When a civil tax case involves suspected criminal activity, the IRS conducts an initial investigation as part of an audit and may refer the case to the Department of Justice. Even when clear evidence of tax fraud has been obtained, the IRS revenue agent conducting the civil audit may continue to request information from the taxpayer and gather information even after they intend to make a criminal referral but have yet to actually make the referral. This raises Constitutional questions as to whether the actions and communications of the taxpayer during the civil tax audit can be used against him or her in a later criminal trial. The United States v. Dilworth, Criminal No. 10-730 (JBS) (D.N.J. 2012) case serves as an example of this scenario.
Facts & Procedural History
George Dilworth, the defendant, is charged with three separate charges in an Indictment. Count I charges him with conspiracy to evade taxes by falsely characterizing payments as “loans.” Counts II and III charge him with making false statements to IRS agents.
The defendant moved to suppress evidence gathered as a result of an interview with an IRS agent on November 30, 2006, during which he made the false statement that is the basis of Count II of the Indictment. The defendant argued that the IRS agent had firm indications of fraud prior to the interview, but conducted a civil audit interview and did not inform the defendant that there were indications of criminal fraud.
The court denied the motion, stating that the IRS did not have firm indications of fraud prior to the interview and did not violate the Fourth Amendment. The case was later referred to the Criminal Investigation Division (CID) for a criminal investigation.
The court found that the mere failure of the IRS revenue agent to give the defendant notice that the November 30, 2006 investigation may result in criminal charges does not by itself constitute fraud, deceit and trickery. The defendant filed a motion for reconsideration which was the subject of the current court opinion.
Suppression of Statements
The suppression of a defendant’s statements in a criminal case is a remedy to deter serious misconduct by law enforcement officers in violation of a suspect’s rights.
To request a suppression hearing in federal court, a defendant typically files a motion to suppress evidence. This motion may be filed before or during trial, and it typically sets out the facts and legal arguments supporting the defendant’s claim that certain evidence should be excluded from trial because it was obtained in violation of the defendant’s constitutional rights. The motion may also request a hearing to allow the defendant to present evidence and testimony in support of the motion. In some instances, the motion to suppress may be made in response to the prosecution’s evidence submitted in a pre-trial motion or in the trial. It is up to the court to decide whether to grant the motion and hold a hearing.
The Supreme Court has stated it is reluctant to expand the suppression remedy beyond the point necessary to deter law enforcement violations of constitutional rights. For non-custodial questioning by law enforcement, the touchstone inquiry is whether the suspect’s statement was voluntarily given.
A statement is deemed coerced or involuntary if the behavior of the law enforcement officials was such as to overcome the will to resist and bring about a confession not freely self-determined. The Third Circuit has emphasized that suppression is only warranted when the government tactics are so manipulative or coercive that they deprived the defendant of his ability to make an autonomous decision to confess.
This brings us back to the IRS and civil audits. In the IRS, Revenue Agents are generally responsible for civil tax issues, while Special Agents conduct criminal tax investigations. It is not clear that a suppression remedy extends to a situation where an IRS Revenue Agent, during the course of a civil audit collects evidence of fraud and continues his investigation, including an interview of the taxpayer, even if the statement were obtained after the point where a referral for criminal investigation could have been made. This is what the court was asked to decide in this case.
No Evidence of Criminal Referral
Given the facts in this case, the court held that the IRS revenue agent’s November 30, 2006 meeting with Dilworth was in the context of a civil investigation and not a criminal investigation. According to the court, the IRS followed its procedure for criminal referral and there is no evidence that the criminal investigative arm of the IRS was involved until after the case was officially referred in January 2007.
The court noted that Dilworth was aware that the IRS was conducting an audit of the questionable transactions and that he was not free to provide false answers to the agent’s questions. This is important because if the agent had misled the defendant or used deceptive tactics to obtain information, it could have been considered a violation of the defendant’s rights and could have led to the suppression of evidence. However, in this case, the court found that the agent did not engage in such behavior and therefore, the evidence obtained during the interview was admissible in court.
In summary, the court’s decision, in this case, demonstrates that IRS audits are an adversarial process in which taxpayers must provide information to minimize their tax liability. However, the statements made during these audits can be used against the taxpayer in a criminal case. The court ruled that IRS interviews with taxpayers during the course of an audit are not a violation of the Fourth Amendment and that, without evidence of criminal referral by the IRS, it is unlikely that the court will suppress testimonial evidence obtained from interviews during the course of an IRS civil audit.