Saturday, May 23, 2015

DOJ Tax Authority to Investigate Tax Crimes Independent of a Grand Jury (5/23/15)

In a recent posting, Seventh Circuit Ducks On Use of IRS Summons for Criminal Investigation (Federal Tax Crimes Blog 5/11/15), here, I discussed  the holding in United States v. Procknow, ___ F.3d ___, 2015 U.S. App. LEXIS 6942 (7th Cir. 2015), here, which held open the possibility that the bright line test in Section 7602(d), here, for when use of the IRS summons must cease does not preclude an earlier point of cessation in the IRS CI investigation.  In the course of that discussion, I included the following as the final paragraph, diverting from the main subject of the blog entry:

I do note that there is an issue lurking in the facts.  In the facts, it appears that the grand jury investigation had been started by the local U.S. Attorney's office without a DOJ referral in effect.  The facts say that, and that is the logical inference from the IRS CI Special Agent's use of the IRS summons.  Apparently, when the IRS CI Special Agent learned of the grand jury investigation, he destroyed the fruits of the summons.  It is not clear how the U.S. attorney would have commenced the investigation of a tax crime without a referral from the IRS or at least some communication from and with the IRS.  Such communications could be problematic under Section 6103(h), here, without a DOJ referral.  Still the facts are so cryptically stated that further development of this issue would be speculation.  I do note that, assuming no violation of § 6103, it would appear that the U.S. Attorney may have been conducting a criminal tax investigation sufficient at least to obtain authorization for a grand jury investigation.  I have been concerned and have written before about the DOJ's authority to conduct such investigations independent of the IRS outside of and before the grand jury investigation is started.  See DOJ Tax Division Criminal Tax Investigation Authority (Federal Tax Crimes Blog 6/5/09; 12/29/14), here; and Even More on DOJ Authority to Investigate Tax Crimes (Federal Tax Crimes Blog 7/20/10), here.  Just this past weekend, I heard an official of IRS CI repeat the mantra that the IRS is the only agency that can investigate tax crimes.  Well, either DOJ / DOJ Tax has that authority or it doesn't.  I don't think that issue has been definitely decided, but until it is, as I note in the blog, some in the public may believe the IRS claim that it is the only agency authorized to investigate tax crimes.  In any event, I suppose, identity theft also probably involves non-tax crimes that the U.S. Attorney could investigate, so that may be the answer in Procknow, but would not be the answer in other cases where DOJ Tax has done such investigations outside the grand jury.

In response to this issue, Robert Horwitz, here, sent me an email, the content of which is [changed only to add links]:
Jack:  I was intrigued about your comment concerning DOJ's ability to investigate tax crimes without apparent authorization from IRS.  I did a little research and think one can make the argument that DOJ and US attorneys have this authority.  I do not know how valid the argument would be. 
IRC sec. 7801(a)(1) provides that “Except as otherwise expressly provided by law, the administration and enforcement of this title shall be performed by or under the supervision of the Secretary of the Treasury.”  While the enforcement of chapter 53, relating to firearms, is delegated to DOJ under 7801(a)(2), here, this is the only express delegation of authority to DOJ to administer and enforce provisions of the IRC.  7801(c) does provide that nothing in sec. 7801 affects the duties, powers or functions of DOJ.   
You have to look to Title 28 for the powers, duties and functions of DOJ.  28 USC 515(a), here, empowers DOJ to “conduct any kind of legal proceeding, civil or criminal, including grand jury proceedings and proceedings before committing magistrates, which United States attorneys are authorized by law to conduct….”  The authority of the US attorney is set out in 28 USC Section 547, here, which provides in pertinent part:
Except as otherwise provided by law, each United States attorney, within his district, shall— 
(1) prosecute for all offenses against the United States; 
(4) institute and prosecute proceedings for the collection of fines, penalties, and forfeitures incurred for violation of any revenue law, unless satisfied on investigation that justice does not require the proceedings; 
I suppose one could argue that the authority of the US attorney and, therefore, DOJ to “prosecute for all offenses against the United States” includes the independent ability to investigate and prosecute tax crimes, but I could not find any cases dealing with the issue.  What I find intriguing is subsection (4) concerning fines, penalties, etc. for violation for any revenue law.
I sent Robert the following response:

You have nailed the operative provisions.  Those provisions, of course, simply give DOJ the authority to institute and prosecute proceedings but not to investigate them.  Proceedings would include grand jury proceedings and, of course, the grand jury has the authority to investigate.  [See United States v. Williams, 504 U.S. 36, 48 (1992), here
But the ultimate question is whether DOJ (including DOJ Tax and USAs) has authority to investigate tax crimes independent of the grand jury.  If DOJ does that authority, then the IRS’s repeated mantra that it is the only agency with that authority is incorrect.  Certainly, as noted, the provisions you cite do not clearly give DOJ (including DOJ Tax and USAs) the authority. 
I do know that DOJ Tax has actually exercised the authority to investigate – stir the pot – simply with DOJ Tax attorneys starting up an investigation independent of a grand jury when the IRS was aware of the underlying problem and had made no decision to refer the issue to DOJ Tax.  It is not at all clear to me how an investigation can be run without a referral from the IRS that would then permit the sharing of tax return information necessary for any meaningful investigation. 
If DOJ Tax does have that authority [to investigate independently], then, I suppose, DOJ Tax could set up an investigative unit in DOJ Tax for the purpose of investigating independently of IRS CI and theoretically overshadow IRS CI in the criminal [tax] investigative role.  I think that if DOJ Tax were that brazen, they’d get slapped back.  But, in the meantime, individual DOJ Tax attorneys appear empowered to do their own investigations (perhaps with the approval of their superiors) that then may lead to a grand jury investigation with access to 6103 information via a request from a high level DOJ official. 
Finally, one other question in that regard, your citation to Section 7801(a)(1) raises somewhat of a related issue.  The issue is whether DOJ can prosecute a tax crime if the IRS does not authorize or recommend prosecution.  Certainly, Section 7801(a)(1) suggests that the IRS has control over the enforcement – which would include criminal prosecution for Title 26 crimes and, logically, Title 18 crimes related to tax administration.  If so, then it would seem to me that DOJ Tax could not prosecute independent of an authorization / recommendation from the IRS.  [Balance of discussion omitted because not related to the issue of whether DOJ Tax has authority to investigate crimes independent of a grand jury.]


I did not address Robert's point about 18 USC 547(4) which says that the the US Attorney "shall * * * institute and prosecute proceedings for the collection of fines, penalties, and forfeitures incurred for violation of any revenue law, unless satisfied on investigation that justice does not require the proceedings."  There are several interpretive issues in this and the related provisions (particularly subsection (1)), but two major issues are:
  1. Subsection (1) commands that the US Attorney prosecute all offenses against the US.  Perhaps that subsumes some type of independent authority to investigate in order to prosecute, but I would have thought that most criminal investigations are conducted by some agency (such as the FBI, which is within the DOJ or other agencies) other than the US Attorney.
  2. Perhaps more importantly, (4) does not facially deal with prosecution of crimes at all but simply collections related to "any revenue law." And, the authority expressly includes the authority to investigate, although stated in the negative.  I could not find any authority interpreting the subsection in this context, but the plain language seems to preclude that subsection as a basis to investigate tax crimes.  And, moreover, the section makes clear that, when Congress intended to confer the authority and power to investigate, it knew how to do so.  (That is a weak basis to conclude that DOJ Tax does not have the authority, but I am still struggling with finding any basis for concluding that DOJ Tax does have that authority, unless some type of general notion that the prosecution power of the US is in DOJ, a power which by implication assumes the power to investigate.)
I would appreciate readers contributions to the lore on this subject.

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