TABLE OF CONTENTS 3.00 TAX DIVISION POLICY DIRECTIVES AND MEMORANDA
TAX DIVISION POLICY DIRECTIVES AND MEMORANDA
TAX DIVISION DIRECTIVE NO. 52
BRIEF MEMORANDUM OF LAW CONCERNING SEARCH WARRANTS
TAX DIVISION DIRECTIVE NO. 86 - 58
TAX DIVISION DIRECTIVE NO. 86-59 TAX VIOLATIONS
TAX DIVISION DIRECTIVE NO. 87 - 61 DELEGATION OF AUTHORITY FOR TAX PROSECUTIONS INVOLVING RETURNS UNDER 26 U.S.C. SECTION 6050I
TAX DIVISION DIRECTIVE NO. 70
TAX DIVISION DIRECTIVE NO. 71 TAX DIVISION DIRECTIVE NO. 75 MARCH 21, 1989 MODIFICATION OF POLICY RE USE OF 26 UNITED STATES CODE SECTION 7207 IN FALSE RETURN FILING CIRCUMSTANCES TAX DIVISION DIRECTIVE NO. 77 SECTION 7212(a) POLICY STATEMENT MEMORANDUM (TAX INFORMATION ABOUT PROSPECTIVE JURORS: IMPACT OF THE HASHIMOTO DECISION ON CRIMINAL TAX PROSECUTIONS)
TAX DIVISION DIRECTIVE NO. 96 DELEGATION OF AUTHORITY TO AUTHORIZE GRAND JURY INVESTIGATIONS OF FALSE AND FICTITIOUS CLAIMS FOR TAX REFUNDS
INTERPRETATION OF TAX DIVISION DIRECTIVE NO. 96 BLUESHEET CONCERNING PLEA PROCEDURES NONFILER INITIATIVE TAX DIVISION VOLUNTARY DISCLOSURE POLICY LESSER INCLUDED OFFENSES IN TAX CASES POLICY CHANGE IN TAX CASES INVOLVING LESSER INCLUDED OFFENSES TAX DIVISION DIRECTIVE NO. 99 CIVIL SETTLEMENTS IN PLEA AGREEMENTS
3.00 TAX DIVISION POLICY DIRECTIVES AND MEMORANDA
The Tax Division's policies and procedures are contained in a series of Tax Division Directives and Memoranda, which are set forth in the pages that follow for ease of reference.
DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 52 January 2, 1986 The Authority to Execute Title 26 or Tax-related Title 18 Search Warrants
Pursuant to the authority vested in me by Part 0, Sub-Part N of Title 28 of the Code of Federal Regulations, Section 0.70, delegation of authority with respect to approving the execution of Title 26, U.S.C., or tax-related Title 18, U.S.C., search warrants directed at offices, structures, premises, etc., owned, controlled or under the dominion of the subject or target of a criminal investigation, is hereby conferred upon:
1. Any United States Attorney appointed under Section 541 of Title 28, U.S.C.,
2. Any United States Attorney appointed under Section 546 of Title 28 U.S.C.,
3. Any permanently appointed representative within the United States Attorney's office assigned as First Assistant United States Attorney,
4. Or to any permanently appointed representative within the United States Attorney's office assigned as chief of criminal functions.
This delegation of authority is expressly restricted to these, and no other, individuals.
This delegation of authority does not affect the statutory authority and procedural guidelines relating to the use of search warrants in criminal investigations involving disinterested third parties as contained in 28 C.F.R. Sec. 59.1, et seq.
The Tax Division shall have exclusive authority to seek and execute a search warrant that is directed at the offices, structures or premises owned, controlled, or under the dominion of a subject or target of an investigation who is:
1. An accountant;
2. A lawyer;
3. A physician;
4. A local, state, federal, or foreign public official or political candidate;
5. A member of the clergy;
6. A representative of the electronic or printed news media;
7. An official of a labor union;
8. An official of an organization deemed to be exempt under Section 501(c)(3) of the Internal Revenue Code.
Any application for a warrant to search for evidence of a criminal tax offense not specifically delegated herein must be specifically approved in advance by the Tax Division pursuant to Section 6-2.330 of the United States Attorneys' Manual.
Notwithstanding this delegation, the United States Attorney or his delegate has the discretion to seek Tax Division approval of any search warrant or to request the advice of the Tax Division regarding any search warrant.
The United States Attorney shall notify the Tax Division within ten working days, in writing, of the results of each executed search warrant and shall transmit to the Tax Division copies of the search warrant (and attachments and exhibits), inventory, and any other relevant papers.
The United States Attorneys' Manual is hereby modified effective January 2, 1986.
ROGER M. OLSEN
Acting Assistant Attorney General
Subject: Authority to Execute Title 26 Date: AUG. 7, 1984
Tax-Related Title 18 Search GLA:ljp
To: All United States Attorneys From: Glenn L. Archer, Jr.
Asst. Attorney General
By Tax Division Directive No. 49 (copy attached), I have authorized delegation to United States Attorney's offices the authority to approve the execution of certain limited Title 26 or tax-related Title 18 search warrants. At the request of the Internal Revenue Service, the effective date of this delegation is October 1, 1984. In recent years, the case law concerning search and seizure has developed to the point where it is clear that, upon a showing of probable cause, the Government may conduct reasonable searches for the purpose of obtaining documentary evidence establishing the commission of a crime. The developing case law has led, in part, to the decision to delegate the authority to approve requests for search warrants in tax cases on a limited basis.
The procedure will now permit a direct request from District Counsel's office to you. The delegation order permits consultation or referral of the matter to the Tax Division, as you choose. The delegation extends to the United States Attorney and the Chief of your Criminal Division. It cannot be delegated to anyone else in your office. There is a ten-day notification requirement which will permit the Tax Division to collect the relevant data necessary to evaluate the use of search warrants by the Internal Revenue Service and Department of Justice nationally.
If you have any questions whatsoever, please contact Roger M. Olsen, Deputy Assistant Attorney General, Tax Division, telephone: 633-2915, or Stanley F. Krysa, Chief, Criminal Section, Tax Division, telephone: 633-2973.
I would appreciate having the name and telephone number of the Assistant United States Attorney in each office who, in addition to the United States Attorney, is authorized to approve these warrants. A list of those names will be forwarded to the IRS and, of course, retained for the Tax Division's files.
Also attached is a brief, technical memorandum on the law of search warrants for documentary evidence.
BRIEF MEMORANDUM OF LAW CONCERNING SEARCH WARRANTS
Ever since Warden v. Hayden, 378 U.S. 294 (1967), established that the Government could seize ''mere evidence'' pursuant to a search warrant, the use of search warrants for items, such as personal papers and business records, became a viable legal possibility. In Warden v. Hayden, although the items of clothing seized were evidentiary, their seizure did not violate the Fifth Amendment privilege, since the items were not "'testimonial' or 'communicative' in nature, and their introduction therefore did not compel respondent to become a witness against himself ..." supra, 302-303. Rule 41(b) of the Federal Rules of Criminal Procedure echoes this holding and provides that: "A warrant may be issued ... to search for and seize any ... property that constitutes evidence of the commission of a criminal offense ...".
In 1976, the possibility that a search and seizure of business records might violate the Fifth Amendment privilege against self-incrimination was foreclosed in Andresen v. Maryland, 427 U.S. 463 (1976). The Supreme Court upheld the search of the defendant's law office and of the office of the real estate firm which he also controlled, although incriminating business records were found at both locations. The Court based its opinion on the finding that the individual against whom the search was directed was not required to aid in the discovery, production, or authentication of incriminating evidence; thus, the seizure of the business records was not a violation of the Fifth Amendment. Cf. United States v. Doe, 52 U.S.L.W. 4296 (Feb. 28, 1984).
The Supreme Court's approval of a law office search in Andresen lends some support to similar searches in the future. However, the issue of attorney/client privilege or work-product doctrine was not specifically addressed in Andresen and is, therefore, still a matter of controversy and sensitivity. In addition, the search's legality may depend on whether the status in the investigation of the individual whose property is searched is that of a disinterested third party or whether he is believed to have engaged in criminal conduct. See Zurcher v. Stanford Daily, 436 U.S. 547 (1978); United States v. Bithoney, 631 F. 2d l (lst Cir. 1980), cert. denied, 449 U.S. 1083 (1981).
Because the questions of privilege and status in the investigation remain sensitive legal issues, the Tax Division has decided to delegate the authority to approve search warrants in tax cases only in those limited instances where the search warrant is directed at offices, structures, or premises owned, controlled, or under the dominion of the subject or target of a criminal investigation. The subject, or target, moreover, must not fall into the exempted categories listed in the delegation order, which categories we deem to be of such a sensitive nature, from the perspective of tax law enforcement, that prior approval of the Tax Division is still required before a search warrant is obtained.
Aside from questions of strict legality, search warrants in tax investigations involve potential problems and issues intrinsic to tax cases. The concept of seizing personal or business books and records as the evidence or instrumentality of a crime is not as direct or simple a problem as is the seizure of a contraband. These documents usually contain much personal and confidential information and these very same documents, which, by their own nature, are not unusual, illegal or dangerous, will be the evidence of or the instrumentality of the crime to be charged. In addition to the controversial nature of such a seizure of documents, the requirement that the items to be seized must be named with specificity is more difficult to meet. In tax cases, the warrant must be specific, not only regarding the items to be seized and the place searched, but a specific time frame must also be stated.
DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 86 - 58 May 14, 1986
Introduction. While it is the function of the Tax Division to carefully review the facts, circumstances, and law of each criminal tax case as expeditiously as possible, the taxpayer should be given a reasonable opportunity to present his/her case at a conference before the Tax Division. Where the rules governing conferences are so rigid and inflexible that such an opportunity is effectively denied a taxpayer, the interests of justice are not served. The following guidelines will assist the Tax Division attorneys in reviewing such cases.
(1) Vicarious Admissions. Effective immediately, the vicarious admissions rule for statements by lawyers attending conferences before the Criminal Section shall no longer be used by the Tax Division, except where the lawyer authenticates a written instrument, i.e., document, memorandum, record, etc.
(2) Administrative Investigations. Effective July 1, 1986, plea negotiations may be entertained at the conference in non-grand jury matters, consistent with the policies of the appropriate United States Attorney's office. Written plea agreements should be prepared and entered into by the United States Attorney's office unless there is a written understanding between the Tax Division and the United States Attorney's office to the contrary. Where the prospective defendant indicates a willingness to enter into a plea of guilty to the major counts(s) and to satisfy the United States Attorney's office policy, the matter should be referred to the United States Attorney's office for plea disposition.
(3) Number of Conferences. There is no fixed number of conferences which may be granted in any one particular case. Ordinarily, one conference is sufficient. However, in some cases it may be that more than one conference is appropriate. The test is not in the number of conferences, for there is no right to a conference, but whether, under the facts and circumstances of the case, sufficient progress is or will be made in either the development of material facts or the clarification of the applicable law, without causing prejudice to the United States. Tax Division attorneys should be mindful that justice delayed is justice denied and, therefore, sound, professional judgment should be used at all times in such matters.
(4) Witness at Conferences. On occasion, the taxpayer or a witness may attend the conference. In rare situations, the taxpayer or a witness may attempt to make oral reprensentations or statements at the conference. There are no restrictions on the use of such statements by the Government. However, such attempts should be discouraged, since the Tax Division is conducting a review of an investigation and is not conducting either a hearing or an investigation. Under no circumstances may evidence be presented at the conference based upon any understanding that it is in lieu of any person testifying before a grand jury.
(5) Grand Jury Investigations and Coordination with United States Attorney's Office. Effective immediatley, in every grand jury investigation where a conference is requested, the Tax Division trial attorney shall initially contact the United States Attorney's office and discuss the case with the appropriate Assistant United States Attorney, and ascertain whether disclosure of any facts of the case is likely to expose any person, including witnesses, to the risk of intimidation or danger. If there is such a risk, the trial attorney shall then advise the appropriate assistant chief of the Criminal Section, who shall decide the appropriate course of action. The Tax Division trial attorney shall advise the Assistant United States Attorney that he/she may attend the conference if they so desire.
ROGER M. OLSEN
Assistant Attorney General
DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 86-59 AUTHORITY TO APPROVE GRAND JURY EXPANSION REQUESTS TO INCLUDE FEDERAL CRIMINAL TAX VIOLATIONS
AGENCY: Department of Justice
SUMMARY: This Directive delegates the authority to approve requests seeking to expand nontax grand jury investigations to include inquiry into possible federal criminal tax violations from the Assistant Attorney General, Tax Division, to any United States Attorney, Attorney-In-Charge of a Criminal Division Organization Strike Force or Independent Counsel. The Directive also sets forth the scope of the delegated authority and the procedures to be followed by designated field personnel in implementing the delegated authority.
EFFECTIVE DATE: October 1, 1986
FOR FURTHER INFORMATION CONTACT: Edward M. Vellines, Senior Assistant Chief, Office of Policy & Tax Enforcement Analysis, Tax Division, Criminal Section (202-633-3011). This is not a toll fee number.
SUPPLEMENTARY INFORMATION: This order concerns internal Department management and is being published for the information of the general public.
TAX DIVISION DIRECTIVE NO. 86-59
By virtue of the authority vested in me by Part O, Subpart N of Title 28 of the Code of Federal Regulations, particularly Section 0.70, delegation of authority with respect to approving requests seeking to expand a nontax grand jury investigation to include inquiry into possible federal criminal tax violations is hereby conferred on the following individuals:
1. Any United States Attorney appointed under Section 541 or 546 of Title 28, United States Code.
2. Any Attorney-In-Charge of a Criminal Division Organization Strike Force established pursuant to Section 510 of Title 28, United States Code.
3. Any Independent Counsel appointed under Section 593 of
Title 28, United States Code.
The authority hereby conferred allows the designated official to approve, on behalf of the Assistant Attorney General, Tax Division, a request seeking to expand a nontax grand jury investigation to include inquiries into potential federal criminal tax violations in a proceeding which is being conducted within the sole jurisdiction of the designated official's office. (Section 301.6103(h)(2)-1(a)(2)(ii) (26 C.F.R.)). Provided, that the delegated official determines that--
1. There is reason to believe, based upon information developed during the course of the nontax grand jury proceedings, that federal criminal tax violations may have been committed.
2. The attorney for the Government conducting the subject nontax grand jury inquiry has deemed it necessary in accordance with F.R.Cr.P. 6(e)(A)(ii) to seek the assistance of Government personnel assigned to the Internal Revenue Service to assist said attorney in his/her duty to enforce federal criminal law.
3. The subject grand jury proceedings do not involve a multijurisdictional investigation, nor are the targets individuals considered to have national prominence--such as local, state, federal, or foreign public officials or political candidates; members of the judiciary; religious leaders; representatives of the electronic or printed news media; officials of a labor union; and major corporations and/or their officers when they are the targets (subjects) of such proceedings.
4. A written request seeking the assistance of Internal Revenue Service personnel and containing pertinent information relating to the alleged federal tax offenses has been forwarded by the designated official's office to the appropriate Internal Revenue Service official (e.g., Chief, Criminal Investigations).
5. The Tax Division of the Department of Justice has been furnished by certified mail a copy of the request seeking to expand the subject grand jury to include potential tax violations, and the Tax Division interposes no objection to the request.
6. The Internal Revenue Service has made a referral pursuant to the provisions of 26 U.S.C. Section 6103(h)(3) in writing stating that it: (1) has determined, based upon the information provided by the attorney for the Government and its examination of relevant tax records, that there is reason to believe that federal criminal tax violations have been committed; (2) agrees to furnish the personnel needed to assist the Government attorney in his/her duty to enforce federal criminal law; and (3) has forwarded to the Tax Division a copy of the referral.
7. The grand jury proceedings will be conducted by attorney(s) from the designated official's office in sufficient time to allow the results of the tax segment of the grand jury proceedings to be evaluated by the Internal Revenue Service and the Tax Division before undertaking to initiate criminal proceedings.
The authority hereby delegated includes the authority to designate: the targets (subjects) and the scope of such tax grand jury inquiry, including the tax years considered to warrant investigation. This delegation also includes the authority to terminate such grand jury investigations, provided, that prior written notification is given to both the Internal Revenue Service and the Tax Division. If the designated official terminates a tax grand jury investigation or the targets (subjects) thereof, then the designated official shall indicate in its correspondence that such notification terminates the referral of the matter pursuant to 26 U.S.C. Section 7602(c).
This delegation of authority does not include the authority to file an information or return an indictment on tax matters. No indictment is to be returned or information filed without specific prior authorization of the Tax Division. Except in Organized Crime Drug Task Force Investigations, individual cases for tax prosecution growing out of grand jury investigations shall be forwarded to the Tax Division by the United States Attorney, Independent Counsel or Attorney-in-Charge of a Strike Force with a special agent's report and exhibits through Regional Counsel, (Internal Revenue Service) for evaluation prior to transmittal to the Tax Division. Cases for tax prosecutions growing out of grand jury investigations conducted by an Organized Crime Drug Task Force shall be forwarded directly to the Tax Division by the United States Attorney with a special agent's report and exhibits.
The authority hereby delegated is limited to matters which seek either to: (1) expand nontax grand jury proceedings to include inquiry into possible federal criminal tax violations; (2) designate the targets (subjects) and the scope of such inquiry; or (3) terminate such proceedings. In all other instances, authority to approve the initiation of grand jury proceedings which involve inquiries into possible criminal tax violations, including requests generated by the Internal Revenue Service, remains vested in the Assistant Attorney General in charge of the Tax Division as provided in 28 C.F.R. 0.70. In addition, authority to alter any actions taken pursuant to the delegations contained herein is retained by the Assistant Attorney General in charge of the Tax Division in accordance with the authority contained in 28 C.F.R. 0.70.
Roger M. Olsen Assistant Attorney General Tax Division
Approved to take effect on October 1, 1986
DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 87 - 61 DELEGATION OF AUTHORITY FOR TAX PROSECUTIONS INVOLVING RETURNS UNDER 26 U.S.C. SECTION 6050I
By virtue of the authority vested in me by Part 0, Subpart N of Title 28 of the Code of Federal Regulations (C.F.R.), particularly Section 0.70, delegation of authority with respect to authorizing tax prosecutions, under Title 26, United States Code (U.S.C.), Sections 7203 and 7206 with respect to Returns (IRS Form 8300) Relating to Cash Received in a Trade or Business as prescribed in 26 U.S.C. Section 6050I, is hereby conferred on the following individuals:
1. The Assistant Attorney General, Deputy Assistant Attorneys General, and Section Chiefs of the Criminal Division.
2. Any United States Attorney appointed under Section 541 or 546 of Title 28, U.S.C.
3. Any permanently appointed representative within the United States Attorney's Office assigned either as First Assistant United States Attorney or Chief of criminal functions.
4. Any Attorney-In-Charge of a Criminal Division Organization Strike Force established pursuant to Section 510 of Title 28, U.S.C.
5. Any Independent Counsel appointed under Section 593 of Title 28, U.S.C.
This delegation of authority is expressly restricted to the aforementioned individuals and may not be redelegated.
The authority hereby conferred allows the designated official to authorize, on behalf of the Assistant Attorney General, Tax Division, tax prosecutions under 26 U.S.C. Sections 7203 and 7206 with respect to returns (IRS Form 8300) prescribed in 26 U.S.C. Section 6050I relating to cash received in a trade or business; Provided, that:
1. The prosecution of such tax offenses (e.g. Sections 7203 and 7206) involves solely cash received in a trade or business as required by 26 U.S.C. Section 6050I.
2. The matter does not involve the prosecution of accountants, physicians, or attorneys (acting in their professional representative capacity) or their employees; casinos or their employees; financial institutions or their employees; local, state, federal or foreign public officials or political candidates; members of the judiciary; religious leaders; representatives of the electronic or printed news media; officials of a labor union; and publicly-held corporations and/or their officers.
3. The Tax Division of the Department of Justice will be furnished by certified mail a copy of the referral from the Internal Revenue Service to the designated field office personnel regarding the potential tax violations.
Except as expressly set forth herein, this delegation of authority does not include the authority to file an information or return an indictment on tax matters. The authority hereby delegated is limited solely to the authorization of tax prosecutions involving the filing or non-filing of returns (IRS Form 8300) pursuant to 26 U.S.C. Section 6050I. The authority to alter any actions taken pursuant to the delegation contained herein is retained by the Assistant Attorney General, Tax Division, in accordance with the authority contained in 28 C.F.R. 0.70.
Notwithstanding this delegation, the designated official has the discretion to seek Tax Division authorization of any proposed tax prosecution within the scope of this delegation or to request the advice of the Tax Division with respect thereto.
Roger M. Olsen Assistant Attorney General Tax Division Approved to take effect on February 27, 1987. DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 70 (1)
October 3, 1988
Re: Reorganization of the Criminal Section of the Tax Division
The reorganization of the Criminal Section of the Tax Division has been approved by Attorney General Dick Thornburgh. It became effective October 3, 1988.
I hereby appoint the following persons to the designated positions under the approved organization plan:
1. Director, Criminal Enforcement Sections - Stanley F. Krysa
2. Northern Criminal Enforcement Section -
Chief, George T. Kelley
Assistant Chief, E. Ralph Pierce
Assistant Chief, Jerrold Kluger
3. Southern Criminal Enforcement Section -
Chief, J. Randolph Maney, Jr.
Assistant Chief, Ralph E. Belter
Assistant Chief, Rosemary E. Paguni
4. Western Criminal Enforcement Section -
Chief, Ronald A. Cimino
Assistant Chief, Mark E. Friend
Assistant Chief, (Vacant)
5. Criminal Appeals and Tax Enforcement Policy Section -
Chief, Robert E. Lindsay
WILLIAM S. ROSE, JR.
Assistant Attorney General
DEPARTMENT OF JUSTICE
DIRECTIVE NO. 71
October 3, 1988
Re: Delegation of Authority Relating to
Criminal Tax Cases
(Including Authority to Approve and Decline
Prosecution and Related Matters)
By virtue of the authority vested in me by Part O, Subpart N of Title 28 of the Code of Federal Regulations, particularly Section 0.70, delegation of authority, with respect to criminal tax cases within the cognizance of the Tax Division, is hereby conferred as follows:
1. Authority to Approve Criminal Proceedings.
(a) Unanimous Recommendation for Prosecution. Except as hereinafter indicated, criminal tax cases referred to the Tax Division by the Internal Revenue Service and within the cognizance of the Tax Division may be approved for criminal proceedings by any Chief of a regional Criminal Enforcement Section provided that the recommendations within the assigned Criminal Enforcement Section, including the recommendation by the docket attorney, unanimously propose criminal action, and the case is not considered by the approving official to warrant higher level consideration within the Tax Division.
(b) In addition to the authority conferred in paragraph 1(a), the Chief is authorized to:
(1) Approve tax prosecutions, in accord with the authority and limitations contained in paragraphs 1(a), (c) and (d) in cases where the Criminal Enforcement Section's recommendations are other than unanimous, provided that an Assistant Chief has recommended prosecution;
(2) Authorize dismissal in direct referral cases as described in U.S.A.M. 6-2.230, provided notification is received from the appropriate United States Attorney in accord with the procedures described in U.S.A.M. 6-2.420, indicating why proceeding with prosecution is not believed advisable and the Assistant Chief who acts on the matter does not recommend continuing the prosecution with attorneys from the Tax Division; and
(3) Pass prosecution of the first year recommended for prosecution by the Internal Revenue Service in all cases received with less than seven (7) calendar months remaining before the expiration of the statute of limitations.
(c) Criminal Proceedings Covered by this Delegation. Except for such offenses described in the U.S.A.M., Title 6-2.220, as being under the general responsibility of the Criminal Division and U.S.A.M., Title 6-2.230, concerning direct referral cases, the criminal proceedings encompassed by this delegation concern the initiation of prosecution for tax and/or tax-related violations, including charges described in 28 C.F.R. 0.179, offenses defined in the Internal Revenue Code (Title 26, United States Code), and such offenses defined in Title 18 and Title 31, United States Code, as may be investigated by special agents of the Internal Revenue Service's Criminal Investigation Division in connection with enforcement of federal revenue laws, including 26 U.S.C. 7201-7207, 7210, 7215; 18 U.S.C. 286, 287, 1501-1511, 1621-1623; 31 U.S.C. 1058, 1059; and conspiracies to commit such offenses, including conspiracies in violation of 18 U.S.C. 371 to defraud the Government by impeding, impairing, obstructing, and defeating the lawful function of the U.S. Department of Treasury, Internal Revenue Service, in the ascertainment, computation, assessment, and collection of the revenue. Charges under 18 U.S.C. 1001 or 1341 involving only the mailing of tax forms and charges involving the use of the omnibus clause in 26 U.S.C. 7212 require the approval of the Director of the Criminal Enforcement Sections.
(d) Selection of Charges and Matters Related to the Handling of Criminal Tax Cases. The authority hereby delegated includes the authority to approve tax prosecutions based on the charges recommended by the Internal Revenue Service, or Criminal Enforcement Section attorneys, or whatever tax and/or tax-related charges are deemed appropriate by the approving official. In addition, the authority to approve criminal proceedings, as herein described, includes the authority to designate, in accord with Tax Division policy and practice, potential defendants and to select charges, approve plea agreements, and make determinations as to the Tax Division's position concerning (1) whether dual prosecution consideration may be applicable in a criminal tax case in which the Internal Revenue Service requests advice, and (2) whether civil action proposed by the Internal Revenue Service should be undertaken during the pendency of a criminal tax case. In addition, this delegation includes the authority to execute correspondence transmitting cases to the appropriate United States Attorney's office requesting that prosecution be initiated in accord with such approval. Authority to execute correspondence in the name of a Chief of a regional Criminal Enforcement Section is also delegated to Assistant Chiefs in The Criminal Enforcement Section. The authority to execute correspondence specifically relating to ministerial matters in the processing and handling of cases including, when appropriate, the scheduling and confirmation of conferences, requesting of status reports, and the processing of closing letters, in cases in which pleas or convictions have been obtained, is hereby delegated to Criminal Enforcement Section attorneys in all cases assigned to them.
2. Authority Concerning Grand Jury Matters.
(a) Recommendation for Grand Jury Investigation Originating in Criminal Enforcement Sections. Except in cases they consider to warrant higher level consideration within the Tax Division, any Chief of a regional Criminal Enforcement Section may approve the initiation of a grand jury investigation concerning potential tax and/or tax-related violations in cases referred from the Internal Revenue Service with a prosecution recommendation, if such official believes that grand jury inquiry is warranted prior to a decision being made on the prosecutorial merits of such case.
(b) Joinder of Tax Aspects with Ongoing Nontax Grand Jury Investigation. The authority to approve requests seeking to initiate a grand jury investigation into matters concerning tax and/or tax-related violations, as part of an already ongoing nontax grand jury investigation, made or initiated by or on behalf of offices within the Department of Justice, is hereby delegated to any Chief in charge of a regional Criminal Enforcement Section, provided the request is not considered to warrant higher level consideration within the Tax Division.
(c) I.R.S. Generated Requests for Grand Jury Investigation. The authority to approve or disapprove initiation of a grand jury investigation concerning potential tax and/or tax-related violations in cases referred to the Tax Division from the Internal Revenue Service without a prosecution recommendation or with a recommendation for initiation of a grand jury investigation, in which the Internal Revenue Service has generated such referral, is hereby delegated to any Chief of a regional Criminal Enforcement Section in the Tax Division.
(d) Scope of Grand Jury Investigation Concerning Tax Matters. The delegation in paragraphs 2(a), (b), and (c) regarding the approval of grand jury investigations concerning potential tax and/or tax-related violations includes the authority to designate the subjects and scope of such grand jury inquiry and the tax years considered to warrant investigation.
3. Authority Delegated to the Director, Criminal Enforcement Sections.
In addition to the authorities conferred on regional Section Chiefs in paragraphs 1 and 2, the Director of the Criminal Enforcement Sections is authorized to:
(a) Approve tax prosecutions in accord with the authority and limitations contained in paragraphs 1(a), (c), and (d) in cases where the assigned regional Criminal Enforcement Section's recommendations are other than unanimous.
(b) Decline prosecution in all cases involving conflicting recommendations relative to prosecution, provided the case is not considered to warrant higher level consideration within the Tax Division.
(c) Approve or disapprove requests to apply for search warrants relating to searches for evidence that a tax offense has been committed in accord with the procedures described in U.S.A.M. 6-2.330, provided the request does not require higher level consideration within the Department of Justice pursuant to the provisions of 28 C.F.R. 59.
(d) Decline prosecution or approve prosecution (reversing the earlier decision to decline prosecution), provided that the case was not acted on at a higher level within the Tax Division when previously considered, in which event, such higher official shall have this authority.
(e) Approve or disapprove recommendations made in cases in accord with the procedures described in paragraph 1(b)(2) concerning whether prosecution should continue in a direct referral case notwithstanding notification from the appropriate United States Attorney indicating why proceeding with prosecution is not believed advisable.
(f) Approve or disapprove recommendations to pass prosecution of the first year in cases received from the Internal Revenue Service with less than seven (7) calendar months remaining before the expiration of the statute of limitations, when warranted under the procedures set forth in paragraph 1(d).
4. Authority Delegated to the Deputy Assistant Attorney General (Criminal Tax).
The Deputy Assistant Attorney General (Criminal Tax) is authorized to exercise all the authorities conferred in paragraphs 1, 2, and 3.
The Deputy Assistant Attorney General may, notwithstanding the foregoing paragraphs, prescribe additional matters which require his or her approval or the approval of officials higher than those authorized to act in a particular situation by this delegation.
5. Scope and Effect of this Delegation.
(a) This delegation supersedes Tax Division Directives No. 44 and 53 and all other delegations of authority to approve criminal proceedings or decline prosecutions for tax purposes previously issued.
(b) Notwithstanding the above, in cases involving the prosecution of an attorney for conduct committed in his professional, as opposed to individual, capacity the decision on referral, prosecution or declination, shall be made by the Deputy Assistant Attorney General.
(c) Except as authorized by this delegation, authority to (1) approve or disapprove the initiation of criminal proceedings for tax and/or tax-related violations; or (2) take any action, the effect of which would be to preclude prosecution for such violations, including but not limited to entering into agreements not to prosecute and approving requests to apply for court orders compelling the testimony of witnesses under 18 U.S.C. 6003(b), 6004, and 28 C.F.R. 0.175(b) and (c); or (3) execute a written request for a tax return or return information to be obtained from the Internal Revenue Service for tax administration purposes in accord with 26 U.S.C. 6103(h)(2) and (3)(B), remains vested in the Assistant Attorney General in charge of the Tax Division, subject to the general supervision of the Attorney General and under the direction of the Deputy Attorney General as provided in 28 C.F.R. 0.70. In addition, authority to alter any action taken pursuant to the delegations contained in paragraphs 1 through 4, inclusive, is retained by the Assistant Attorney General in charge of the Tax Division in accord with the authority contained in 28 C.F.R. 0.70.
(d) In the event a Tax Division official designated herein other than the Assistant Attorney General, Tax Division, or Deputy Assistant Attorney General (Criminal Tax) is recused from acting on a particular case, and there is no other official of similar rank available to act in a particular case, then the next higher ranking official shall be the appropriate official to act on such case. When either, or both, the Assistant Attorney General, Tax Division, or Deputy Assistant Attorney General (Criminal Tax) is recused in a particular case, a ranking Tax Division official will be designated to act as either the Assistant Attorney General or Deputy Assistant Attorney General (Criminal Tax) as the need arises for purposes of that particular case in accord with the authority contained in 28 C.F.R. 0.132(e).
(e) In situations in which the Assistant Attorney General, Tax Division, designates an individual to be "Acting" in the capacity of an official specified herein, the individual designated as "Acting" shall have the same authority as herein delegated to that official, provided, the "Acting" official has not previously acted on the matter then being considered in a subordinate capacity. 28 C.F.R. 0.132(d) and (e).
WILLIAM S. ROSE, JR. Assistant Attorney General Tax Division
APPROVED TO TAKE EFFECT ON: October 3, 1988
DEPARMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 75 March 21, 1989 MODIFICATION OF POLICY RE USE OF 26 UNITED STATES CODE SECTION 7207 IN FALSE RETURN FILING CIRCUMSTANCES
The Tax Division recognizes that United States Attorneys frequently investigate financial crimes through joint tax and nontax grand jury investigations. In such matters, it is appropriate that the culpable parties be prosecuted for felony violations, that immunity be used sparingly, and that cooperating participants in the corrupt activity be required to plead guilty to the commission of some significant aspect of the original conduct.
We also recognize there are instances when a minor target seeks to cooperate, and his or her culpability is such that neither immunity nor a plea to a felony is appropriate. In short, the criminal conduct is more suited to a misdemeanor charge, when there is an agreement to cooperate in the ongoing investigation of the principal target(s).
In some situations, described above, the only misdemeanor charges that may be available to the prosecution are tax misdemeanors, i.e., sections 7203 or 7207 of Title 26 U.S.C. Where a tax return has not been filed, a section 7203 violation (failure to file) may exist. However, if a tax return has been filed and the false aspect of that return is minor, e.g., the corrupt person may have accepted bribes of relatively minor amounts that were not reported or the payor may have falsely deducted the bribe payment as a business expense, then the conduct would constitute the filing of a false return, punishable either as a felony under 26 U.S.C. Section 7206(1) or a misdemeanor under 26 U.S.C. Section 7207.
In the past, the Tax Division would not approve either a prosecution or guilty plea pursuant to section 7207, when the false document was a tax return, because it has been our long-standing policy that prosecution of materially false returns should be for felony charges. We believe that the use of section 7207 should generally be restricted to circumstances where taxpayers submitted false or altered documents to the IRS in support of information submitted on a tax return.
We recognize that this policy has created problems because an individual, who desires to cooperate, may be willing to plead to a misdemeanor but not to a felony. To address this problem, the Tax Division is modifying its policy to provide United States Attorneys with a means of dealing with the limited situation described above.
Accordingly, the Tax Division will now entertain requests for the approval of guilty pleas to a violation(s) of 26 U.S.C. section 7207 in appropriate circumstances where the taxpayer is involved in the corrupt activity under investigation and agrees to cooperate in the ongoing investigation against the principal target(s). The guidelines for the limited use of 26 U.S.C. section 7207 are set forth below.
The relaxation of the Tax Division policy relative to section 7207 prosecutions will be limited to the circumstances described in the guidelines. Defendants providing assistance to the Government should otherwise be rewarded by receiving leniency in the imposition of sentence, as provided by the new Sentencing Guidelines, rather than by being permitted to plead to reduced charges.
The procedures outlined will be utilized throughout the remainder of fiscal years 1989 and 1990. The Tax Division will assess the effect of this change on the National Tax Compliance Program before making this policy change permanent.
The Department of Justice, Tax Division, agrees to consider approving plea agreements with charges brought under 26 U.S.C. section 7207 for witnesses cooperating in Title 18 and Title 26 grand jury investigations and in no other circumstances under the following conditions.
1. Approval for section 7207 charges will not be given in any case in which the Tax Division has previously authorized charges against the subject under section 7206(1), section 7201, or a tax (Klein) conspiracy.
2. The Tax Division must be provided with a prosecution statement or letter describing the outlines of the Title 26 and/or Title 18 investigation, the involvement of the cooperating witness who will plead, and the anticipated cooperation that the witness is expected to provide in the investigation.
3. The subject must have agreed to be a cooperating witness in a Title 18 or Title 26 investigation to which the witness' proposed income tax violation is related.
4. In addition to his cooperation in the ongoing criminal investigation and prosecution, the subject must agree to cooperate fully and truthfully with the Internal Revenue Service in any civil audit or adjustment of the tax liability arising out of the circumstances of the criminal case.
5. The subject must be informed that any plea agreement to tax misdemeanors under 26 U.S.C. Section 7207 is subject to the approval of the Tax Division, Department of Justice. No such plea agreement is to be executed until authorized by the Tax Division or, if executed, unless it contains a provision that the plea agreement is subject to the approval of the Tax Division.
6. Approval for use of section 7207 will not be given, hence should not be requested, if the underpayment of taxes resulting from the false statements in the return exceeds $2500 in any of the years. In such cases the plea must be to a tax felony charge.
7. The IRS must make a referral pursuant to 26 U.S.C. Section 6103(h)(3)(A). The United States Attorney must have obtained tax disclosure confirming the filing of the return(s). The Tax Division should be provided with an abbreviated SAR, a computation of the taxes due, the tax return(s) involved, and a copy of the plea agreement or a statement of its terms. Section 7207 approval will not be given if the tax disclosure material suggests that a tax misdemeanor would be an inappropriate disposition of the case.
8. The subject must sign a statement reflecting the amount of the unreported income or fraudulent deductions and the circumstances involved in all the years under investigation.
JAMES I. K. KNAPP Acting Assistant Attorney General Tax Division DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 77 July 7, 1989 Section 7212(a) Policy Statement
The Tax Division occasionally receives for review recommendations for prosecution involving the "omnibus" clause of 26 U.S.C. Sec. 7212(a) which prohibits corrupt endeavors to obstruct or impede the due administration of the Internal Revenue Code. To promote uniform enforcement of the internal revenue laws, the Tax Division issues this internal directive setting forth criteria for use of this clause.
In general, the use of the "omnibus" provision of Section 7212(a) should be reserved for conduct occurring after a tax return has been filed -- typically conduct designed to impede or obstruct an audit or criminal tax investigation, when 18 U.S.C. Section 371 charges are unavailable due to insufficient evidence of a conspiracy. However, this charge might also be appropriate when directed at parties who engage in large-scale obstructive conduct involving actual or potential tax returns of third parties. Continually assisting taxpayers in the filing of false returns or engaging in other conduct designed to make audits difficult; and other numerous, large-scale violations of 26 U.S.C. Section 7206(2) or 18 U.S.C. Section 287 (as it pertains to refund claims for other or fictitious taxpayers), are examples of situations when Section 7212(a) charges might be appropriate. Such an application of the "omnibus" clause is consistent with what we believe to be the overall purpose of Section 7212(a), which is to penalize conduct aimed directly at IRS personnel in the performance of their duties, and at general IRS administration of the federal tax enforcement program, but not to penalize tax evasion as such.
The omnibus clause should not be utilized when other more specific charges are available and adequately reflect the gravamen of the offense. Section 7212(a) pleadings might be utilized to set forth allegations concerning attempted conspiracies with undercover agents to impede or impair the functions of the IRS, but no Section 7212(a) count should be predicated on such conduct alone, as that conduct by itself would rarely be sufficient to impede or impair the due administration of the Internal Revenue Code.
Use of the omnibus clause in an indictment must be approved by the Director of the Criminal Enforcement Sections or higher.
SHIRLEY D. PETERSON Assistant Attorney General Tax Division MEMORANDUM
DATE: September 14, 1989
TO: All United States Attorneys
FROM: Shirley D. Peterson
Assistant Attorney General
RE: Tax information about prospective jurors:
impact of the Hashimoto decision on criminal
In United States v. Hashimoto, 878 F.2d 1126 (1989), the Ninth Circuit reversed a conviction in a criminal tax case on the ground that the defendant was improperly denied access to information about prior audits of prospective jurors. At this writing, our petition for rehearing with a suggestion for rehearing en banc is pending.
This decision has potentially adverse consequences for the prosecution of criminal tax cases. It provides defense counsel with arguable bases for seeking to delay trial and for creating a possible ground for reversal of a conviction.
Hashimoto is the first decision interpreting 26 U.S.C., Section 6103(h)(5), a provision that authorizes the IRS, upon request, to disclose to the defense or prosecution in a tax case whether the prospective jurors have been the subject of an IRS audit or investigation. Such requests must be made in writing. The applicable procedures and the information to be supplied along with the request are set out in the Internal Revenue Manual Disclosure of Official Information Handbook Section 1272(22) 70 et seq. (attached). The IRS must limit its response to an affirmative or negative reply to the inquiry.
The defendant in Hashimoto filed a motion for early release of the jury list in order to submit to the IRS a request for audit information about the prospective jurors. The motion was denied. The local rules provided that the jury list would not be made available earlier than seven days prior to trial, unless the court ordered otherwise in the interests of justice. After denial of the motion, the defendant did not submit a request to the IRS, move for a continuance, or propose voir dire questions asking whether any of the jurors had been audited or investigated by the IRS.
On appeal, the Ninth Circuit, with one dissent, reversed the conviction, finding that the district court committed error in denying the motion for early release of the jury list. The court held that the defendant had an absolute right to the information about audits or investigations of prospective jurors, that Section 6103(h)(5) contemplated sufficiently early release of the jury list to enable the defendant to file the request and receive the information, and that the seven days afforded under the local rules was not an adequate time. The defendant's failure to request the information from the IRS upon receiving the jury list, failure to seek the information on voir dire, and failure to move for a continuance were found to be of no consequence. The panel held that denial of the motion deprived the defendant of information about jurors and created a presumption of a significant risk of prejudice, which was not overcome by the questions posed during voir dire.
As a result of Hashimoto, we anticipate that, as a matter of routine, defense counsel in criminal tax cases will file motions for early release of jury lists and motions for continuance of trial, on the ground that additional time is needed to file requests with, and obtain responses from, the IRS under Section 6103(h)(5). In several cases, courts have already granted continuances based on Hashimoto.
The assumption that additional time is needed to secure juror information from the IRS is not well founded. The Hashimoto majority speculated that a request under Section 6103(h)(5) must be submitted to the IRS in Washington, but the IRS Handbook is to the contrary. The Handbook provides that a request may be sent to the director the Internal Revenue Service Center which services the prospective jurors' place of residence and that, if time is limited (as, for example, where the jury will be empaneled in a few days), requests may be submitted to the IRS district disclosure officer. The Handbook notes that the jury list is generally released shortly before the jury is empaneled, sometimes less than twenty-four hours in advance, and consequently provides that the disclosure officer must ensure that requests are given priority and that the involved functions know of the limited time available. In addition, the Handbook provides that an oral response may be given when there is insufficient time for a written response to reach the requestor.
Moreover, the legislative history of Section 6103(h)(5) does not support the reasoning of the panel majority. In enacting this provision in 1976, the Congress merely codified the prior IRS practice of disclosing information about prospective jurors to government attorneys and extended an equal right to representatives of taxpayers. The legislative history gives no indication of an intention on the part of the Congress to create a new basis for reversible error, either for denial of the information in its entirety or for denial of a motion for early release of a jury list. The panel decision was similarly off the mark in presuming prejudice and failing to apply the harmless error doctrine.
While we strongly believe that Hashimoto was wrongly decided, it is evident that defense counsel will routinely raise this issue even if we are successful in getting the decision reversed. In order to pursue a uniform litigation strategy in cases raising this issue, prosecutors should be guided by the following:
Motions for early release of juror list. Prosecutors should oppose requests for early release of jury lists. The statute confers no right to early disclosure. It merely provides that a request can be made at such time as a defendant or prosecutor gets the jury list. The procedures set out in the IRS Handbook recognize that the time for responding will usually be limited and the IRS procedures should permit a timely response. In any event, the interests of the defendant can be fully protected by having the court ask the prospective jurors during voir dire whether any of them have been the subject of an IRS audit or investigation. If a request is submitted to the IRS, but the information is not available until after voir dire, the defendant can still establish that a juror has not truthfully responded to the court's questions, and the court can take appropriate action. A defendant who seeks early release of the jury list, but fails to submit a request to the IRS should be presumed satisfied with the jurors' responses and be considered to have waived any claim of error based on denial of the motion. In opposing a motion for early release of the jury list, prosecutors should be request that the court put the defendant on notice that any claim of error will be waived in the event the defendant fails to seek the information from the IRS.
Motions for continuance of trial. Prosecutors should likewise oppose motions for continuance of trial, even when the defendant has made a request to the IRS, but seeks a continuance to allow additional time for IRS to respond. The defendant's rights can be adequately protected by questions to the jurors on voir dire, and the court can take appropriate action if information ultimately supplied by IRS indicates that a juror did not respond truthfully.
Voir dire. In any case where the defense indicates that a request under Section 6103(h)(5) has been or might be made the prosecutor should propose voir dire questions seeking to determine whether any of the prospective jurors have been the subject of an IRS audit or investigation.
In the event that you have any questions about the Hashimoto decision or about the procedures set out in this memorandum, you are encouraged to contact the Criminal Enforcement Section Chief (2) for your region:
George T. Kelley, Northern Region (514-0003)
J. Randolph Maney, Jr., Southern Region (514-4334)
Ronald A. Cimino, Western Region (514-5247)
Copies of the Government's Petition for Rehearing with Suggestion for Rehearing En Banc in Hashimoto can be obtained from Robert E. Lindsay, Chief, Criminal Appeals and Tax Enforcement Policy Section (514-3011).
DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 96
Re: Delegation of Authority to Authorize
Grand Jury Investigations of False
and Fictitious Claims for Tax Refunds
By virtue of the authority vested in me by Part O, Subpart N of Title 28 of the Code of Federal Regulations (C.F.R.), particularly Section 0.70, regarding criminal proceedings arising under the internal revenue laws, authority to authorize grand jury investigations of false and fictitious claims for tax refunds, in violation of 18 U.S.C. §286 and 18 U.S.C. §287, is hereby conferred on all United States Attorneys.
This delegation of authority is subject to the following limitations:
1. The case has been referred to the United States Attorney by Regional Counsel/District Counsel, Internal Revenue Service, and a copy of the request for grand jury investigation letter has been forwarded to the Tax Division, Department of Justice; and,
2. Regional Counsel/District Counsel has determined, based upon the available evidence, that the case involves a situation where an individual (other than a return preparer as defined in Section 7701(a)(36) of the Internal Revenue Code) for a single tax year, has filed or conspired to file multiple tax returns on behalf of himself /herself, or has filed or conspired to file multiple tax returns in the names of nonexistent taxpayers or in the names of real taxpayers who do not intend the returns to be their own, with the intent of obtaining tax refunds to which he/she is not entitled.
In all cases, the request for grand jury investigation letter, together with the Form 9131 and a copy of all exhibits, must be sent to the Tax Division by overnight courier at the same time the case is referred to the United States Attorney. In cases involving arrests or other exigent circumstances, the request for grand jury investigation letter (together with the completed Form 9131) must also be sent to the appropriate Criminal Enforcement Section of the Tax Division by telefax.
Any case directly referred to a United States Attorney's office for grand jury investigation which does not fit the above fact pattern or in which a copy of the referral letter has not been forwarded to the Tax Division, Department of Justice (by overnight courier), by Regional Counsel/District Counsel will be considered an improper referral and outside the scope of this delegation of authority. In no such case may the United States Attorney's office authorize a grand jury investigation. Instead, the case should be forwarded to the Tax Division for authorization.
This delegation of authority is intended to bring the authorization of grand jury investigations of cases under 18 U.S.C. §286 and 18 U.S.C. §287 in line with the delegation of authority to authorize prosecution of such cases (see United States Attorneys' Manual, Title 6, 4.243). Because the authority to authorize prosecution in these cases was delegated prior to the time the Internal Revenue Service initiated procedures for the electronic filing of tax returns, false and fictitious claims for refunds which are submitted to the Service through electronic filing are not within the original delegation of authority to authorize prosecution. Nevertheless, such cases, subject to the limitations set out above, may be directly referred for grand jury investigation. Due to the unique problems posed by electronically filed false and fictitious claims for refunds, Tax Division authorization is required if prosecution is deemed appropriate in an electronic filing case.
SHIRLEY D. PETERSON
Assistant Attorney General
APPROVED TO TAKE EFFECT ON: December 31, 1991
January 15, 1993
Honorable Abraham N. M. Shashy, Jr.
Internal Revenue Service
Washington, D.C. 20224
Attention: Barry J. Finkelstein
Assistant Chief Counsel (Criminal Tax)
Re: Interpretation of Tax Division Directive No. 96
Dear Mr. Shashy:
I appreciate the opportunity that I had to meet with Mr. Finkelstein and the Deputy Regional Counsel for Criminal Tax on December 15, 1992. Face-to-face discussions of issues that concern all of us are always helpful. In our discussions, we left one issue involving referral of electronic filing (ELF) cases unresolved, and I am writing to express my views on that topic.
Tax Division Directive No. 96 delegated to the United States Attorneys the authority to authorize grand jury investigations of matters under the purview of the Tax Division in certain, limited circumstances. Counsel in the regions have interpreted the scope of that delegation of authority differently in situations involving schemes that recruit individuals to file fraudulent returns in their own names, using their own social security numbers. Tax Division Directive No. 96 provides that United States Attorneys may authorize grand jury investigations in cases prosecutable under 18 U.S.C. 286, 287 where:
1 * * * an individual (other than a return preparer as defined in Section 7701(a)(36) of the Internal Revenue Code) for a single tax year, has filed or conspired to file multiple tax returns on behalf of himself/herself, or has filed or conspired to file multiple tax returns in the names of nonexistent taxpayers or in the names of real taxpayers who do not intend the returns to be their own, with the intent of obtaining tax returns to which he/she is not entitled. All other cases must be referred to the Tax Division for authorization of the grand jury investigation.
Deputy Regional Counsel Shipley and Waller have interpreted the phrase "in the names of real taxpayers who do not intend the returns to be their own" to exclude situations in which the target has recruited real individuals to file returns in their names. They have reasoned that even though the information used on the return is fictitious, the "taxpayers" have filed returns that affect those taxpayers' accounts and that can be treated as their returns by the Service. They have concluded that such cases fall outside the terms of Directive No. 96 and must be referred to the Tax Division to authorize the grand jury investigation. Other regions have reasoned that the "taxpayers" involved in such situations do not intend the returns to be their real returns, and thus referral directly to the United States Attorneys for grand jury investigation is permitted under Directive No. 96.
We agree with Messrs. Shipley and Waller that when real individuals file returns using their own names and social security numbers the case falls outside Tax Division Directive 96. The "taxpayer" intends to file a tax return in his or her own name, and the Service must treat that filing as a "return." Thus, such cases must be referred to the Tax Division and cannot be directly referred to the United States Attorneys. The purpose of Directive No. 96 was to extend to the United States Attorneys the authority to institute grand jury investigations in cases in which they already had authority to authorize prosecutions (18 U.S.C. 286, 287 charges in false paper return cases) and in other false claims cases falling into that same pattern. The prior delegation of authority did not extend to the United States Attorneys the authority to authorize prosecution of an individual who filed a return in his or her own name, using the correct social security number. The facts that the taxpayers are not targets of the investigation and that the real target may know that such returns are fictitious does not bring the case within Directive 96, and such cases may not be referred directly to the United States Attorneys.
I would appreciate it if you would insure that my views on this subject are communicated to the Deputy Regional Counsels for Criminal Tax. If Mr. Finkelstein or any of the Deputy Regional Counsel have further comments or questions on this issue, they may contact me or our ELF coordinator, Tony Whitledge.
JAMES A. BRUTON
Acting Assistant Attorney General
March 31, 1992
TO: George T. Kelley
Northern Criminal Enforcement Section
FROM: Robert E. Lindsay
Chief, Criminal Appeals & Tax
Enforcement Policy Section
SUBJECT: Bluesheet Concerning Plea Procedures
Attached hereto is a copy of a bluesheet to the United States Attorney's Manual, issued February 7, 1992. This bluesheet sets forth, inter alia, general plea procedures and procedures dealing with substantial assistance pleadings under the Guidelines.
The bluesheet requires a formal system for approval of negotiated pleas and for approval of pleadings seeking a downward departure for substantial assistance. In the case of negotiated pleas, it provides that the plea must be approved by at least a supervisory attorney of a litigating division. In the case of substantial assistance pleadings (and Rule 35(b) motions), the bluesheet provides that approval authority shall be vested in a Section Chief or Office Director, or such official's deputy, or in a committee which includes at least one of these individuals. Acting Assistant Attorney General Bruton has directed that approval authority within the Tax Division for both negotiated pleas and substantial assistance pleadings shall reside, for the time being, in the Section Chiefs.
The bluesheet also requires that negotiated pleas to felonies and misdemeanors negotiated down from felonies must be in writing and that a copy of the plea agreement should be maintained in the office case file or elsewhere. Similarly, the bluesheet requires that documentation of the facts behind and justification for each substantial assistance pleading must be maintained. The repository or repositories for this documentation need not be the case file itself. Acting Assistant Attorney General Bruton has decided that, on an interim basis, such written documentation shall be maintained in separate files, one for negotiated pleas and one for substantial assistance pleadings.
None of these Tax Division procedures are intended to be permanent. Please look over the bluesheet and give me your views on what we should establish on a permanent basis as the approval process and the memorialization system. I would like to receive your views no later than April 30, if possible. In the meantime, you should inform your line attorneys of the requirements contained in the bluesheet and of the interim approval process.
cc: Mr. Bruton
October 22, 1992
TO: All United States Attorneys
FROM: George J. Terwilliger, III
Deputy Attorney General
SUBJECT: Nonfiler Initiative
Commissioner of Internal Revenue Shirley D. Peterson has asked for this Department's assistance in addressing the increasingly serious problem of taxpayers who fail to file income tax returns. The Internal Revenue Service has recently launched a nonfiler initiative and is attempting to attack the problem on a number of fronts, including taxpayer education and assistance, simplified installment payment procedures, and a criminal enforcement initiative that will focus on hard core nonfilers. The purpose of this letter is to introduce the Service's nonfiler strategy and enlist the full support of the United States Attorneys in pursuing this important initiative.
As you know, our income tax system is founded upon voluntary compliance by taxpayers. But the Internal Revenue Service has recently determined that only approximately 84 percent of the amount of income taxes that should be collected on income from lawful sources is actually being paid voluntarily by taxpayers. In some parts of the country and in some industries the noncompliance rate is even greater. The IRS and the General Accounting Office have determined that the difference between the amount of taxes owed and the amount voluntarily paid by taxpayers, the so-called "tax gap," is expected to grow to an estimated $113.7 billion annually. Nearly 10 million taxpayers who are obliged to file returns fail to do so each year. These nonfilers are responsible for a significant portion of the tax gap.
The IRS describes its nonfiler strategy as "a carrot and a stick" approach. The "carrot" involves a major public relations campaign, designed to encourage nonfilers to contact the IRS and receive assistance in returning to the taxpaying rolls. The "stick" involves criminal investigation and prosecution of egregious cases involving those who willfully resist the Service's efforts to draw them back into the system. This initiative will be supported by a combined total of approximately 2,000 civil and criminal agents and is likely to produce a large volume of new criminal tax cases over the coming years.
Your offices will, obviously, play a critical role in the success of the criminal aspects of this program. It is my understanding that the Service intends to focus its criminal investigative resources on cases involving large amounts of tax and a substantial history of noncompliance. In addition, whenever possible, the Service intends to seek evidence supporting felony tax evasion rather than failure to file misdemeanor charges. The Tax Division is working with the IRS to assure improvements in the quality of nonfiler cases referred to the Department for prosecution and to prevent an unmanageable increase in the volume of cases referred. The Tax Division has agreed to review these cases on a priority basis and has offered to provide prosecutors to assist your offices, when necessary.
Although the Service's initiative is obviously important, it is likely to present some problems that must be recognized. Failure to file cases are normally charged as misdemeanors under 26 U.S.C. §7203, and it will abe difficult giving priority to such cases when it is burdensome enough moving your heavy felony dockets. Although the Service will be pursuing felony investigations whenever possible, it will often be necessary to prosecute misdemeanors, as well.
Furthermore, because the impending November 1, 1992, Federal Sentencing Guideline Amendments will diminish the likelihood of meaningful jail sentences in tax cases sentenced during the 1993 tax filing season, your assistants may question whether these cases are significant and, indeed, whether we can achieve the desired deterrent impact from prosecution. Both the Department and the IRS opposed application of the changes in the Sentencing Table scheduled to take effect in November to tax cases, and the Sentencing Commission has included possible revision of the tax guidelines in its 1992-1993 study of the guidelines governing white collar crimes. Although it is difficult to predict how the Commission will respond to the Department's ongoing efforts to bolster the tax guidelines, it is essential that we promptly prosecute these cases, even when low or probationary sentences seem likely, to demonstrate the need for stiffer penalties in this vital area of tax compliance.
I have asked the Tax Division to work with your offices to expedite the handling of these cases and help coordinate efforts to bring groups of prosecutions simultaneously to draw public attention to the seriousness of this problem. The Office of Public Affairs has been involved in this initiative for some time and is equipped to assist your offices with press related issues. In the end, however, the success of the criminal aspects of the Service's nonfiler strategy rests most heavily on your offices and is dependent on your support. I am confident that you share my belief that this Department has a vital role to play in addressing this important national problem.
February 17, 1993
TO: All Criminal Enforcement Attorneys
FROM: James A. Bruton
Acting Assistant Attorney General
SUBJECT: Tax Division Voluntary Disclosure Policy
Recent new releases by the IRS and stories in the press have raised questions within the Division concerning the proper handling of cases in which a prospective criminal tax defendant claims to have made a voluntary disclosure. Notwithstanding the news stories and rumors to the contrary, the Division has not changed its policy concerning voluntary disclosure, and cases should be evaluated as they have in the past under the provisions of Section 4.01 of the Criminal Tax Manual.
The Service, takes the view that, notwithstanding reports to the contrary, it has not changed its voluntary disclosure practice. It claims that its press releases have been issued to inform the public of the manner it has historically applied the existing practice in referring nonfiler cases to the Department of Justice. The goal has been to demonstrate to the public that the practice has been applied liberally in the past and that a nonfiler interested in reentering the tax system should not be intimidated by a theoretical threat of criminal prosecution.
The Service's carefully worded press releases and public statements have been construed by some member of the press and the defense bar as an "amnesty". This is troublesome, because some inaccurate information has been and is being disseminated to the public by the press and members of the bar that is likely to cause confusion and could interfere with the prosecution of some criminal tax cases. At bottom, the Service's voluntary disclosure policy remains, as it has since 1952, an exercise of prosecutorial discretion that does not, and legally could not, confer any legal rights on taxpayers.
We in the Tax Division should have few occasions to consider whether the Service is properly adhering to its voluntary disclosure policy. If the Service has referred a case to the Division, it is reasonable and appropriate to assume that the Service has considered any voluntary disclosure claims made by the taxpayer and has referred the case to the Division in a manner consistent with its public statements and internal policies. As a result, our review is normally confined to the merits of the case and the application of the Department's voluntary disclosure policy set forth in Section 4.01 of the Criminal Tax Manual.
Cases may, however, arise in which there is some confusion over whether a local District Counsel's office has referred a nonfiler case that seems arguably to fall within one of the Service's press releases on voluntary disclosure or otherwise appears to have been referred to the Department in a manner inconsistent with our understanding of the Service's voluntary disclosure practice. If that occurs, Tax Division reviewing attorneys should not attempt to construe the Service's voluntary disclosure practice on their own but should bring all such questions to the immediate attention of their Section Chiefs. If it is determined that but for questions concerning the applicability of the Service's policy, prosecution of the case would be authorized (i.e., the case meets Tax Division prosecution criteria and does not violate the Division's voluntary disclosure policy set forth in Criminal Tax Manual §4.01), the Section Chief should forward the case (where applicable, consistent with limitations imposed upon the disclosure of grand jury information) to the Assistant Chief Counsel Criminal Tax (CC:CT) for that office's determination whether the Service's referral was consistent with its internal voluntary disclosure practice and whether the Service actually intends that the case be prosecuted. If the Office of Assistant Chief Counsel Criminal Tax determines that the referral was appropriate, the case should be processed by the Division in the normal manner.
Finally, Tax Division reviewing attorneys should exercise considerable care in drafting letters declining cases to ensure that they reflect Tax Division policy regarding voluntary disclosures. Assistant United States Attorneys and IRS field and National Office personnel rely on our correspondence as a reflection of Tax Division policy, and it is, therefore, crucial that our letters and memoranda addressed to other offices within the government accurately state our policies.
February 12, 1993
TO: All United States Attorneys
FROM: James A. Bruton
Acting Assistant Attorney General
RE: Lesser Included Offenses in Tax Cases
The purpose of this memorandum is to provide guidance concerning the government's handling of lesser included offense issues in certain kinds of tax cases. Two petitions for writs of certiorari involving the issue of lesser included offenses in tax cases have recently been filed in the Supreme Court. In Becker v. United States, No. 92-410, the defendant was convicted of attempting to evade taxes and of failure to file tax returns for the same years. The trial court sentenced the defendant to three years' imprisonment on the evasion counts and to a consecutive period of 36 months' imprisonment on the failure to file counts. The court of appeals affirmed. In his petition for a writ of certiorari, the defendant argued that the misdemeanor of failure to file a tax return is a lesser included offense of the felony of tax evasion and that the Constitution prohibits cumulative punishment in the same proceeding for a greater and lesser included offense.
In opposing certiorari on this question, the government argued that whether cumulative punishments could be imposed for a course of conduct that violated both 26 U.S.C. 7201 and 26 U.S.C. 7203 was solely a question of congressional intent. The government pointed to the statutory language of Sections 7201 and 7203 as clear evidence of Congress' intent to permit cumulative punishment where a defendant was convicted in a single proceeding of violating both Section 7201 and Section 7203. As further support for its position, the government argued that Sections 7201 and 7203 involve separate crimes under Blockburger v. United States, 284 U.S. 299 (1932) (and, thus, that a violation of Section 7203 is not a lesser included offense of a violation of Section 7201). The Becker petition is currently pending before the Supreme Court.
In McGill v. United States, No. 92-5842, the government argued, relying on Sansone v. United States, 380 U.S. 343 (1965), that willful failure to pay taxes (26 U.S.C. 7203) is a lesser included offense of attempted evasion of payment of taxes (26 U.S.C. 7201). The Supreme Court denied certiorari in McGill on December 7, 1992.
The government's position in Becker reflects an adoption of the strict "elements" test (see Schmuck v. United States, 489 U.S. 705 (1989)) and, consequently, a change in Tax Division policy. Accordingly, all attorneys handling tax cases should be notified of the following ramifications of this change in policy.
1. In cases charged as Spies-evasion (i.e., failure to file, failure to pay, and an affirmative act of evasion) under Section 7201, it is now the government's position that neither party is entitled to an instruction that willful failure to file (Section 7203) is a lesser included offense of which the defendant may be convicted. Thus, if there is reason for concern that the jury may not return a guilty verdict on the Section 7201 charges (for example, where the evidence of a tax deficiency is weak), consideration should be given to including counts charging violations of both Section 7201 and Section 7203 in the indictment.
The issue whether cumulative punishment is appropriate where a defendant has been convicted of violating both Section 7201 and Section 7203 generally will arise only in pre-guidelines cases. Under the Sentencing Guidelines, related tax counts are grouped, and the sentence is based on the total tax loss, not on the number of statutory violations. Thus, only in those cases involving an extraordinary tax loss will the sentencing court be required to consider an imprisonment term longer than five years. In those cases in which cumulative punishments are possible and the defendant has been convicted of violating both Sections 7201 and 7203, the prosecutor may, at his or her discretion, seek cumulative punishment. However, where the sole reason for including both charges in the same indictment was a fear that there might be a failure of proof on the tax deficiency element, cumulative punishments should not be sought.
2. Similarly, in evasion cases where the filing of a false return (Section 7206) is charged as one of the affirmative acts of evasion (or the only affirmative act), it is now the Tax Division's policy that a lesser included offense instruction is not permissible, since evasion may be established without proof of the filing of a false return. see Schmuck v. United States, 489 U.S. 705 (1989) (one offense is necessarily included in another only where the statutory elements of the lesser offense are a subset of the elements of the charged greater offense). Therefore, as with Spies-evasion cases, prosecutors should consider charging both offenses if there is any chance that the tax deficiency element may not be proved but it still would be possible for the jury to find that the defendant had violated Section 7206(1). But where a failure of proof on the tax deficiency element would also constitute a failure of proof on the false return charge, nothing generally would be gained by charging violations of both Section 7201 and 7206.
Where the imposition of cumulative sentences is possible, the prosecutor has the discretion to seek cumulative punishments. But where the facts supporting the statutory violations are duplicative (e.g., where the only affirmative act of evasion is the filing of the false return), separate punishments for both offenses should not be requested.
3. Although the elements of Section 7207 do not readily appear to be a subset of the elements of Section 7201, the Supreme Court has held that a violation of Section 7207 is a lesser included offense of a violation of Section 7201. See Sansone v. United States, 380 U.S. at 352; Schmuck v. United States, 489 U.S. at 720, n.11. Accordingly, in an appropriate case, either party may request the giving of a lesser included offense instruction based on Section 7207 where the defendant has been charged with attempted income tax evasion by the filing of a false tax return or other document.
4. Adhering to a strict "elements" test, the elements of Section 7207 are not a subset of the elements of Section 7206(1). Consequently, it is now the government's position that in a case in which the defendant is charged with violating Section 7206(1) by making and subscribing a false tax return or other document, neither party is entitled to an instruction that willfully delivering or disclosing a false return or other document to the Secretary of the Treasury (Section 7207) is a lesser included offense of which the defendant may be convicted. Here, again, if there is a fear that there may be a failure of proof as to one of the elements unique to Section 7206(1), the prosecutor may wish to consider including charges under both Section 7206(1) and Section 7207 in the same indictment, where such charges are consistent with Department of Justice policy regarding the charging of violations of 26 U.S.C. 7207. Where this is done and the jury convicts on both charges, however, cumulative punishments should not be sought. In all other situations, the decision to seek cumulative punishments is committed to the sound discretion of the prosecutor.
5. Prosecutors should be aware that the law in their circuit may be inconsistent with the policy stated in this memorandum. See e.g., United States v. Doyle, 956 F.2d 73, 74-75 (5th Cir. 1992); United States v. Boone, 951 F.2d 1526, 1541 (9th Cir. 1991); United States v. Kaiser, 893 F.2d 1300, 1306 (11th Cir. 1990); United States v. Lodwick, 410 F.2d 1202, 1206 (8th Cir.), cert. denied, 396 U.S. 841 (1969). Nevertheless, since the government has now embraced the strict "elements" test and taken a position on this issue in the Supreme Court, it is imperative that the policy set out in this memorandum be followed.
6. In tax cases, questions concerning whether one offense is a lesser included offense of another may not be limited to Title 26 violations, but may also include violations under Title 18 (i.e., assertions that a Title 26 charge is a lesser included violation of a Title 18 charge or vice-versa). The policy set out in this memorandum will also govern any such situations -- that is, the strict elements test of Schmuck v. United States, 489 U.S. 705, should be applied.
These guidelines will remain in effect unless or until the Supreme Court grants certiorari in Becker and rules inconsistently with the newly adopted policy. Prosecutors are encouraged to consult with the Tax Division whenever they are faced with a case raising questions addressed in this memorandum by calling the Criminal Appeals and Tax Enforcement Policy Section at (202) 514-3011.
March 12, 1993
To: All United States Attorney
From: James A. Bruton
Acting Assistant Attorney General
Re: Policy Change in Tax Cases Involving
Lesser Included Offenses
On February 12, 1993, the Tax Division circulated a memorandum providing guidelines concerning the government's handling of lesser included offense issues in certain kinds of tax cases. In that memorandum, we referred to Becker v. United States (S. Ct. No. 92-410), where defendant sought certiorari on the ground that the misdemeanor of failure to file a tax return (26 U.S.C. § 7203) is a lesser included offense of the felony of attempted tax evasion (26 U.S.C. §7201) and that cumulative punishment for the greater and lesser offenses is therefore unconstitutional. The government opposed certiorari, arguing that Congress intended to authorize cumulative punishment for the two offenses and, in any event, that the willful failure to file a tax return is not a lesser included offense of attempted tax evasion. As we noted in our earlier memorandum the latter argument reflects an adoption of the strict "elements" test set forth in Schmuck v. United States, 489 U.S. 705 (1989), and, consequently, a change in Tax Division policy.
On March 8, 1993, the Supreme Court denied the petition for a writ of certiorari in Becker. Accordingly, there will no change in the guidelines set forth in the February 12 memorandum and they will remain in effect until further notice.
Prosecutors are encourage to consult with the Tax Division whenever they are faced with a tax case raising questions regarding lesser included offenses by calling the Criminal Appeals and Tax Enforcement Policy Section at (202) 514-3011.
DEPARTMENT OF JUSTICE TAX DIVISION DIRECTIVE NO. 99
Re: Clarification of Tax Division Policy Concerning the Charging of Tax Crimes as Mail Fraud, Wire Fraud, or Bank Fraud (18 U.S.C. §§ 1341, 1343, 1344) or as Predicates to a RICO Charge or as the Specified Unlawful Activity Element of a Money Laundering Offense
The purpose of this directive is to clarify Tax Division policy concerning the charging of tax crimes as mail fraud, wire fraud, or bank fraud (18 U.S.C. §§ 1341, 1343, 1344), or as predicates to a RICO charge or as the specified unlawful activity element of a money laundering offense. Although primarily concerned with tax crimes charged as mail fraud, (3) wire fraud, or bank fraud, either directly or as a basis for some other charge, the policy stated herein is equally applicable to tax crimes charged under any statute -- be it one found in Title 26 or one found in Title 18 or any other title of the United States Code.
The extent of Tax Division jurisdiction in the criminal arena is set out in section 70(b), Subpart N, Part O of Title 28 of the Code of Federal Regulations (28 C.F.R. § 0.70(b)). That section provides that, with a few specified exceptions, all "[c]riminal proceedings arising under the internal revenue laws" * * * "are assigned to and shall be conducted, handled, or supervised by, the Assistant Attorney General, Tax Division * * *." Tax Division jurisdiction, thus, depends not on the particular criminal statute utilized in charging the defendant, but on the nature of the underlying conduct. Whenever the violation can be said to be one arising under the internal revenue laws, Tax Division authorization is required before bringing any charges, irrespective of the statute or statutes under which they are brought. (4) In general, an offense can be said to arise under the internal revenue laws when it involves (1) an evasion of some responsibility imposed by the Internal Revenue Code, (2) an obstruction or impairment of the Internal Revenue Service, or (3) an attempt to defraud the Government or others through the use of mechanisms established by the Internal Revenue Service for the filing of internal revenue documents or the payment, collection, or refund of taxes.
In particular, this means that the authorization of the Tax Division is required before charging mail, wire or bank fraud, either independently or as predicate acts to a RICO charge or as the specified unlawful activity element of a money laundering charge, when the mailing, wiring, or representation charged is used to promote or facilitate any criminal violation arising under the internal revenue laws. In the exercise of its prosecutorial discretion, the Tax Division will grant such authorization only in exceptional circumstances. As a general rule, the use of such charges will not be approved (1) when the only mailing charged is a tax return or other internal revenue form or document, or a tax refund check; (2) when the only wire transmission is a transmission of tax return information to the IRS or the transmission of a refund to a bank account by electronic funds transfer; or (3) when the mailing, wiring, or representation charged is only incidental to a violation arising under the internal revenue laws (for example, although the mailing of a set of instructions to a cohort in a tax shelter scheme might support a mail fraud charge, such a mailing would be considered incidental to the primary purpose of the scheme which is to defraud the United States by abetting the filing of false income tax returns).
Normally, violations arising under the internal revenue laws should be charged as tax crimes and the specific criminal law provisions of the Internal Revenue Code should form the focus of prosecutions when essentially tax law violations are involved, even though other crimes may have been committed. (5) Thus, for example, the filing of a false tax return, which almost invariably involves either a mailing or, in the case of an electronically-filed return, an interstate wiring, is a tax crime chargeable generally under 26 U.S.C. 7206(1) (if the violator is the taxpayer), 26 U.S.C. 7206(2) (if the violator is, for example, a tax return preparer or promoter of a fraudulent tax scheme), or under 18 U.S.C. 287. Moreover, in the exercise of its prosecutorial discretion, the Tax Division will only authorize tax charges or false claims charges, and will not authorize mail, wire or bank fraud charges, where the United States is defrauded in a revenue raising capacity and is the only one defrauded. Tax charges and the false claims statutes are the established means for litigating such criminal tax matters.
A mail, wire, or bank fraud charge arising out of a scheme to defraud the Government through the use of the revenue laws might be appropriate in addition to, but never in lieu of, other charges based on violations of the internal revenue laws, however, where the Government has also lost money in a non-revenue raising capacity or individuals or other entities have been the financial victims of the crime. The bringing of such charges will seldom, if ever, be justified by the mere desire to see a more severe term of imprisonment or fine imposed. Rather, they must serve some federal interest not adequately served by the bringing of traditional tax charges. Each individual case will be reviewed to determine whether it warrants the use of charges in addition to the appropriate Title 26 charges or Title 18 charges (i.e., §§ 286, 287, 371, 1001).
For example, in an electronic filing fraud, a bank making a refund anticipation loan for the amount of the fictitious refund claim may be the financial victim in the scheme, and bank fraud charges, drafted to reflect that the bank was victimized by the scheme, may be appropriate. Similarly, in motor fuel excise tax evasion schemes and fraudulent tax shelter schemes in which individuals or entities other than the United States are demonstrably victimized in a direct, substantial and measurable way that will be charged, the use of mail or wire fraud charges may also be appropriate in a particular case.
A similar policy will be followed with respect to RICO or money laundering charges predicated on mail, wire, or bank fraud violations which involve essentially only a federal tax fraud scheme. Tax offenses are not predicate acts for RICO or specified unlawful activities for money laundering offenses -- a deliberate Congressional decision -- and converting a tax offense into a RICO or money laundering case through the charging of mail, wire or bank fraud based on a violation of the internal revenue laws as the underlying illegal act could be viewed as circumventing Congressional intent unless circumstances justifying the use of a mail, wire or bank fraud charge are present.
A United States Attorney who wishes to charge a RICO violation in any criminal matter arising under the revenue laws must obtain the authorization of the Tax Division prior to alleging the predicate act, (6) and must obtain the authorization of the Organized Crime and Racketeering Section of the Criminal Division prior to charging a RICO violation. The Tax Division and the Organized Crime and Racketeering Section will approve the use of the RICO statute in revenue matters as appropriate. In addition, traditional tax charges must also be brought, as noted above, and the prosecution package must allow for forfeitures under the Internal Revenue Code.
Tax Division authorization is also required before a money laundering charge may be brought where the specified unlawful activity is based on a violation arising under the internal revenue laws. (7) The Tax Division will approve the use of mail fraud, wire fraud, or bank fraud as the specified unlawful activity only in cases that meet the requirements set forth in this Directive. When a request is made to include such a money laundering charge in an indictment, the Tax Division will consult with or refer the case to the Money Laundering Section of the Criminal Division, as the case may require, prior to authorizing the money laundering charges or the use of one of the fraud statutes as the specified unlawful activity. See USAM 9-105.00, as amended by bluesheet dated October 1, 1992. The Tax Division should be consulted early in any investigation to determine whether mail fraud, wire fraud, or bank fraud charge are appropriate.
JAMES A. BRUTON
Acting Assistant Attorney General
APPROVED TO TAKE EFFECT ON: March 30, 1993
June 3, 1993
TO: All CES Attorneys
FROM: Stanley F. Krysa
Criminal Enforcement Sections
SUBJECT: Civil Settlements in Plea Agreements
It is not unusual for the taxpayer, in the course of negotiating a plea agreement, especially in cases arising from a grand jury investigation, to seek to include a civil settlement for the years involved. Very often, in such a situation, the Internal Revenue Service is agreeable to settlement. The Internal Revenue Service often believes the money to be paid is likely all it could ever realize because of Rule 6(e) restrictions and scarce audit resources. The Tax Division, however, has long followed a policy against approving plea agreements that include such global settlements. This policy wisely reflects the substantial differences between criminal and civil tax litigation.
Criminal tax investigations are frequently narrow in focus and substantially more targeted than any civil audit. For example, a criminal investigation centering on a complex return will normally focus on large items of unreported income or improper deductions that are easily provable rather than complex tax adjustments that may result in further taxes due, which, either because of difficulties of proof or the uncertain state of the substantive tax law, cannot form the focus of a criminal case.
In a civil tax setting, the determination by the Internal Revenue Service that an item of income was realized or that a deduction claimed was not allowable constitutes a prima facie case for inclusion or disallowance, as the case might be, and the taxpayer bears the burden of proving that determination wrong. Accordingly, reasonable inferences from known facts can support a finding of civil liability, but often would not provide a basis for indictment.
The Tax Division cannot authorize a plea agreement in a case that, by its terms, bars the Government from a further examination of the target's civil tax liabilities. We can and will, however, approve acceptance of a plea that includes certain civil admissions by the target. Thus, we would be willing to authorize a plea agreement in which the target would make the following civil admissions:
1. An admission by the defendant that he received enumerated amounts of unreported income or claimed enumerated amounts of illegal deductions for years set forth in the plea agreement.
2. A stipulation by the target that he was liable for the fraud penalty imposed by the Code (formerly Section 6653 and now Section 6663) on the understatements of liability for the years involved.
3. An agreement by the target that he or she will file, prior to the time of sentencing, initial or amended personal returns for the years subject to the above admissions, correctly reporting all previously unreported income or proper deductions, will provide the Internal Revenue Service information, if requested, regarding the years covered by the returns, and will pay at sentencing all additional taxes, penalties and interest owing. Such an agreement should also include a provision pursuant to which the target agrees that he or she will promptly pay any additional amounts determined to be owing with respect to that return because of computational errors.
4. An agreement by the target that he will not thereafter file any claims for refund of taxes, penalties or interest for amounts attributable to the return filed incident to the plea.
As a final note, all such provisions must be drafted with considerable care. A plea agreement is an undertaking by the United States and, if not properly crafted, could be construed to foreclose the civil side of the Internal Revenue Service from examining and making any civil audit adjustments to the returns involved after they are filed.
In reviewing or negotiating any proposed plea agreements the above principles should be applied. If you have any questions contact your respective Chiefs. All plea agreements negotiated by you should be in writing. They should be submitted for review and approval by the Chief before executed.
1. A current list of supervisory personnel in the Tax Division's Criminal Enforecment Sections, as of July 15, 1994, is included in Section 1.02, supra.
2. A current list of supervisory personnel in the Tax Division's Criminal Enforcement Sections, as of November 15, 1993, is included in Section 1.02, supra.
3. Tax Division policy concerning the charging of tax crimes as mail fraud violations, either independently or as predicate acts underlying a RICO charge, is set out in Section 6-4.211(1) of the United States Attorneys' Manual, Filing False Tax Returns : Mail Fraud Charges or Mail Fraud Predicates for RICO. This directive clarifies that policy and explains how it fits into the overall Tax Division jurisdiction over criminal proceedings arising under the internal revenue laws.
4. The authorization of the Tax Division is also required in any case which involves parallel state and federal tax violations and the charges are based on the parallel state tax violations.
5. Pursuant to 28 C.F.R. 0.70(b), the Tax Division has traditionally authorized prosecution of certain crimes under various provisions of Title 18 (e.g., 18 U.S.C. §§ 286, 287, 371, and 1001). While Title 26 offenses are the preferred vehicle for criminal tax prosecutions, charges for offenses arising under the internal revenue laws have never been limited to that title.
6. Tax Division authorization is also required when the predicate act is based on a state tax violation.
7. This is in addition to the requirement that Tax Division authorization is required for any prosecution under 18 U.S.C. § 1956(a)(1)(A)(ii).
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