United States v. Florence L. Peters

сonstitutional the denial showing of request implied thus his

right, and Bailey appealability

certificate

claim is denied.

Conclusion that he establish failed Buggs has

Mr. of counsel. assistance

received ineffective errone- he was sentenced argument that

His Sentencing Guidelines

ously this law of

cognizable under established con- that his Although his contention

circuit. 924(c) improp- under 18 U.S.C.

viction cognizable on federal Bailey is light

er a certif- review, entitled to he is not

collateral he does of appealability

icate case, a substan- facts of this

present, on a constitutional the denial of showing of

tial last Buggs cannot overcome

right. Mr. evidence that light of the record

hurdle in during the un- the firearm and carried

used Accordingly, drug offense.

derlying affirmed court is

judgment the district appealability dis- The certificate

part. enlarge request part,

missed denied. appealability is

the certificate

IT IS SO ORDERED. America, STATES

UNITED

Plaintiff-Appellee, PETERS, Defendant- L.

Florence

Appellant.

No. 97-2634. Appeals, Court Circuit.

Seventh

Argued April Aug.

Decided (argued), Office B. Safford Joan Division, Attorney, Criminal IL, Plaintiff-Appellee.

Chicago, IL, Giacchetti, J. Chicago, Sanford Cynthia (argued), Boxerman, Capes Rosen- V. David P.C., Zafft, Goldenhersh, & blum, Silverstein MO, Defendant-Appellant. Louis, St. EASTERBROOK, RIPPLE and Before EVANS, Judges. Circuit RIPPLE, Judge. Circuit trial, L. jury Florence After false making counts of four convicted in violation her tax returns statements agents.” In “revenue 7206(1)1 tigators are known as cor- one count of 26 U.S.C. agents do agents, revenue special impede the administra- attempting to contrast ruptly firearms; required laws in violation nor are carry internal revenue 7212(a).2 appeal, Pe- On an administrative provide taxpayers of U.S.C. in court erred that the district ters contends Division Although an Examination warning. suppress denying motion some sort typically concludes with audit in which, view, had obtained between civil settlement Fifth Fourth and Amend- of her violation may uncover evi an audit taxpayer, such addition, Dr. Peters rights. asserts agent to refer the revenue causes dence 'that in- trial presented at investiga for criminal to the CID ease For jury’s verdict. support sufficient to regulations, a tion. ‍‌‌‌‌​‌‌‌‌​​​​‌​‌‌‌​‌‌‌​‌​‌‌​‌​​​‌​‌‌‌‌​​‌‌‌​‌‌​‌‍Under following opin- reasons discussed “firm indication of uncovers a agent whо of the district ion, judgment affirm the we taxpayer” part fraud on the court. immediately suspend her audit and refer Man Revenue to the CID. See Internal case I 4565.21(1). point, CID At ual BACKGROUND the IRS’ efforts become the case and enters prosec possibility of criminal focused Investigation of an A. The Contours Saltzman, IRS I. generally Michael tion. See for en- responsibility splits the The IRS ¶¶ & 12.01 Procedure Practice its two between nation’s tax laws forcing the case, large part, concerns This 12.03[1][a]. The Criminal Inves- investigative divisions. tax between a civil audit the distinction (“CID”) charged in- with tigative Division investigation. tax the tax code vestigating criminal violations investiga- CID federal statutes. and related Investigation B. The many Like agents.” “special are called tors Peters, the for- Marshall In October agents, law enforcement other criminal Pe- Dr. podiatrist Florence mer husband addition, spe- badges. carry firearms ters, the Internal Service called an administrative agents must recite cial indicating he had report soliciting information warning prior cheating States, Rad been v. United taxpayers. See Beckwith by Spe- received call was 48 L.Ed.2d Marshall’s taxes. 425 U.S. by (1976) warning provided special On Padar of CID. (quoting Gerald Agent cial Mar- agents). Agent Padar went Special October home; he met with Marshall shall’s Divi- hand, Examination the other On meeting, wife, At that Eloise. new and his conducting responsible IRS is sion of the corporate originаl showed Padar Marshall Division inves- Examination audits. section, (a) Corrupt interference. —Who- or forcible pertinent part: provides in 1. That of force corruptly by force or threats or ever (including any cation) statements 7206. Fraud false threatening or communi- letter Anyperson who— any impede or intimidate endeavors to perjury.- (1) penalties of under Declaration acting United States employee of the or officer return, any Willfully makes and subscribes title, or in capacity under official statement, which contains or other document corruptly force or threats way or it is declaration that by a written or is verified threatening or com- (including any letter force munication) perjury, and penalties of made impedes, or endeav- or obstructs cor- true to be does not believe which he impede, due administra- or ors to obstruct matter; every material rect as to thereof, shall, title, conviction upon of this $5,000, imprisoned or more than be fined not and, upon felony conviction guilty shall both, except that if years, or than 3 more not $100,000 thereof, more than fined shall be not only by threats is committed the offense force, corporation), or ($500,000 case of a shall person, thereof convicted both, years, or not more than imprisoned $3,000, imprisoned not or more than fined prosecution. together with the costs of "threats year, both. term more than subseсtion, force", means in this as used pertinent part: provides in 2. That section employ- bodily, the officer or harm threats of his or to member the United ee of family. Attempts with adminis- to interfere § 7212. laws internal revenue tration develop- significant further that needed dit corporation,3 cheeks Peters’ for Dr. checks file on to Ridgeway passed the When ment. connection had received that Marshall her that the later, informed Thompson, he weeks A few support suit. a child tip received informant’s of an begun photocopies Padar with provided Marshall Thompson to He instructed Pe- CID. allegedly used corporate checks conduct informants with the expenses. Marshall meet pay personal ters fact, had, in Peters if Dr. ultimately provided Padar to determine audit Eloise Peters ex- documents, including expenses as business personal pages deducted more than pre- Nonetheless, Thompson did checks that penses. than of more photocopies because, in her expenses personal plan pare allegedly written wrote Thompson held view, expenses. was routine. the audit as business but deducted on other she had worked view because this information held this Agent Padar Special by an informant’s prompted cases were open a formal but did 18 months for audits routine civil treated as tip but were Instead, he main- investigation. investiga- into criminal did not evolve and in the bottom Dr. Peters a file on tained tions. desk, collected he where of his drawer began her audit and Eloise. by Thompson supplied Agent Marshall Revenue information and occasions, computer reviewed Padar checks by inputting the a few On addition, on one occa- returns. In and 1988 up file. Dr. Peters’ 1987 calling in that checks first 1990, home see Thompson initiated sion, July Dr. Peters’ drove On Padar Thompson lifestyle her and Peters. glean about with could contact what he had Peters to Dr. information he letter form attempt to corroborate a standard sent for concern- returns corporate and Eloise that her notifying from Marshall received During an audit home. for Dr. Peters’ been selected 1988 had ing an addition 1987 and meeting. calls time, few Attached requesting received a Padar Docu- information Information' seeking Eloise standard was the Marshall letter audit, request- investigation.4 Padar corporate for a progress Request that, rec- nondisclosure corporate under IRS and accountant them ing informed numerous anything. two not tell them copies attached regulations, could Thompson ords. Agent Padar Special routinely sent January are documents hall to across the the information IRS initiates taxpayer “walked” time, he called (1) At Division. form the Examination Publication audit: summary (2) two-page handwritten prepared Taxpayer,” and Rights as a “Your Dr. Petеrs’ view reflecting the informants’ The “Privacy Act Notice.” Notice summary included He inform the violations. 1 is to tax Publication purpose of IRS investiga- no further Padar did the file. of the basic with some rights taxpayer of her a civ- tion.5 with policies associated procedures and Privacy Act Notice informs The il audit. ultimately land- file on Padar’s right ask legal of the IRS’ group Ridgeway, a of Thomas desk ed on the asking information, agency reason the Division. Examination in manager (“to carry out laws it assigned the Ridgeway States”) consequences of fail- and the he described Thompson, whom Margo Agent may (“you the audit cooperate with ing The Pe- corporate audits. “rookie” as a cases, you and, in certain charged penalties corporate au- first Thompson’s was ters case given file to he had .after one occasion through person- 5.On podiatry practiced Dr. Peters Peters, Division, Pa- contacted Eloise L. the Examination corporation, Dr. Florence al services attempt would suggested dar Ltd. expenses connection incurred deduct occasion, Eloise Marshall an earlier 4. On expenses business daughter’s Mitzvah as Bat seeking for the a reward form out a claim filled this forwarded Padar tax return. her 1990 a crimi- original about information disclosure Division. to the Examination The Code. the Internal Revenue nal violation they ever re- whether indicate dоes not record case. in this assistance for their a reward ceived form asked er-generated interview prosecution”). subject may be ask would questions that she general same contained forms attached letter and Thompson reiter- meeting, theAt prompted any audit. been had the audit indication concerning Dr. had for information requests the case ated tip or that informant’s verify the in order to corporation Peters’ CID. referred been expenditures corporate purpose of various con- notice, Dr. Peters to this response point, At by Dr. Peters. claimed Thompson and informed tacted there not believe Thompson did Morrison, rep- would accountant, William expenses concluded but had shortly Commencing her in audit. resent explained. that needed to a series of thereafter, Thompson conducted telephone contacts meetings and personal began Thompson However, by March of these During course Morrison. fraud. might involve the case suspect that Thompson communications, asked Morrison Mor- Thompson received after On March conducting a “routine” she whether attorney, in- she signed power rison’s affir- audit, replied “ordinary” approxi- discovered she had him that formed not remember he did Although mative. income $200,000 unreported mately “ran- using the words specifically Thompson legiti- regarding the questions that she “absоlutely” had the “routine,” he dom” or A expenses. business macy claimed of some Mor- audit. a routine it was that impression conversation, during another days later few to this came conclusion rison re- didn’t Peters] [Dr. “If Morrison stated: pro- Thompson was manner which normal would a case that $200,000, be it would port In- anything she said. than ceeding more at 518. to R.121-4 CID.” be a referral meetings with her initial deed, of at the time 30, By April respond. not Thompson did any that believe Morrison, Thompson did not case that the Thompson had concluded 1991, Dr. Peters had or that involved fraud was a crimi- began to prepare involved conducted She problems. any criminal However, whether referral. nal not inform did She any like other. neces- indications the “firm bore been had investigation that Morrison ultimately referral sary for a criminal tip or referred by an informant’s prompted supervisor’s decision. her verbal a provide she Nor did by the CID.6 subject to might Dr. warning Peters super- that a time, Thompson had new By that Accordingly, Morrison penalties. reviewed visor, Wilson Bruce Wilson. be- information provide to not continued were there concluded case and audit.7 a routine reviewing that it was lief After fraud.” there work, determined Thompson’s he 1990, first met Thompson November On analysis Thompson’s many errors too meeting, were Prior Dr. Peters. with particu- In referral. a fraud to substantiate dis- apparent discovered Thompson had had disal- Thompsоn lar, he believed $100,000 Dr. approximately crepancy analysis expenses without lowed all claimed However, did not filings. tax Peters' op- adequate Peters given Dr. not had discrepan- real this was yet whether know or deductions business prove the portunity two meeting lasted about This initial cy. He income. apparent excess explain the meeting in Thompson conducted hours. fraud” “indicia there concluded audit. any civil as manner the same given should be Dr. Peters but or decided any indication Peters give Dr. did She discrepan- explain opportunity to further crimi- possible might be a warning that Thompson. cies discovered comput- used standard She problem. nal hearing, testified Morrison suppression 7. At yet received Thompson had point, At this the audit have discontinued authorizing he would attorney Morrison power signed attorney if to retain corporation. Accord- Peters Dr. advised Dr. Peters' behalf of act on any these receive guidelines, she could him Thompson informed had ingly, under not dis- but could the audit. from Morrison at the initiation information facts concerning the to him close investigation. four counts Peters on Dr. jury indicted grand Peters reassigned the July Wilson In III I and fraud. Counts tax of criminal Cynthia Lensink Agents matter to in viola- conduct fraudulent with charged her Lensink to He instructed Mittl. Steven 7206(1) regard to 26of U.S.C. expense deductions reanalyze the business for 1988 returns corporate income Dr. Peters’ to recalculate Mittl had Dr. Peters alleged that counts Those analysis. On November deposit using a bank had income corporate underreported and Dr. with Morrison Lensink met ex- business expenses personal deducted attorney, Ben Roth. newly-retained Peters’ II IVand Counts returns. penses on those Roth if asked meeting, Lensink During that making false statements charged her with ex- form sign consent would client his years the same returns personal limitations, thereby civil statute tend addition, No- 7206(1). §of violation the case time to settle IRS more giving returned grand jury vember Peters. against bring action indictment, In that indictment. superseding advise his he would that' responded Roth V Count a fifth count. jury added grand Lensink form. consent sign client obstructing due charged bring matter to she wished stated Revenue Code Internal administration prepared a that she quickly and close 7212(a). of 26 U.S.C. in violation pur- adjustments for that proposed list assumed Morrison Roth Both pose. Court Proceedings District C. referring to a civil settlement. Lensink trial, moved to her Prior Roth, Len- addition, according asked that she statements records and suppress might the case meeting whether at that sink auditors between had offered and she prosecution for criminal referred asserted She January 1992. April 1990 and however, Lensink, negative. replied in in viola IRS obtained ques- her that asked Roth never stated Fifth Amendment Fourth and tion of possibility denied she never and that they conduct were by telling her rights CID. a referral they in fact civil audit ing a routine investiga 1991, 17, Roth criminal met a covert carrying out December were On hearing, purpose suppression six-day home. The Dr. After Peters’ tion. Lensink civil revenue Peters’ that the Dr. found court to observe the district was visit Dr. Pe deliberately mislead meeting, Roth agents did not At this office. home claimed investigation. of their the nature atti- change in Lensink’s ters as significant noticed Dr. Peters’ court denied Accordingly, in reach- longer interested tude; nowas she generally suppress. See adjust- motion to proposed agreement ing an (N.D.Ill. Peters, F.Supp. 646 944 v. Mittl had States time, Lensink By this ments. 1996). Peters’ analysis both Dr. their completed On expenses. 1996, business and claimed income in December lengthy trial After a Agents 1991, 19, the Revenue five counts on all guilty December Dr. Peters jury found con- referral criminal proposed Dr. Peters completed a superseding indictment. corporate and 1989 1988 her convic- cerning Peters’ aside court to set now asks pro- First, tax returns. contends she income grounds. individual two tion on denying Af- to Wilson. submitted court erred referral was district posed that the addition, work, con- asserts agents’ Wilson suppress. In reviewing the motion ter sufficiently at trial presented now case was that the cluded jury’s verdict. support in fact there were sufficient developed and that signed Accordingly, he of fraud.” II first and Roth Morrison referral. January of the referral learned DISCUSSION further review After A. audit, Division Examination compiled district contends prosecution recommended CID sup- her motion denying erred in court 11, 1995, a federal April On Peters.

451 inquired that she about the nature of investi- press the records and statements agents’ gation respond to the IRS auditors between and the failure to had offered April January 1990 and 1992. She asserts was intended mislead. in viola

that the IRS obtained (internal omitted); citations 707 F.2d 956 tion of her Fourth and Fifth Amendment Stern, v. F.2d see also United States 858 investiga rights by criminal tax conducting a 1241, 1249(7th Cir.1988). guise On tion under the civil audit. turn, then, part We the first ruling on a motion review district court’s inquiry: Serlin the civil revenue Whether questions of suppress, this court reviews affirmatively agents misrepresented the na questions fact clear law de novo investigation to Dr. ture of their Sholola, 124 See v. error. United States representatives. The district court 803, (7th Cir.1997). shall con F.3d 811 We agents, through found that the revenue their finding clude that a district court’s factual words, represented conduct and to Dr. Pe if left clearly only erroneous we are with the ordinary they conducting ters a mistake definite and firm conviction that Accordingly, or civil audit. if the routine Quinn, v. has been made. See United States conducting a were in fact (7th Cir.1996). 917, 83 F.3d 921 auspices investigation under the of a civil audit, affirmatively misrepresented then investigation. See nature their A search unreason consensual Wadena, 831, 1998 WL Fourth Amendment or viola- able (8th Cir.1998); United States Gru under the Fifth Amend process tive of due (8th Cir.1993); newald, 987 F.2d fraud, if the consent induced (6th Nuth, United States v. 605 F.2d deceit, trickery misrepresentation Cir.1979); Tweel, United States Serlin, agent.8 See United States v. (5th Cir.1977); see also Internal Cir.1983); 9311.83(1) (stating Lehman, may develop criminal tax Cir.1972), denied, 409 S.Ct. U.S. cert. audit). guise under the of civil address (1972). Serlin, we set 34 L.Ed.2d that, issue, ing this the district court noted heavy burden that a defendant forth guidelines, civil audit under IRS “a evolves theory must seeking suppression under this investigation point at into criminal the a meet: a develop firm indication when the auditors prevail point To on this defendant Peters, 944 v. of fraud.” United States convincing produce clear and evidence (N.D.Ill.1996). Therefore, 646, 654 F.Supp. affirmatively agents mislead the the it would “find that the court held nature of their him as the true [sic] in a engaged covert revenue were investigation. Defendant must investigation if continued mate- the misinformation was prove that firm they developed a after audit defendant speak rial in his decision with the of indication fraud.” Id. agents. Simple failure inform defen- the court’s subject believe that district the the We dant was of. Al is a sound one. investigation approach to this issue the investigation, or nature, yet the this addressed though not amount court has criminal in does case,9 in presented issue precise to affirmative deceit unless defendant slightly in a different context al fraud" standard of the constitutional violations Because all case, by depend showing we here. In this legеd a of the from the one encounter fraud, trickery, argues obtained it is not that the evidence existence deceit and of sup- during necessary claim its civil audit should be each constitutional the IRS to discuss Prudden, that evidence separately. pressed v. the IRS obtained See United States because Cir.1970), denied, (5th fraud, misrepresentation trickery, rt. deceit ce (1970). 27 L.Ed.2d 62 Amendment Fourth Fifth U.S. in violation of her contrast, taxpayer-defen- rights. By Mapp, the (7th argument constitutional his Mapp, did cast F.2d 685 dant In terms, 1977), argued ob- that the evidence but rather the of we addressed "firm indications Cir. “firm functions, including indi- the have which issue the addressed that have courts rule: of fraud” cations rule fraud” indications the “firm relied on examination, examiner If, during an determining wheth for good a benchmark as fraud on firm indication discovers a crimi attempted to conduct has the er IRS return taxpayer, the part of the the civil guise of a the investigation under nal both, shall examiner preparer, or Wadena, 152 F.3d at See, e.g., audit. the earliest at activities suspend his/her suppression seeking defendant (requiring disclosing to without opportunity with continued representative, to show taxpayer’s taxpayer, the for such sus- the reason employees, indications developed firm it after audit civil pension. States, 816 fraud);10 Groder 4565.21(1). Manual Revenue Cir.1987) Internal (holding that 139, 142 agent continues Therefore, if a revenue develop after civil audit continuation developing “firm after audit a civil conduct is of fraud relevant firm indications justifiably may fraud,” court indications conducted investi agency of whether to issue conduct- fact agent was that the conclude Piper, faith); good gation in under aus- investigation ing a criminal (same). (M.D.Ga.1988) F.Supp. civil audit. pices a revenue examining whether Indeed, when noted, Nonetheless, court the district the true.nature misrepresented agent has is standard of ‍‌‌‌‌​‌‌‌‌​​​​‌​‌‌‌​‌‌‌​‌​‌‌​‌​​​‌​‌‌‌‌​​‌‌‌​‌‌​‌‍fraud” indications apply to consid courts appropriate federal for investigation, it standard difficult depends, inherently vague and it is regulations procedures er the of fraud (1) firm indications IRS had civil should during a by the IRS tamed convincing defendant, (2) clear agents conduct- suppressed because intentionally misled that the IRS evidence defendant, CID the case to refer ing audit failed (3) resulted conduct the IRS's of fraud” they developed "firm after constitutional prejudice defendant's Rev- Internal guidelines in the in violation rights. place, held that we first enue Manual. Grunewald, Wadena, (quoting at 851 152 F.3d in the Internal rules slight 534). differs This articulation administration internal adopted for the we enunciated ly the formulation protection of not for service Eighth sets forth "firm Circuit Serlin in taxpay- rights "conferred and therefore show an additional test as indications ing Lockyer, (citing United States Id. er.” to succeed in order must make a defendant Cir.1971)). wentWe 420-21 by the obtained suppress еvidence aon motion concerning rules that the conclude on to agree We during a audit. case. in that violated were not referral infra, Circuit, discussed the reasons Eighth important Serlin, rule is an although dealt issue we "firm indications" sup investiga- a motion of the IRS encounter during guide courts that deception the course has allegation taxpayer who was tion, press based involved that case fraud, trickery, through deceit investigation obtained nature the criminal aware of However, rather than target misrepresentation. potential that he not realize did but a independent from articulating Indeed, factor as this court noted the Serlin inquiry. of that affirmatively intention and IRS showing that the "typical deceit the from case differed that its defendant, the we believe ally the misled case,” taxpayer who claims a "involves as a tool utilized is best rule "firm indications" by assurances volubility induced that his affirmatively IRS has assessing the whether only civil and was 'routine' investigation that the by investigation of its nature misrepresented the Serlin, at 707 F.2d See than criminal.” rather the investigation under conducting criminal 957. that the do not believe We guise a civil audit. of depar is a doctrinal Eighth formulation Circuit's today adopt approach we the We note Indeed, in approach in Serlin. the ture from the formu- from slightly its articulation in differs Grünewald, the:Eighth Circuit stressed and Wadena Eighth Circuit in by set forth the la affir presencе of the approach was of its essence .cases, Eighth Circuit the those In Grünewald. by misleading the IRS. intentional mative following standard: the forth set exercising ("If agents, at 534 See sup judgment, fear good criminal of a course sound discretion in the obtained Evidence intentional, preju evidence where pression of has the defendant investigation, where afoot, audits will civil misrepresentation investiga- the dicial apprised of the nature been unnecessarily referred be prematurely and only the defendant tion, may suppressed if CID.”). that: establishes conducting agency enforcement law criminal profes- good faith the part, on large in This rule investigation. criminal ongoing an con- agents of the revenue judgment sional holding in Fifth Circuit’s the is based When issue. investigation the ducting 297, 299 Tweel, standard, courts must federal this applying Cir.1977) explicitly em has been one the perils. On two navigate between See Internal the by IRS. braced micro- judicial Scylla of side, face the courts 9311.83(1) “under no (stating that functionings of an inner of the management “develop a the Service should circumstances” peril recognized agency, administrative guise of civil under the case criminal this addressed have many the courts Lehman, 468 audit”); cf. United side, face courts Yet, on the issue.11 Cir.1972) (stating that “the of their judicial abdication Charybdis dealing cases appellate court constitutional duty protect III Article agents must rеvenue warn tax situations district As the defendants. rights taxpayer into be affirmatively mislead be real- peril will latter recognized, court exclusively investigation is lieving that solely rely forced are ized if courts to criminal will not lead in nature revenue assessments after-the-fact eases)), cert. (collecting de consequences” use the an may incentive have agents who L.Ed.2d nied, U.S. “firm indications” nature discretionary Divi (1972). Tiveel, the Examination In judicial scru- their actions to shield rule taxpayer at civil audit of began a sion tiny. Crime Organized of the request specific necessi- course narrow navigating the Department Racketeering Section must re- courts perils, two these tated effect, was, Thus, the audit of Justice. member criminal in ongoing an part of conducted to utilize for courts a tool is but rule attempt to ascertain vestigation. determining whether taxpayer’s investigation, of the nature ato misrepresentation made affirmative aif agent the revenue asked representative concerning representatives or her defendant investiga in the was involved agent special Although investigation. of their nature in the answered agent tion; the revenue “firm indications we mindful are an agent’s Although the revenue negative. in a set of expressed cannot rule fraud” correct, found the court technically swer cir- facts and and that criteria absolute representa purpose knew be assessed case must each cumstances therefore, that, his an question tive’s following we light, believe their own “[T]he deceit. to affirmative amounted swer courts guide to the aas serve can discussion of the appellant apprise the failure agent’s narrow navigate these upon called are who investigation of this nature obvious Our review future. waters by the deception sneaky deliberate awas consider- suggests several law relevant appel disregard for flagrant ... and agent to the district helpful to be ought ations misrepresentation The silent rights. lant’s courts. mate misleading and intentionally was both court 299. The Tweel, F.2d at engaged rial.” have found has been system “Our revenue cautioned: further has the Service deception if impermissible taxpayers good faith based the behest civil audit conducted criterion); United absolute ("If governed Grunewald, at 534 See (4th Grader, Cir. 143-44 F.2d 816 good v. States and exercising discretion agents, sound second-guessing a revenue 1987) (holding that where no suppression of judgment, fear a routine not become judgment agent's should is intentional, misrepresentation prejudicial administration the judges because for chore unneces afoot, prematurely and will civil audits congres a function is laws CID.”); revenue States v. United sarily referred to be belongs to expertise Cir.1988) (1st directive sional Michaud, 498-99 F.2d ap IRS, deferential warning a that less givе considerable must (holding courts referrals encourage premature proach “would their interpretation of IRS’ own weight to the on little investigations based Caldwell, taxpayers fraud for v. States United regulations); agent’s unsubstantiated a revenue Cir.1987) than more (noting referral (5th 1395, 1402 hunch”). was not discretionary nature and in decision must potential in lacking criminal Division as expect able should taxpayers most circum- case under from the enforce- withdraw its government from the same § at 300. 4565.7. Id. See id. at activities.”12 stances. and collection after personnel a audit activities of CID involvement Continuation Active a crimi- completion of begins preparation prior agent civil compel- treated as been may has indicative nal also referral fraud referral proceeded has a ling evidence for gather attempt agency firm indications point “the beyond the tax keeping the while prosecution criminal as a use the audit attempted to fraud” of its true nature dark as payer in See United investigation. criminal covert v. See, States e.g., United investigation. n. 4 Caldwell, 820 F.2d v. States Cir.1998). (8th Wadena, 152 Robson, (5th Cir.1987); v. States a revenue clearly directs Indeed, the Manual Cir.1973); 13, 17 at the earliest her activities suspend agent to (W.D.Ky.1995); 464, 468 Smith, F.Supp. firm developing after opportunity F.Supp. Piper, 681 Manual Revenue Internal fraud. See its roots (M.D.Ga.1988). principle has This Saltz 22(34); Michael I. see also HB § 4350 IRS, effоrt to in an fact that in the Procedure man, Practice has con- progeny, and its with Tweel comply (“The person ¶ its IRS instructs 12.03[l][a] civil its between wall” a “Chinese structed and, of fraud alert to indications to be nel investigation divi- criminal examination suspend their civil spotted, to is fraud Indeed, specifically guidelines sions.13 CID.”). Simi the case-to and refer activities who are that revenue warn a reve bars provision larly, another Manual appropriateness determining the process of agreement “soliciting] an agent from nue evi- must “obtain referral of a criminal delinquent returns receiving] soliciting] and In- the Criminal from direction dence and/or referral, if a the submission prior to that is specific case Division a vestigation Internal being is considered.” a referral Revenue Internal examination.”14 4565.21(1). Accordingly, Manual 4565.21(1). special Conversely, a that a case has determined agent if a revenue to the Examination a case agent who refers may special agent guidelines, a Groder, Under the IRS 816 F.2d United States 12.See However, a reve- ("[B]ad reve civil audit. Cir.1987) participate arise if a in a would faith investigation possi joint a misrepresented may participate agent agent nue nue elicit information CID; order to bility investigation under- joint of referral is once agent to investigation. For the investigation in a fraud' use taken, aspects of the the criminal would de a manner in such оbtain information present the precedence and the IRS take in citi remains trust stroy reservoir of whatever See Inter- taxpayer as such. investigation to the cooperation discourage the taxpayers and zen 9311.83(1) (31)610; & §§ nal Revenue Manual prompt and satis might matters resolve Saltzman, IRS Practice generally I. Michael see Piper, United States factory way.”); see also (In ¶ fact recognition 12.01 and Procedure (" (M.D.Ga.1988) 'Inherent F.Supp. civil pursue the criminal and attempts to that, gov democracy since is a belief in our jeopardize concurrently can aspects of a case people, the represents the will ernment case, “the a criminal prosecution of successful voluntarily. There accept its dictates people will a case action in criminal policy Service’s government between of trust sense aspects its precedence over civil [Therefore], person has takes private people.... involving the same government, when action enforcement expect right name, honorably. investiga- periods behave an active acting own will in its tax and presents agent himself government the criminal until suspended When private or deferred tion is individual, individual's closed.”). and seeks case are aspects of the government as a status on his cooperation based rely be able should agent, individual Robson, (finding reve- at 17 14. Cf. clearly improper [It is] agent’s representations. conducting covert agent was not nue records agent gain access government for a no instructions investigation to him be unavailable otherwise which would per- CID, CID conferences no interim gov in his trust private individual's invoking the ” report obligation sonnel, under no “was (quoting ernment, betray only that trust.' of an indication uncovered his audit to it unless fraud”). Inc., Sec., Government v. ESM SEC 1981))). (5th Cir. taxpayers and (revenue interviewed agent yet continues the CID referred be of a occasions interim, on number accountant their audit activities regular referral). as a is viewed step This gather prior intent to an suggests such behavior complexity of because, given necessity prosecution under a criminal for evidence explanations code, many innocent the tax a audit. of civil aegis Groder, See unreported income. for exist a revenue suggests law case The (“[A] income report failure F.2d at 143 of indication a firm developed agent has mistake, inadver ‘may be due correctly tax established she has when advice, honest tence, professional reliance of pattern in' a consistent engaged has payer or careless negligence opinion, of difference income of underreporting and/or substantial deliberate ness, constitutes of which none that an such of deductions ovеrstatement ” Reve Internal (quoting intent to defraud.’ See inferred. can be taxes to evade intent 933)). HB Once § 4231 Manual nue HB § 4231 Manual Revenue Internal taxpayer, agent has interviewed revenue States v. 940(1)(a)-(b), (f)1; United also see explanation. Cir.1993). taxpayer’s (8th assess the he must Grunewald, may agent the revenue only process, During that usually established is pattern a Such light of explanation proffered examined agent has consider the revenue after knowledge of taxes taxpayer’s of sev period particular a over filed taxpayer’s returns Reve Lockyer, Internal See practices. States and business See United years. eral Cir.1971) 940(1)(e)3.15 In (noting (10th HB 419-20 Manual nue agent of substan a revenue pattern “a fact, has held showed court one period three-year dishonesty a engages understatements” constructive tial upon in appropriate receiving an after stating that referral a civil audit continues understatement “discovery from of substantial explanation credible under See indication laws. knowledge an of the coupled with extensive deliberate”). Accordingly, Toussaint, F.Supp. statement States solid has discovered (S.D.Tex.1978). agent a revenue 1069, 1071-72 once ain engaged taxpayer has fraud should of firm indication Finally, a behavior, a of type this of pattern consistent indication from first distinguished agent has revenue may infer court clearly in forth is set principle This fraud. fraud.” “firm indications developed the Manual: assess recognizes law case dis- must be of fraud firm indication A the most taxpayer’s intent ment of the indication a first tinguished agent’s determi element critical can be of fraud first indication A fraud. fraud” “firm indications of whether nation of fraud. suspicion as a mere described Caldwell, See ease. any particular exist permitted legally are Examiners v. Gro 1402-03; taxpayer, the ask endeavor should Cir.1987); 139, 143-44 der, 816 F.2d any oth- representative, preparer, Indeed, is the it at 838. F.Supp. Piper, explanation party for an involved er differ taxes that evade intent to taxpayer’s basis are the which “discrepancies” case. from a civil violation a criminal entiates of fraud suspicion examiners[.’] agent who discov reason, a revenue For re- will question(s) any other laws of the revenue potential violations ers in- taxpayer’s question solve op taxpayer an give always almost will indica- of firm determination tent. The de before the violations explain portunity determination factual fraud is tion of appropriateness termining the a only determined which can See Internal referral. is in who An examiner basis. by case 4565.21(1); generally see group with his/her Cir.1983) consult doubt should Kaatz, 705 F.2d tes- appointments), repeated cancellations examples gives other That subsection irregular business regarding employees timony of evidencing intеnt by taxpayers conduct records, or books practices, statements, destruction attempts to hinder false taxes: evade purpose concealment. assets transfer questions to answer (e.g., failure examination that have believe, circuits the other as do Fraud we Examination manager and/or “firm indi question, indica- if the addressed to determine Coordinator func a useful serves developed. rule sufficiently cations are fraud tors of inquiry on court’s the district guiding 4565.21(1); § see Manual Revenue Internal to whether question as the ultimate (“Firm 52(10)1.2(3) indications §at also id. gov misleading by the a deliberate has been initial add to confirm, support, and of fraud

457 earlier, Saltzman, IRS Practice and Procedure the ease. As we noted this case ¶ Moreover, began case, CID an “informa- when the received in this 12.03[l][c]. Peters, Dr. Peters’ tion item” from Marshall in was no evidence that Padar remained in- spoke with the ex-husband. Padar then it investigation after re volved was (Marshall wife), re- formants and his new or he ferred to Examination Division them, by drove Dr. ceived evidence from any provided any made recommendations or giv- information Peters’ house corroborate agents concerning advice to the revenue their him the by en to informants and maintained Tweel, investigation.17 Accordingly, unlike a file on Dr. Peters in the bottom drawer not a case in which a criminal law was However, his for 18 months. Padar desk agеncy requested that the IRS enforcement ultimately hall the file across the “walked” part ongoing conduct a audit as of an con- the Examination Division. Dr. Peters investigation. Finally, agree we investigation that the fact that the IRS’ tends provided district court that the information began prompted of her in the CID and was by Padar Peters’ exhusband was tip that the Ser- the informant’s indicates sufficient, alone, standing a firm constitute prior of fraud” vice had indications source, Considering indication of fraud. file Padar’s decision walk the across the good there was reason for the IRS to follow According- hall to the Examination Division. in procedure perfecting its first standard ly, asserts that the IRS violated things, by, among of fraud dications rights by using the civil audit constitutional giving taxpayer opportunity explain means to obtain evidence for a a covert Grunewald, alleged violation. Cf. 987 prosecution. criminal (after receiving tip partner F.2d 533 from taxpayer, agent sought revenue to deter finding The court’s district or allegations mine were true whether developed “firm indications of had not merely animosity toward the result the file fraud” the time Padar walked Robson, taxpayer); (tip 477 F.2d at 14 called Division is not across to the Examination ex-fiancee). by taxpayer’s into CID clearly law is clear erroneous.16 investigation the fact Reve- We turn next the issue whether item and there prompted an information developed Agent Thompson nue “firm indica- originated in not sufficient to the CID is fore preparation of her prior tions Cald establish firm indication of fraud. court referral. As district Robson, 1399-1401; well, F.2d at 477 820 found, ev- the record contains uncontroverted 17; In F.Supp. at Piper, F.2d at 681 Thompson-through her words idence deed, procedure of the it is the standard actions—represented her audit as through the to channel information items ordinary or routine civil audit. Based on CID, 9781 see Internal Revenue Manual us, before we cannot conclude record 3(10)3.2, only HB number of the small Thompson’s rep- finding district court’s items large quantity of information received clearly errone- investigations, resentations were honest develop into fraud see ever that, fact makes much of the the IRS did not 16. We note at outset that occasion, duty to warn Dr. Peters or Padar have an affirmative the informants contacted one representatives lead to audit could investiga- with additional information after consequences prompted or that it was to the Examination tion had been transferred Serlin, tip. an informant's See United States passed this new informa- Division and that Padar (7th Cir.1983); see also United 956 Agent Thompson. The along Knight, Cir. States v. that Padar was the record shows Meier, 1990); 216- United States v. that, at passive recipient of this information denied, Cir.1979), 445 U.S. cert. it, longer he he investi- the time received Robson, (1980); S.Ct. 64 L.Ed.2d passed that gating The fact that Pеters. 17; 6103(i)(6) (prohibit F.2d at ing cf. U.S.C. along of the Service to the branch disclosing "any return re the IRS from hardly currently handling investigation con- identify a confi information” that "would turn dential § in the audit. stitutes active involvement informant”); Internal Revenue Manual 9373.1(1) (identity must not be of informants investigation). divulged 4565.21(1) first (distinguishing Thomp- hearing, suppression At the ous.18 instructing view, that, firm indications in her repeatedly fraud from testified son further tax- explanation testified She agent was routine. to seek audit as routine was discrep- her view representative payer or referral it was a that by fact changed ‍‌‌‌‌​‌‌‌‌​​​​‌​‌‌‌​‌‌‌​‌​‌‌​‌​​​‌​‌‌‌‌​​‌‌‌​‌‌​‌‍the (stating revenue ancies) that 4231 HB & by an prompted had been the CID from of indications develop initial agent must fact, had worked In tip. informant’s provide to in order to referral prior fraud turn out did that not cases” “informant from which with sufficient CID above, Moreover, it as we noted fraud. to be the potential of the criminal “to evaluate infor- to procedure route IRS is standard 1402-03; Caldwell, F.2d at case”); accord CID, yet few ever through the tips mant 143-44; Piper, 681 Groder, at investiga- into full-scale develop F.Supp. at 838. that, at Thompson testified Finally, tions.19 Pe- meeting Dr. with initial of the time her investigation we the stage next The 5,1990, concluded she had on November ters immediately fol- period is the must examine in Peters’ discrepancies Dr. were that pro- of her Thompson’s submission lowing explained but to be needed that tax returns earli- we noted the CID. As to posed referral firm developed indications yet not to fraud referral er, Thompson her submitted Dr. to interview decision Thompson’s fraud. May in Bruce Wilson supervisor her opportunity the give her and to Peters case, Wilson However, reviewing the after with was consistent discrepancies explain the “firm indica- not were that there concluded the relevant case procedures both made Thompson had fraud” because tions of see.sec. Internal law. See no statements contain themselves heavily fact that documents on the relies 18. Dr. Peters misrepresenta- Wilson, to an affirmative amount testified which supervisor, Bruce Thompson's understanding at case the agent the Service's tion of improper a revenue it was that mailed. "random." the as "routine” or time audit her characterize Thompson made such Peters contends Dr. suppres- the Similarly, asserts Dr. Peters inquiries of response to the in characterizations based required in this case sion of the However, accountant, Morrison. William (as Rights dis- of 1988 Taxpayer Bill of remember did not that he Morrison testified arguments). See constitutional tinct from using “ran- the specifically words Thompson 6226-6247, 100-647, Stat. §§ No. Pub.L. Instead, he concluded or "routine." dom" (1988) (codified in as amended 3730-3752 way ordinary the audit was routine U.S.C.). 6227 of Section of 26 sections scattered event, any proceeding. Thompson In was "prepare a state- required the IRS that law audit as did Thompson characterize even if simple and nontechnical sets forth ment which meetings Morri- during her initial "routine” (1) taxpayer and the rights of the terms — son, not amount does such a characterization dur- Service obligations the Internal Revenue because, as dis- misrepresentation affirmative an 6227(a). statute § The ing Id. at audit.” an above, audit Thompson did view the cussed "be distributed required the statement F.Supp. further at Piper, 681 Cf. time. routine at that Secretary contacts with taxpayers the all ... as "rou- of audit (agent's characterization any or collection respect determination to the misrepresen- amount to affirmative did not tine” tation). forms).” (other Id. providing tax than tax statutory di- 6227(c). response to this rective, 1. Be- developed Publication Thompson mis- also contends 19. Dr. provided to her cause document mailing audit of her represented nature directive, Peters asserts statutory "Your entitled a form Publication her IRS re- 1 would Publication misrepresentations ("The Taxpayer” and IRS Notice Rights as a by the obtained suppression of the evidence quire Notice”) audit. initiation Privacy Act note, at the We during audit. the civil IRS outset, taxpayers at forms IRS sends these The Rights contains Taxpayer Bill audits, routine, ordinary but does inception of suppression of providing for provision no investi- targets of a criminal mail them not gation. However, we remedy. aas above, district concluded As we affirma- 1 contains that Publication conclude Thompson herself finding believed court's concerning the Service's misrepresentations tive ordinary engaged a routine and it was at the time understanding Accordingly, to the clearly erroneous. is not Taxpay- mailed, decide whether we need not Publication decision to mail extent her ground viable provides a Rights er Bill of practices at the with the Service's consistent in a criminal suppression of evidence audit, for the it was not an routine civil inception of a addition, proceeding. misrepresentation. affirmative Based on CID. of this matter ferral analysis and had in her many errors too us, conclude we cannot before record adequate oppor- Dr. Peters with provided that Lensink finding court’s dis- district explanation provide tunity to develop firm According- Mittl did Thompson. crepancies noted of the criminal initiation continued, prior to their fraud albeit ly, civil audit As we noted clearly erroneous. agents. referral new of two revenue direction asked Lensink earlier, November by con improperly not act did The IRS sign a attorney his client would if Peters’ Thomp after tinuing its audit three-year civil extend form consent Spring referral initiated son 26 U.S.C. See limitations. statute in specifically guidelines of 1991. noted, this 6501(a). court district As the then- to consult struct that, point, that at suggests strongly request partic determining whethеr supervisors ease a civil pursuing was still the See the CID. to for referral ripe audit is ular yet not devel- agents had the that 4565.21(1). Internal Revenue Indeed, fraud.” indications oped “firm the record nothing in Moreover, there unnecessary if would extension such honestly not did that Wilson suggests which to decision already the made Service the faulty work was Thompson’s believe (with no charges civil either pursue development and needed further limitations) a crim- commence or to statute to opportunity further given should (with six-year statute prosecution inal Thomp by noted discrepancies the explain 6501(c)(1) 6531. & limitations). §§at See id. the by fact, explanation offered the In son. discussion, we one foregoing to the nearly identical light In this IRS in case finding that in United court’s the district Circuit by the Fifth accepted conclude deceit affirmative Powell, engage 1096-97 IRS did the clearly is not reve Cir.1988). Powell, inexperienced Dr. Peters during audit of its In addition, that the note were we In agent concluded erroneous.20 nue issue was analysis of this preparing began legal court’s district prop- However, su The court her principles. See id. sound guided referral. guidelines perform additional the internal to to both erly her looked instructed pervisor complet law. existing ease the conclusion before verify her IRS and the tests to Fifth Circuit id. See referral. ing her B. in that approach Agency’s the held that trickery, fraud, deceit to amount did not contention Dr. Peters’ now to turnWe set guidelines with consistent was suffi- but rather trial was at presented evidence the See Manual. First, Revenue in the Internal forth verdict. jury’s the support to cient approach (“We the careful view III, which id I Counts respect with safe praiseworthy a wise and as the Manual state- making false Dr. Peters with charged tax disregard of the whimsical against guard returns, contends corporate her ments who, rights decisions payers’ insufficient proof was government’s the act might otherwise inexperience, through calculated trial, government because, also Cald impetuously.”); see quickly accounting dif- too method of using a taxes this Similarly, in well, at 1397. accoun- by her used the method ferent decision case, that Wilson’s conclude we returns. corporate preparing tant with consistent IV, was further develop the audit II Second, respect to Counts with Revenue Manu the Internal making false the directives Dr. Peters charged conduct an effort part of returns, was not she as- al and personal on her statements investigation. insuffi- proof covert was government’s serts pres- failed government cient because stage of the final turn nowWe income unreported any proof that ent actions and examine represented corporation from her diverted re- to their prior and Mittl Lensink Agents deci- Peters’ to Dr. material representations seсond not reach Accordingly, we need during audit. cooperate with the agents’ sion inquiry prong of Serlin —whether earnings profits in had sufficient rather than dividends” “constructive taxable divi- pay “constructive years relevant evaluating In capital. return nontaxable view, was government dends.” sufficiency of challenges to Dr. Peters’ proof in such order put forward required evidence, we review funds constituted any diverted to show government and light most favorable nontaxable rather than income to her taxable jury could only if rational shall reverse capital. return of beyond a rea- guilty Dr. Peters found have Jean, 25 See United sonable doubt. argument, making Cir.1994). civil tax the rule used several relies on proper characterization involving the cases Basis Accrual v. Cash I & III: 1. Counts been diverted funds which have corporate govern wholly-owned cor Dr. Peters contends the sole shareholder ease, government I and respect to Counts In such poration. ment’s earnings state making corporate false (charging her with provide evidence III money corporate re her 1988 and to show profits ments jury’s turns) support taxable not sufficient “skimmed” proof opposed used to nontax government’s because the dividend” verdict “constructive accounting e.g., from that v. capital. Truesdell method of See a different able return 1298, government Commissioner, 1280, The 1987 WL by her T.C. accountant. 89 used aсcounting (1987). However, majority the method the cash basis used 258105 however, Peters; this same against situa make its courts that have addressed used the proceeding accountant a criminal that her she asserts tion in the context making argument, not government need method. accrual held that the have corporate tax re the diverted funds. points her character of prove Dr. Peters the 846, returns, Williams, accountant 875 F.2d those v. turns. On States See United indicating (11th Cir.1989); Mil States v. clearly checked the box United 849-52 (9th Cir.1976), taxpayer. 1204, ler, an accrual basis corporation was F.2d 1213-14 545 return, 1549, 930, marking denied, the 51 However, despite the on 430 cert. U.S. States, repeatedly (1977); testified Davis v. United Peters’ accountant 774 L.Ed.2d (6th Cir.1955), pre 331, method cert. the cash basis he used 226 F.2d 335-36 432, conflicting This 100 L.Ed. corporate denied, returns. 76 pare her U.S. S.Ct. 350 jury during (1956). the the the stressed put before cases have These 838 trial, to credit the col it chose the nature of of the between course distinction testimony proceeding: Dr. Peters was a criminal tax action and accountant’s lection shall not taxpayer. We a cash basis in fact purpose tax the In civil tax cases ap on jury’s determination second-guess the key is the estab and the issue collection peal. of tax owed of the amount lishment proceed tax In a criminal taxpayer. the Divi- II and IV: Constructive 2. Counts type the or is not over ing the concern dends the of tax whiсh specific the amount evaded, he but whether defendant has involves contention Dr. Peters’ second pay the willfully attempted to evade has IV, charged her with which II and Counts of tax. or assessment her individual making false statements automatically apply- difficulty in counts, government the In those returns. rules distribution ing the constructive corporate Dr. Peters diverted alleged that ignores completely it is that this case that she accounts and personal funds into the crime element one essential person- expenditures for corporate made evade tax- intent to charged: the willful reported not were These funds al benefit. es, solely on the nature and concentrates personal return. corporate or either her as- That latter funds diverted. government contends that element. important is not pect income received such prove that she failed sought to con- taxpayer has Where corporation prove that her did not it because

461 government need cently held return, he false filing a income ceal deficiency in order tax an actual prove statutes. evasion tax violated has 7206(1). See under a defendant convict Williams, 1214; Miller, see F.2d at 545 Minneman, F.3d 143 v. States at 850. 875 v. Cir.1998); States (7th accord United Cir.1990); recently (9th taken has Unit Marashi, Circuit The Second expressed (5th Cir. Wilson, 887 F.2d different view ed States Williams, Miller, See and Davis. 491 F.2d Miller 1989); States (2d denied, 72-73 Cir.1974), 419 U.S. D’Agostino, cеrt. (1974). Rather, ar- Cir.1998). taxpayers D’Agostino, L.Ed.2d S.Ct. (1) 7206(1) tax are: owe violation gued that did aof elements funds those to be caused corporate funds because made or diverted defendant The tax- for the dividends. return tax not constructive made, income a federal true; diverted to be asserted verified payers further question year dividends to a constructive not be (2) could return was funds tax false earnings and (3) corporation matter, the defendant material knowing therefore it question willfully years in profits return signed taxpayer’s (4) contained false; reduction the return constitute cor- capital account it made or that was account loan declaration written deficien- no tax there was Because See United poration. perjury. penalty contrast, Cir.1983). By A no violation. cy, there could Whyte, Williams, that per it has “the argued, government is “material” statement false per- funds constitute efforts IRS’s hindering diverted whether potential depends on liability” income corporate verify income sonal monitor time the at the taxpayer States United taxpayer. intent the the corporation Cir.1984). (2d intent is to evade If the 32 are diverted. Greenberg, funds 735 v. If and taxable. personal Peters taxes, is income Here, the showed the evidence under the a reduction directly person to is to take intent corporate the funds diverted account, then the capital not funds or account these loan and that al account Circuit The Second taxable. way. not any are funds in for accounted followed defendants the view took 7206(1) clearly on the § focus The required civil cases in precedent their evidence Here, is no intent. taxpayer’s prof- earnings and put on government the in- Peters indicating that record id. at See type of case. this in evidence its be a issue to the distributions tended 73. shows, howev- record capital. The return corpo- diverting pattern of er, a consistent other and the D’Agostino accounts personal into her funds alleged rate involved just discussed we have cases per- expenditures making corporate 7201,21 re which § 26 U.S.C. violations is sufficient pattern Such benefit. By sonal deficiency.22 of a tax existence quires the jury’s conclusion the support the evidence 7206(1)23 only that requires contrast, § not she did tax returns which Dr. Peters filed does not “which file a return every as to and correct to be true every “believe toas and correct true to be believe 7206(1). Ac- U.S.C. 26 matter.” material Indeed, has re- court this matter.” material charged vio- taxpayer in Miller 22. provides: section 21.That 7206(1). 545 See §§ of both 7201 lations tax. or defeat Attempts to evade § 7201. Yet, any determination court’s willfully attempts in the F.2d at 1212. person who Any imposed put evidence on government defeat need not or evade manner shall, addi- applied thereof provided payment case earnings profits or a criminal title this law, penalties id. statute. See either prosecutions under thereof, and, upon conviction felony guilty aof ($500,- $100,000 than more not fined shall 000 impris- or corporation), supra note 1. See both, together years, or 5 than more not oned with prosecution. costs necessary to of the amount may fall far short government hold that cordingly, we conviction.” concerning a criminal support required present Hoffa 293, 310, corpo- S.Ct. States, Dr. Peters’ profits of earnings 385 U.S. of a violation (1966). to convict relies in order ration L.Ed.2d 374 7206(1). publications in IRS heavily statements cases over to hand auditors instruct Conclusion counterparts when evidence their criminal foregoing- reasons stated For phrase is where to build—this begins dis- judgment affirm opinion, we comes from —but of fraud” “firm indications trict court. Caceres, 440 U.S. AFFIRMED (1979), holds 59 L.Ed.2d S.Ct. proce rules or of its own IRS’s violation EASTERBROOK, Judge, Circuit investigations conducting does dures concurring. exclusionary rule. See justify use of the Peters, records over to turned who Mapp, audit, prevent their use in an wants positive— Cir.1977). more—and dis isWhat insists, because, she prosecution States, 425 U.S. is Beckwith United of fraud” had “firm indications (1976), holds L.Ed.2d S.Ct. during the audit. She part before is concerned the Constitution far as so The first is propositions. advances two gather may interrogate agents once cease of evidence must acquisition bе taxpayers who to refer enough information acquires vfrongdoing. in criminal engaged have lieves The second prosecutor. a criminal case to are inconsis “firm indications permits Although Constitution audit is representation that tent with long after keep gathering evidence involuntary and “civil”, cooperation rendering crime, Congress have indications” a violation documents acquisition of tool. investigative one use of blocked the has (Peters also invokes amendment. the fourth inis referral Department “a Justice While fifth amend clause of the process the due sum possible enforce a it is not effect” the seizure inapplicable to ment, it is but — 26 U.S.C. Lewis, records. U.S. for tax mons v. Sacramento evidence. Michaud, 1708, 1715, 907 7602(c)(1); 140 v. L.Ed.2d States -, -, § 118 S.Ct. Connor, banc). Cir.1990) (en U.S. (1998); 490 rule (7th v. Graham This 1043 750 F.2d (1989). 1865, 443 L.Ed.2d 386, 104 S.Ct. 109 because aid—first Peters no offers 391, States, 96 425 U.S. v. United Cf. Fisher Department not “referred” was (no (1976) fifth 39 L.Ed.2d 48 S.Ct. (see the defini the audit until after Justice busi contents of privilege amendment 7602(c)(2)),and second §in of “referral” records).) be Although can decisions ness compulsory process on a limitation propositions, of these accept both that found voluntary pro a limitation imply not does amend fourth is antithetical the first ask, however Agents are entitled duction. problematic. the second ment and (see Beckwith) v. (see Florida or little much has that a crime to believe cause Probable 115 Bostick, 501 U.S. require- the сonstitutional is committed been (1991)) possess. they evidence 389 L.Ed.2d warrant; objection to an it is not a for in cooperation their may find Taxpayers for a solid basis Why should a seizure. along road how far no matter terests a suspect committed has believing has the IRS prosecution toward its to curtail government require the crime traveled; auditors cooperation officers “Law enforcement investigation? has staved penalties payment of civil prompt duty call halt no are constitutional under is prosecution. So many a tax off they moment investigation the to a criminal indi that “firm contention nothing to' Peters’ to establish the minimum have stop oblige the IRS to of fraud” cations cause, of evidence which quantum probable that holds voluntary. Schneckloth be called of evi- suppression require the inquiring voluntary even may be search consent voluntarily disclosed. dence is enti that he unaware suspect is If voluntary? disclosure Was much refuse; decision Peters’ tled to turn get a deceit to agent uses (or Robi Bustamonte’s than informed better been not have that could documents over nette’s). a summons either secured warrant, it 7602(b) by a search following opine that consent colleagues U.S.C. My results in suppress sense to weight make might about agent’s ‍‌‌‌‌​‌‌‌‌​​​​‌​‌‌‌​‌‌‌​‌​‌‌​‌​​​‌​‌‌‌‌​​‌‌‌​‌‌​‌‍misstatement statutory line is to ensure order involuntary. Several is existing evidence “firm indica role would But what honored. in a tax cаse suspect say cases our inquiry? play in such tions suppressed unless the evidence havé cannot case has whether is statutory question evidence, convincing shows, by clear and prosecution, for criminal referred been undercut of fact misstatements material has “firm whether search. the consent the voluntariness standard: constitutional for the As fraud”. Serlin, v. States obtained validity of consent although the Lehman, 468 Cir.1983); (7th hand— weight of evidence overstating the Cir.1972); cf. United 93, 105 jig is like the suspect making it look Stern, ques resisting point is up, so there —is however, holds, Cir.1988). these None of weight understating the tionable, why would invol finding of compels a deceit agents’ voluntariness? imperil existing evidence held ease the court untariness, each lacks who believes suspect A To admitted. properly the evidence prose a criminal to commence the evidence necessary condi X, Y, Z are hold will fur records cution, but who knows to hold that is not suppression tions needs,.has rea powerful what the nish Schneckloth least since “[A]t are despite this the If consent. sufficient. sons to withhold ... Bustamonte, said it cannot records, to see it is hard provides suspect investi purpose involuntary. deception [about called decision could how con incompatible inherently are understand gation] is agencies enforcement Law adopted Court suspects what sent, in Schneckloth tell ably reluctant have (indeed, they con do coerced from the gathered test they have the voluntariness prose even after cases, been deemed has not provide fession about reticence How can begun). has obtained cution statements exclusion compel the pos government weight of evidence un crime misrepresentation by police free will suspect’s LaFave, overbear sesses R. Wayne investigation.” der That decision-making? rational prevent Treatise A Seizure: Search v. Robi Ohio of voluntariness. (3d the standard 8.2(n) Amendment Fourth L.Ed.2d nette, S.Ct. 519 U.S. omitted). A statement’s ed.1996) (footnotes Bustamonte, 412 (1996); Schneckloth fact that by the not undercut voluntariness 2041, 854 L.Ed.2d 36 218, 93 S.Ct. U.S. awas that unaware speaker was 534, Richmond, 81 365 U.S. (1973); Rogers v. prosecutor is, (unaware, target (1961); United 735, 760 5 L.Ed.2d S.Ct. con of his indications” 1127, 1130-31 Rutledge, 900 F.2d v. States 431 Washington, duct). v. See United States the IRS Cir.1990). knew (7th 1814, L.Ed.2d 52 188-90, 181, 97 S.Ct. U.S. accuracy questioned Mandujano, 425 (1977); v. States United 238 either might that disclosure returns 212 1768, L.Ed.2d 564, 96 S.Ct. U.S. them; knew she or reinforce quell its doubts Wong, 431 U.S. (1976); States cf. consent to withhold entitled she was (1977). If 1823, L.Ed.2d 174, 97 S.Ct. summons, she a to use force a tar as status one’s misunderstanding of a used an court; had and resist could by calculated abetted get misunderstanding — accountant an to consult opportunity pros agents from and half-truths silence A lawyer as well. have consulted could a state invariably make ecutors —does a ration can make position in Peters’ person a dis it make why involuntary, should оpportuni risks among known al choice involuntary? physical evidence may closure properly therefore ties, election and the Cir.1996); (7th Yusuff, 96 F.3d all the time in deceit engage Police 321, 323- Stribling, 94 F.3d evidence. suspects to reveal to induce order Cir.1996). judge found posing as a The district officer undercover Think of the voluntary because properly is drugs. Much evidence consent buyer that Peters’ finding concealing person’s status her. That acquired agents did not deceive E.g., Lee On neces is agent clearly of law enforcement. No more an erroneous. is not 967, 747, States, when, S.Ct. 343 U.S. If appeal. v. United sary to resolve (1952); Hoffa, 385 U.S. at 300- L.Ed. 1270 case, judge concludes future some States, 385 408; 03, v. United Lewis S.Ct. consent but prevaricated (1966); 17 L.Ed.2d U.S. should voluntary, our review nonetheless LaFave, and Seizure Search see equally deferential. 8.2(m). important Deception plays Even enforcement. in law legitimate role being prose- the crime

chicanery that creates constitutionally tolerable. See Unit- is cuted 1528-29 Murphy,

ed States Cir.1985). so successful If dissimulation he is know that suspect does not volun- compatible with agent is

talking tariness, a rule how could there Damato, DAMATO, Ann Deborah Glenn always spoils agent by a known misdirection al., Garza, Plaintiffs et LaDe rightly puz- is Professor LaFave consent? Appellants, - sup- willingness to greater zled courts’ their agents who reveal when press evidence inquiries deceptivе answers give status HERMANSON, First Commercial John investigation than purpose about the al., Inc., Group, et Financial agents. status as about their agents he Defendants-Appellees. Supreme will days Court of these One 97-1975, 97-1976. Nos. these lines tension between confront however, today, that matters Ah cases. Appeals, Court of of an purpose about of candor that lack Circuit. Seventh to a consent fatal investigation is no more it is to confession—and than search Feb. 1998.* Argued of first instance case the court either Aug. Decided into account. the circumstances

take all of Rehearing Suggestion for Rehearing and separate “firm indications attempt to Any Sept. En Banc Denied fraud” —the “first indications fraud” snipe colleagues suggest my distinction —is developed hunt, for reasons Hoffa voluntari Because in Beckwith. reiterated of “fact” question a consent ness of sub trier of fact is resolution whose review, role our appellate

ject to deferential 421; Robinette, 117 S.Ct. at

is limited. 248-49, Schneckloth, U.S. Chan, 136

2041; Chi Fa States v. (7th Cir.1998); United States F.3d 1158 n. 16 Cir.

Sholola, Shelby, 121 F.3d

1997); States v. (7th Cir.1997); United States * presented position on issues Commission’s argument, the court invited Following oral Trading Commission Commodity ("CFTC”) Futures decision! outlining the brief to submit amicus notes foregoing discussion ernment. fraud.”). must agents Revenue of suspicions sug that, have present, circumstances steps perfect adequate take de reviewing courts strongly to gested is ensure fraud and an affir amounting to trickery such ceit making a referral prior substantial have 52(10)1.2(3)(a)-(d); occurred. misrepresentation also see mative at id. CID. See circumstances, have courts identifying and Procedure such Saltzman, Practice devia necessary eye the IRS’ jaundiced ¶ development is awith This viewed 12.03[l][a]. regulations. infor have sufficient rules. own CID must from its tions course, mean, the criminal such “to evaluate mation from That does alone, sufficient, for ex standing Internal Revenue case.” potential is deviation Caldwell, 981; see also 4231 HB States See United of evidence. clusion have 755-57, The courts at 1402-03. Caceres, F.2d 440 U.S. this rule have embraced (1979); this issue addressed see 59 L.Ed.2d suspicion” that “mere cautioned Cir. and have F.2d Mapp, 561 firm indications equated with Revenue 1977) should not in Internal (holding that rules Powell, 835 Stales See United of fraud. admin adopted for the internal Manual were Caldwell, (5th Cir.1988); 1095, 1100 F.2d conferred and therefore istration Groder, 1402-03; at 143. F.2d at It taxpayer). rights on no substantive mean is taken to indication a firm “[I]f are rele deviations that such simply means taxpayers suspicion, thing as a mere same on the issue probative evidence vant investigations as subject to fraud would be misleading ‍‌‌‌‌​‌‌‌‌​​​​‌​‌‌‌​‌‌‌​‌​‌‌​‌​​​‌​‌‌‌‌​​‌‌‌​‌‌​‌‍requisite affirmative whether agent course, ‘the revenue matter of in fact occurred. government has by the he started before to cease almost would have Caldwell, at investigation.’” his Lockyer, 448 (quoting United to the (10th Cir.1971)); principles apply also Gru see these now We (“If agеnts, issue of whether address the newald, hand misrepre- judg good affirmative agents made discretion exercising sound concerning na- where ment, to Dr. Peters suppression fear sentations case, we intentional, misrepresentation investigation. prejudicial ture of them prematurely IRS’ afoot, stages will civil audits four must review CID.”). (1) Agent Pa- unnecessarily Special be referred Peters: of Dr. and his in this case initial involvement dar’s this circuit the law of emphasize that We the Ex- the matter referral of subsequent A in Serlin. the test established remains (2) Division; Agent amination unreasonable search consensual prepa- prior investigation Thompson’s of the due violative Fourth Amendment-or (3) referral; Bruce Wilson’s a fraud ration of if Fifth Amendment process clause deceit, reject Thompson’s referral fraud, decision to was induced the consent (4) Peters; and civil audit by the revenue continue the misrepresentation trickery or Agents Lensink present, investigation Revenue to be For those elements agents. their, preparation prior to and Mittl must establish the defendant true na- her as fraud referral. affirmatively misled this affir- investigation and that ture of their of whether to the issue first turnWe factor in a material misleading was mative deceit affirmative engaged in give information her decision after conducting a civil audit factor— the first respect agents. With initial involvement Agent Padar’s Special place— misleading took affirmative whether

Case Details

Case Name: United States v. Florence L. Peters

Court Name: Court of Appeals for the Seventh Circuit

Date Published: Aug 17, 1998

Citation: 153 F.3d 445

Docket Number: 97-2634

Court Abbreviation: 7th Cir.