DOJ Criminal Tax Manual Review (Part III)
This is the third post in a series that is reviewing the Department of Justice’s Criminal Tax Manual. The tax manual lays out key concepts, and policy directives, that criminal tax attorneys should understand when representing taxpayers under criminal investigation. In the first two posts, we reviewed DOJ’s unique authority over all criminal tax prosecutions and the investigative paths the government takes to build a criminal tax case. In this post, we will review immunity considerations during investigations, the overarching structure of the criminal enforcement division of DOJ tax, and specific policies relating to search warrants.
Immunity in Criminal Tax Investigations
The government needs witnesses to make statements to shore up loose ends in a criminal tax investigation. However, many witnesses are reluctant to speak openly if they have criminal exposure. Without guarantees from the government, attorneys are reluctant to allow their clients (target or witness) to discuss facts in an ongoing criminal investigation. To shore up this issue, the government grants immunity for witnesses to allow for the free flow of information. Immunity agreements often allow the witness to deliver statements without fear of the statements being used against them.
When most people hear the term immunity, they envision a formal agreement that ensures the person delivering statements will not be prosecuted. While non-prosecution agreements are a form of immunity used in the federal system, it is not common in criminal tax cases. In the white-collar defense world, it is far more likely that the government will grant, or the Court will order, “use immunity.” Under use immunity, the government agrees to not use anything the person states against them in a later prosecution. While this does shore up many of the concerns under the Fifth Amendment right against self-incrimination, it has some glaring holes that criminal tax attorneys should consider before advising their client. First, use immunity has no impact on the government’s ability to prosecute the witness. Further, the government can still get value from the statements by using them to guide further investigation. This second prong is referred to as derivative use.
An example should help clarify derivative use. Let’s assume a target is being investigated for filing a false tax return. The government has developed their case, and the target believes they will be found guilty at trial. Based on the criminal tax attorney’s advice, the target agrees to cooperate with the government’s prosecution of his accountant, a co-conspirator. The government signs a proffer letter with the witness agreeing to not use the statements against the witness in a prosecution. The agreement clearly states the government may use the statements to uncover additional evidence (derivative use).
If this target has offshore accounts, or has committed other criminal acts, this is a potentially dangerous situation. The taxpayer cannot lie to the government during a proffer session without running the risk of obstructing justice. If the government asks about any other bank accounts, the taxpayer will have to disclose the existence of the offshore accounts. If the taxpayer did not file FBAR forms as required by law, it will be clear that another law violation has occurred. In such a situation, the client’s decision to meet with the government may negatively impact the client’s ability to avoid criminal charges.While the government cannot use the taxpayer’s statement (“I have an account in Switzerland”) against him. There is nothing that stops them from locating the account, reviewing the federal filings, and developing a strong FBAR violation case.
One of the more difficult decisions a criminal tax attorney must make is determining whether the client should meet with the government. When liability is clear, and the client is the main target, the answer is easy – avoid the meeting. When the attorney is confident there is no liability, and the government discloses the client is likely a witness, the answer to cooperate is simple. However, there is a full range of clients that fall in between; those with criminal exposure that are not the main targets of the investigation. For these clients, the attorney must evaluate the strength of the government’s case, the amount of criminal exposure, and the statements that will be made before providing advice in this area. There is a sea of land mines that must be considered. This decision must be made on a case-by-case basis.
While other forms of immunity exist in the federal system, they are largely unused. Use immunity, with a derivative use clause, is the standard agreement in criminal tax prosecutions. One area where we do see absolute immunity is when representing an innocent spouse. If a taxpayer handles his/her family’s finances, and files the tax returns, the spouse’s sigunature on the return should not give birth to criminal exposure. After all, an innocent spouse that is not aware of the figures in the return cannot knowingly file false returns. For these spouses, the government will often entertain agreements to not prosecute the spouse in exchange for cooperation by the tax filer.
Structure of DOJ’s Criminal Tax Enforcement Sections
The criminal tax division has a clear hierarchy. This hierarchy spans from the Attorney General’s Office down to the CID investigators on the ground. In the first post, we discussed the procedures that guide review and authorization in the criminal tax world. To fully understand how those procedures operate, a full understanding of the actual structure, and players within that structure, is necessary.
Heads of DOJ Tax
At the top of hierarchy is the head of the DOJ Tax Division. This person is titled as an Assistant Attorney General. They are responsible for overseeing the entire apparatus in both civil and criminal enforcement. This oversight includes setting policy considerations and reviewing highly complicated cases as necessary. Under the head of DOJ Tax is a Deputy Assistant Attorney General that is assigned solely to criminal enforcement. The average criminal tax case does not involve the head of the tax division or the head of criminal enforcement. This role is somewhat removed from day-to-day operations. However, these parties play a significant role in ensuring executive branch policies are passed down the chain of command.
Criminal Enforcement Divisions of DOJ Tax
Under the heads of the tax divisions are multiple criminal enforcement sections. These sections are responsible for daily operations and investigations. These sections are structured as follows:
Criminal Appeals Section
If a criminal tax client loses at trial, they have an absolute right to file an appeal to the Circuit Court with jurisdiction over their case. This appellate process follows nearly all white-collar criminal convictions. While DOJ Trial Attorneys are capable of handling an appeal, appellate practice has its own unique rules and considerations. A solid appellate attorney will have a better understanding of the law and appellate procedures. For that reason, DOJ Tax has a separate division to handle criminal appeals following convictions.
Criminal Enforcement Sections
The criminal enforcement sections are responsible for investigating cases, obtaining indictments, and litigating criminal tax cases in district courts across the country. These sections contain the DOJ trial attorneys that criminal tax attorneys interact with during the investigative and trial process. These sections are the most active participants in the criminal enforcement structure. They are comprised of a section chief and numerous DOJ trial attorneys under their guidance.
The criminal enforcement sections are broken down regionally. The northern section covers all criminal tax cases in the Midwest and along the East coast. If a case falls within the noted states, attorneys with the Northern Criminal Enforcement Section will handle the case from investigation to trial.
The southern section covers the gulf coast states, a piece of the Midwest, and Puerto Rico. The western section is a large, covering cases from the west coast to Nebraska and Oklahoma.
It is important that this outlined hierarchy is reviewed in conjunction with the investigative processes found in the first two posts. This combination of knowledge will give criminal tax attorneys the ability to properly advise their clients and develop unique strategies as the case migrates through the enforcement apparatus pre-indictment.
Search Warrant Execution in Criminal Tax Cases
Most criminal tax investigations use grand jury subpoenas or administrative summonses to obtain evidence. These two routes allow the government to access relevant documents and obtain witness statements in a mostly cooperative process.
While cooperative document production is the norm, the government will use search warrants when necessary. These warrants may be used to quickly obtain documents from a business if the government is concerned about document destruction. They also provide authority for the government to intercept telephonic communications through Title III wire taps.
DOJ Tax oversees the execution of search warrants. However, they may delegate that authority to the local United States Attorney’s Office when appropriate. The local prosecutors may develop evidence using search warrants, but the delegation of the investigation does not strip DOJ of its oversight and authorization authority.
Moving onto Particular Criminal Tax Offenses
These first three posts reviewed policy considerations, DOJ procedures, and the organization of DOJ’s tax enforcement structures. Understanding these concepts is imperative to competent criminal tax practice. In the next post, we will transition to DOJ’s specific guidance on criminal tax offenses, including tax evasion, filing a false return, failure to file/pay, and obstruction of justice.