Sunday, September 6, 2015

IRS and DOJ Tax Conferences Before Indictment (9/6/15)

I was visiting with a seasoned tax crimes practitioner yesterday who suggested that I remind readers about the process to best insure that conferences are obtained at two critical steps in the pre-indictment process.  So here is the reminder.

At the conclusion of the CI investigation when the special agent, in consultation with the CT attorney, has prepared his Special Agent Report ("SAR") recommending prosecution, the procedure is:  (07-25-2007), Taxpayer Conference Procedures [here
1. A taxpayer conference will be offered as a matter of course. A taxpayer who is the subject of a criminal prosecution recommendation will be afforded a conference with the SAC and CT Counsel. 
2. The taxpayer conference will not be held if the taxpayer is the subject of a grand jury investigation or if the SAC determines that such a conference would not be in the best interest of the government. 
3. If a taxpayer conference is held, it should be done before the SAC makes a referral to the DOJ, Tax Division.
Many practitioners do a belt and suspenders and, in the course of the investigation, if a prosecution recommendation appears likely, will formally request a conference via letter to the Special Agent with a copy to the SAC, citing the the IRM.  Of course, the conference is not mandated in the circumstances in paragraph 2.  So the belt and suspenders approach may be irrelevant.

If there is a conference, the IRM contemplates that the taxpayer will attend the conference accompanied by an attorney but allows the attorney alone to attend.  IRM  (07-25-2007), Conducting the Taxpayer Conference.  I think it is normal practice to not have the taxpayer attend, but should the taxpayer attend he should be counseled to avoid saying anything other than pleasantries at the beginning and end of the conference and should even avoid nonverbal communications (facial expressions, etc.)

If the conference occurs, IRM  (07-25-2007), Post Taxpayer Conference, mandates that the taxpayer be told of the outcome -- whether the case will be referred to DOJ Tax.

Now, the taxpayer's lawyer will likely also want a conference at DOJ Tax.  DOJ Tax's Criminal Tax Manual ("CTM") discusses the conference as follows:
CTM 1.04[2][b][3] Tax Division Conferences [here]
If the taxpayer requests a conference with the Tax Division, it usually will be
granted. A Tax Division conference is not a matter of right, however. Defense counsel generally has an opportunity to meet with an IRS attorney during an administrative investigation, and always has an opportunity to meet with the Assistant United States Attorney who ultimately handles the prosecution. The Tax Division therefore will not delay the review of a case in order to hold a conference unless there is reason to believe that defense counsel will provide information that will be useful to the government in making its prosecutorial decision. The Tax Division also may decline to grant a conference if the Assistant United States Attorney requests such action, for example, in advance of an arrest when there is reason to believe that the defendant is a flight risk.  
A conference gives the putative defendant an opportunity to present any explanations or evidence which he or she desires the Tax Division to consider before deciding whether to authorize prosecution. A conference is not an opportunity to explore the Government’s evidence. Prior to or during the conference, the Tax Division generally advises the taxpayer of the proposed charges (including the years and tax returns), the method of proof, and criminal tax computations provided by the IRS. USAM, § 6-4.2 14. 
Defense counsel generally appears on behalf of the taxpayer, but the taxpayer may choose to participate in person. The Tax Division does not treat factual representations made by the taxpayer's representative at the conference as admissions of the taxpayer. The Government may, however, use representations made by the taxpayer’s representative to authenticate a document or to develop investigative leads. If the taxpayer attends the conference, the Government may use statements made by the taxpayer without restriction. 
After the conference, the prosecutor prepares a written memorandum summarizing the defense presentation. The prosecutor submits this Conference Memorandum with his or her Prosecution Memorandum.  
So the question is when does the taxpayer request the DOJ Tax Conference.  Obviously, if the taxpayer and his counsel are given notice by the IRS of the referral to DOJ Tax, the taxpayer's counsel can request the conference at that time.  But, if the taxpayer is not given notice of the referral, what does the tax payer do and when does he do it.  
In this case, a belt and suspenders approach is best.  As noted above, the taxpayer may not be given an IRS SAC conference and may not even know of an IRS CI referral to DOJ Tax.  Hence, when it appears that there is a good chance of referral (even before the agent writes his SAR), taxpayer's counsel can write the appropriate section chief at DOJ Tax to request a conference when and if his client is referred to DOJ Tax.  I understand that DOJ Tax will database the request and, if appropriate (as it usually is), grant the request.  It might be the better part of wisdom to renew the request if the taxpayer is notified by IRS CI of the referral.

By following these precautions, the taxpayer's lawyer will have best situated the client to have the conferences.  Even these precautions may not assure both or even one of the conferences.

And, then, of course, the taxpayer's lawyer can request a conference with the local AUSA prosecuting the case when DOJ Tax refers the case for prosecution.  My experience is that those requests are almost universally granted, but then of course it will be much more difficult -- but not impossible -- to avoid prosecution.

The substantive content of your presentation at these conferences is heavily dependent on the facts and what is practically achievable.    Remember that any defenses asserted might result in further investigation by CI.  IRM  (07-25-2007), Post Taxpayer Conference, so raising some defenses may be better deferred until the machinery of Government is less able to deal with them.

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