issued in 2006 and led to Agrama’s conviction in 2012. Agrama did not serve time because of an Italian amnesty law to reduce prison overcrowding.  I think that is enough background for now, but the key point is that Agrama was under Italian criminal tax indictment when he sought 2009 OVDP and was terminated from OVDP because of failure to advise the IRS of the indictment.

Apparently incident to the Italian investigation leading to the 2006 indictment, the Italian prosecutor sought assistance from the U.S. and some other countries (Switzerland, Hong Kong and Ireland) pursuant to each of those countries' respective MLAT treaties with Italy.  The U.S.  obtained and executed a search warrant at Agrama’s home and business in Los Angeles.  Italian authorities, including a forensic expert, were present during the executions of the search warrants.  After some commotion about whether the U.S. agents executing the search warrant exceeded the scope of the search authorized, the U.S. withdrew the warrants and returned all of the property seized.  Apparently, none of that property seized and returned was delivered to Italy or to the IRS for use in any other proceedings.  Italy’s officials, including a forensic expert, had participated and obviously had some information learned in the execution of the search warrants, although not the documents seized.   Pursuant to the MLAT requests to the other countries, searches were executed and documents seized.  Italian authorities, including the forensic expert, was involved in those seizures and apparently obtained the documents seized.  The forensic expert then produced a report for use in the Italian investigation and  indictment.

In 2009, Agrama and his wife applied to join the 2009 OVDP and was accepted.  In the course of the OVDP process, “the Agramas represented that they were not under criminal investigation by any law enforcement authority.”  Then, according to the court:

In 2012, the IRS learned that Agrama was, in fact, under criminal indictment in Italy. Indeed, Agrama was convicted of tax evasion later that year in Italy, and received a three-year sentence. The Agramas were subsequently removed from the IRS' voluntary disclosure program in early 2013.

After the IRS terminated the Agramas from OVDP in 2013, the IRS started an audit of the Agramas, an audit which at the time of the summons and court petition to enforce covered “the Agramas' tax liability for fourteen tax years, ranging from 1997 to 2011.”  The summons in question arose from that audit and included the following description:

documents, including all documents related to Agrama's two criminal trials in Italy, documents related to Agrama's challenge to Italy's MLAT request to Ireland, and all documents provided to the Italian government from other countries, including Hong Kong, relating to Agrama's two trials in Italy (i.e., the MLAT documents).

Agrama produced some documents but not the MLAT documents.  The IRS then petitioned to enforce the summons.

With that background, I summarize the Court’s holdings:

1.  The broad IRS summons authority recognized in United States v. Powell, 379 U.S. 48 (1964) is indeed broad and defeats Agrama’s claim of abuse of the process.

2. That the IRS may have some of the documents within the scope of the summons does not prohibit the IRS from obtaining the documents if the circumstances suggest that the scope of the request is not for harassment.  The key is that the IRS’s summons request not be used to harass the taxpayer.  The court concluded 

Here, Agrama does not contend that any of the information the IRS seeks, but may already possess, has already been produced by Agrama himself. Nor, to the extent that the IRS does seek information it already possesses, is there any indication that the IRS' efforts are motivated by any intent to harass Agrama. Rather, as discussed above, the IRS seeks to complete partial documents in its possession, or to determine whether documents in its possession are, in fact, complete. Under these circumstances, Powell cannot be read to require that the summons be quashed. See Action Recyling, 721 F.3d at 1145-46 (interpreting Powell as "cautioning against a stringent interpretation that could hamper the [IRS] in carrying out investigations [it] thinks warranted, and noting that the legislative history of § 7605(b) indicates that no severe restriction was intended." (internal quotation marks omitted)).

3. The Court also rejected Agrama’s claim that  the summons sought to circumvent the MLAT process whereby Italy obtained documents from its MLAT treaty partners.  The Court concluded that the summons  of a private U.S. party did not implicate Italy’s and its treaty partners’ MLAT process.

4. The current IRS audit is not a “tainted investigation” so as to support not enforcing the summons.  The Court dismissed Agrama’s claims as multiple levels of speculation.

JAT Comments:

1. The scope of the audit to cover 1997 to 2011 would include seeking information related to years outside the normal statute of limitations absent civil fraud, as Powell permits.

2. Perhaps my memory fails me, but I did not recall that the opening preliminary request for OVDP in 2009 contained a requirement for a representation about other criminal investigations that would be broad enough to include foreign criminal investigations.  In any event, the current  Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, here, does have the request in Part 1, question 9, which asks: "Disclose if you, your spouse or any related entities are currently under audit or criminal investigation by the Internal Revenue Service or any other law enforcement authority and if any income is sourced from an illegal activity."  In an ABA seminar, titled Coming in from the Cold - Risks and Rewards of the Revised IRS Voluntary Disclosure Practice on November 18, the IRS representative, Dan Price, emphasized that foreign investigations must be disclosed, as well as even minor U.S. investigations.  Of course, one can quibble about the language of Question 9 as to whether it would cover an indictment which, at least in U.S. practice in the tax area effectively concludes investigation in many cases.  OK, I know grand juries can continue to investigate and issues a superseding investigation but the taxpayer/defendant in original indictment would know about the indictment (which is not an investigation) but not any continuing investigative activity of the grand jury.  And, there is the further question in this case as to whether, under Italian law, an investigation can or or does continue after indictment.  And the final point is precisely how the representation was made in the Agrama OVDP process.  The larger point simply is that the IRS should consider re-wording the question.