Police Can Turn Over Records to the IRS

Published Categorized as Tax Litigation, Tax Procedure
Irs Uses Taxpayer Records To Secure Tax Fraud Conviction, Houston Tax Attorney

The IRS has a number of tools at its disposal to gather information. This includes the IRS summons, for example.

These tools only allow the IRS to get records that the taxpayer voluntarily identifies or that the IRS discovers. The IRS cannot obtain any records that it cannot identify.

This leads to the question of whether a third party that possesses records can identify and provide records to the IRS? The recent United States v. Yang, 478 F.3d 832 (7th Cir. 2007), case provides an example of this. The case involves the local police who turned over records to the IRS. The same concepts apply to any other third party who happens to know of or has legal possession of the taxpayer’s records.

Facts & Procedural History

The Yang brothers and their parents were being investigated by the IRS for tax fraud related to the family’s China Buffet Restaurant. You Bin Yang was living with his parents when he called the local police to report that his house was burglarized. The burglars had taken $2,500 from his parent’s bedroom and a DVD player from You Bin’s bedroom.

During the burglary investigation, the local police evidence technician discovered five unsealed notebooks on You Bin’s parent’s bedroom dresser. Three of the notebooks had a year inscribed on the cover. The evidence technician obtained You Bin’s permission to take the notebooks so that the technician could process them for fingerprints.

You Bin subsequently contacted the police to see if he could pick up the notebooks. The police officer, who knew of an IRS tax fraud investigation, examined the contents of the notebooks and discovered that they appeared to be the Yang family’s financial records. They were written in Chinese.

The police officer then contacted the IRS Criminal Investigations special agent and the special agent obtained a grand jury subpoena for the copies that the police officer had made (with You Bin’s permission) of the notebooks.

The government translated the notebooks into English and used the notebooks to indict You Bin and his brother for “for conspiracy to commit tax fraud, filing false tax returns, and conspiracy to structure currency transactions for the purpose of evading currency transaction reporting requirements.”

You Bin and his brother filed a motion to suppress the notebook evidence, arguing that the contents were protected under the Fourth Amendment.

The Fourth Amendment

The Fourth Amendment to the United States Constitution protects people’s right to be free from warrantless searches and seizures by the government. This protection only applies if an individual has a “legitimate expectation of privacy” in the area or item searched.

To determine whether an individual has a legitimate expectation of privacy, two questions must be answered:

  1. whether the individual has exhibited an actual expectation of privacy through their conduct, and
  2. whether this expectation of privacy is one that society is prepared to recognize as reasonable.

If an individual claims a subjective expectation of privacy, they must show that they did not manifest a voluntary consent to the defendant’s allegedly invasive actions. In other words, they must show that they sought to keep the contents of the searched item private.

Expectation of Privacy

The question for the court was whether You Bin had an expectation of privacy with regard to the notebooks.

Courts will look to an individual’s affirmative steps to conceal and keep private the item in question to determine whether a legitimate expectation of privacy exists. For example, carrying items in a closed, opaque bag or placing a gym bag under a bed demonstrates a subjective expectation of privacy. The courts have said that simply hoping for privacy is not enough to establish a legitimate expectation of privacy. In addition, if an individual voluntarily discloses information or items to others, they may lose their expectation of privacy in those items.

The district court and the Seventh Circuit Court of Appeals held that the notebooks are not protected by the Fourth Amendment because You Bin and his brother had no expectation of privacy in the copies of the unsealed notebooks that You Bin had turned over to the police.

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