Tax Fraud Investigations-recent Supreme Court Developments
| Publication year | 1976 |
| Pages | 1459 |
1976, October, Pg. 1459. Tax Fraud Investigations-Recent Supreme Court Developments
Melvin A. Coffee, Denver, is a member and Richard B. Robinson, Denver, is an associate of Inman, Flynn & Coffee, P.C. Mr. Coffee is adjunct professor of Tax Law, University of Denver College of Law; Mr. Robinson is Instructor in Tax at Metropolitan State College.
The United States Supreme Court has issued an unusually large number of decisions affecting criminal tax fraud investigations within the past few months. This article discusses these recently issued opinions and some of their implications.
In 1966, the U.S. Supreme Court announced the Miranda(fn1) decision. Miranda held that the confession of an alleged rapist was inadmissible in a criminal prosecution and further held that incriminatory statements would not be admissible in future criminal prosecutions if law enforcement officials did not give five advisements regarding (1) the right to remain silent, (2) the fact that anything said could and would be used against the individual, (3) the right to consult with an attorney, (4) the right to have an attorney present during interrogation and (5) the right to have an attorney appointed if the individual were indigent.
During the decade which followed Miranda, the circuit courts wrestled with the question of whether the Miranda warnings had to be given in routine criminal tax investigations. All of the circuits,(fn2) except the seventh(fn3) and possibly our tenth,(fn4) rejected the argument that full Miranda warnings were required to be given in noncustodial tax investigations. In Beckwith,(fn5) the Supreme Court sided with the majority of the circuits and held that a special agent of the Internal Revenue Service investigating potential criminal income tax violations is not required to give the Miranda warnings as long as the taxpayer is not in custody. The Court rejected the theory that a special agent's interview is the functional and, therefore, legal equivalent of custody.
Typically, a taxpayer is never interrogated or interviewed when he is in custody;(fn6) the taxpayer is usually questioned at his home, his office, or in Internal Revenue Service offices where the taxpayer is generally free to leave at will. The result is that in the routine tax fraud investigation, the full Miranda warnings will not be required.
It is important to note that although Beckwith held that the special agent is not required to advise a taxpayer of his rights, Beckwith did not hold that a taxpayer does not, in fact, have the five constitutional rights referred to in Miranda. For example, the taxpayer still has the right to remain silent; the taxpayer
simply has no right to be advised by the special agent that the taxpayer has such a right
The Court recognized that all evidence given by a taxpayer is not admissible merely because the taxpayer is not in custody. Confessions which are not the result of a freely determined will shall not be admissible in the future. The result is that in criminal tax fraud cases we are returned to the pre- Miranda days where the issue will be whether the evidence given by the taxpayer is, in fact, voluntarily given. The Court held that the five Miranda warnings will not be a mandatory shibboleth without which taxpayer-given-evidence may be suppressed. Nevertheless, the evidence must still be given voluntarily.
In view of Beckwith, will the Internal Revenue Service now revoke Internal Revenue News Release 949?(fn7) IR 949 demands that a special agent, at his first contact with the taxpayer, indicate his criminal investigatory function and give the taxpayer three of the Miranda advisements; i.e., the right of silence, the right to consult an attorney and the advice that the evidence given to the Internal Revenue Service may be used against the taxpayer. It is important to note that the special agent in Beckwith actually read the IR 949 warnings to the taxpayer from a printed card.
As long as the Internal Revenue Service does not revoke IR 949, special agents must continue to use the constitutional warnings required by that release in spite of Beckwith. Present cases hold that even if the warnings are not constitutionally mandated, as long as the Internal Revenue Service has promulgated this rule, due process of law demands that the agency follow its own rules.(fn8)
It is submitted that the Internal Revenue Service would be well advised to continue IR 949 for at least three reasons. First, tax practitioners can testify that IR 949 has not, in fact, prevented successful tax fraud prosecutions over the last eight years. Second, the cases to be discussed in this article indicate that the Internal Revenue Service may be able to get the evidence to convict even if a taxpayer decides upon a course of complete noncooperation with the Internal Revenue Service. Third, the continued IR 949 warnings will go far to convince future courts(fn9) that evidence given by taxpayers after such warnings is, in fact, given voluntarily.
Should the Internal Revenue Service decide to revoke IR 949 in spite of the above unsolicited advice, tax practitioners will rely upon the same kinds of factors as they did in earlier years to determine whether or not a case is, in fact, a criminal investigation. The hallmarks of a tax fraud investigation remain: more than one agent working a case, huge expenditures of agent-hours, tremendous reliance on copying documents, agent questioning third parties and third party records, requests for information concerning bank deposits, net worth, cash expenditures and cost of living.
Hopefully, accountants and attorneys will be sensitized to the existence of a criminal tax investigation...
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