Kluger v. Comm'r of Internal Revenue

• Decision Date: 11 September 1984
• Docket Number: Docket No. 26124-83.
• Citation: 83 T.C. 309,83 T.C. No. 21
• Parties: DEBRA KLUGER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

83 T.C. 309

83 T.C. No. 21

DEBRA KLUGER, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 26124-83.

United States Tax Court

Filed September 11, 1984.

Respondent issued a statutory notice to P, based entirely upon information obtained from certain grand jury proceedings pursuant to an order of an appropriate Federal district court under Rule 6(e), Fed. R. Crim. P. Such order was concededly not issued in accordance with standards later laid down by the Supreme Court in United States v. Baggot, 463 U.S. (1983), and United States v. Sells Engineering, Inc., 463 U.S. (1983). P moved to suppress all evidence obtained from the grand jury materials, and to shift the burden of going forward with the evidence to respondent, based upon a retroactive application of the principles of Baggot and Sells Engineering, Inc., so as to invalidate the prior district court order.

HELD: 1. This Court has inherent jurisdiction and power to consider the validity of the district court order, insofar as it may affect rulings on evidence and procedure in cases properly before it.

2. Under the facts, there are no applicable principles of res judicata, collateral estoppel, waiver, or comity which prevent this Court from applying the correct rule of law in testing the district court's order.

3. Under the facts, the standards announced in Baggot and Sells Engineering, Inc. are not to be applied retroactively.

4. P's motions to suppress and to shift the burden of going forward with the evidence will be denied. ELLIOT SILVERMAN and ROBERT S. FINK, for the petitioner.

SERGIO GARCIA-PAGES, for the respondent.

KORNER, JUDGE:

This case is before us on petitioner's motion to suppress evidence and to shift the burden of proof, treated as a motion to shift the burden of going forward with the evidence, to respondent. ¹ Respondent determined a deficiency of $769,769.34 in petitioner's 1979 Federal income tax. Respondent's statutory notice of deficiency which contained this determination was based solely upon information respondent secured from certain grand jury proceedings. We must decide whether respondent's use of these grand jury materials to determine the deficiency against this petitioner was improper. If such use was improper, we must additionally determine whether the exclusion of evidence, and/or shifting the burden of going forward to respondent, are appropriate sanctions in the context of this case.

FINDINGS OF FACT

The facts are not materially in dispute. During 1981, a Federal grand jury within the jurisdiction of the United States District Court for the Eastern District of New York commenced an investigation into alleged large-scale, multi-million dollar drug trafficking, involving a number of individuals, including Henry Kluger, the husband of petitioner Debra Kluger. In the course of this grand jury investigation, various books, records and other documents were subpoenaed by, or presented to the grand jury; additionally, transcripts were made of testimony of witnesses called to testify.

On February 27, 1982, Henry Kluger died and pending criminal indictment proceedings against him were therefore terminated. On March 29, 1983, an assistant United States attorney, without petitioner's knowledge, applied to the United States District Court for the Eastern District of New York, pursuant to Rule 6(e)(3)(C)(i) of the Federal Rules of Criminal Procedure, for an order authorizing ‘the United States Attorney for the Eastern District of New York to disclose to the Internal Revenue Service the testimony, books, records and other documents subpoenaed and otherwise presented to the Grand Jury in connection with (the investigation of Henry Kluger) for the purpose of determining, establishing, assessing and collecting the federal civil tax liabilities of HENRY KLUGER and his heirs, and for use in any judicial proceedings related thereto.‘ The sole ground offered in support of this motion was a statement that Internal Revenue Service agents ‘have determined that the books, records and other documents and testimony obtained during the Grand Jury's investigation of this matter are necessary to establish, assess and collect the federal civil tax liabilities of Henry Kluger.‘ The motion was made ex parte.

Later that same day, March 29, 1983, the Honorable Henry Bramwell, United States District Judge, granted the United States Attorney's motion under Rule 6(e)(3)(C)(i),.Fed. R. Crim. P., by order which provided in pertinent part as follows:

* * *the United States Attorney for the Eastern District of New York is hereby authorized to make available to agents of the Internal Revenue Service all books, records and documents subpoenaed by or presented to the Grand Jury pertaining to (Henry Kluger) and the transcripts of testimony presented to the Grand Jury in that connection for purposes of determining, establishing, assessing and collecting the Federal civil tax liability of Henry Kluger and his heirs, and for use in any judicial proceeding related thereto.

No civil litigation was in preparation or pending between the United States, decedent, his estate, or his survivors, on March 29, 1983. ²

On June 15, 1983, respondent issued a statutory notice of deficiency for 1979 to petitioner, individually and as the surviving wife of Henry Kluger.³ Petitioner timely filed a petition with this Court contesting said deficiencies, at which time she was a resident of the State of New York. As indicated above, this statutory notice determined that $769,769.34 in additional income tax was due on the joint Federal income tax return petitioner had filed with Henry Kluger for 1979. The determination concededly was based solely upon information obtained by respondent from the grand jury investigation of Henry Kluger in the United States District Court for the Eastern District of New York, pursuant to that Court's order of March 29, 1983, under Rule 6(e)(3)(C)(i), Fed. R. Crim. P. (hereinafter referred to as the Rule 6(e) Order). The sole basis alleged for the asserted deficiency was respondent's determination that Henry Kluger had earned $1,086,111.49 in unreported income from illegal drug trafficking.

OPINION

Petitioner contends that respondent's receipt of information produced by the grand jury investigation of Henry Kluger (hereinafter ‘the grand jury materials ‘) was not in compliance with the requirements of Rule 6(e), Fed. R. Crim. P. as interpreted by the United States Supreme Court in the recent cases of United States v. Baggot, 463 U.S. , 103 S. Ct. 3164 (1983) and United States v. Sells Engineering, Inc., 463 U.S. 103 S. Ct. 3133 (1983), which were released subsequent to the issuance of the Rule 6(e) Order herein, and such receipt therefore constituted an abuse of the grand jury process requiring the suppression of all of the grand jury materials in this proceeding. Petitioner further contends that, if the grand jury materials are to be suppressed in this proceeding, the notice of deficiency herein, which was based solely on information contained in the grand jury materials, is without any foundation whatsoever, and such notice therefore is not entitled to the presumption of correctness which generally attaches to statutory notices. Petitioner therefore concludes that the burden of going forward with the evidence must be shifted to the respondent in this case, and that respondent should be allowed to satisfy his proposed burden only with what petitioner describes as ‘untainted evidence.‘ ⁴

Respondent does not deny that the statutory notice of deficiency herein was based solely on information culled from the grand jury materials. He denies, however, that his receipt and use of such information was improper in this case and argues that suppression of the materials, and the alleged consequent results argued by petitioner, are therefore unwarranted. In support of this conclusion, respondent points out that the grand jury materials were transmitted to the Internal Revenue Service pursuant to an order of the District Court for the Eastern District of New York which was secured only after full disclosure to the District Court of the purpose for which the materials were sought, and argues that the existence of this District Court order deprives this Court of jurisdiction to even consider petitioner's suppression motion.

Secondly, respondent maintains that even if jurisdiction is present, his receipt and use of the grand jury materials did not constitute an abuse of the grand jury process. In this regard, respondent concedes that the Rule 6(e) order, pursuant to which the grand jury materials were released to the Internal Revenue Service, did not satisfy the criteria subsequently announced by the Supreme Court in United States v. Baggot, supra, for proper issuance of such orders. However, respondent argues that the principles announced in that decision should not apply retroactively to invalidate the present Rule 6(e) Order.

Finally, respondent contends that even if we determine that Baggot and Sells Engineering, Inc. should be retroactively applied, nevertheless suppression of the grand jury materials is inappropriate in the context of this case.

I. THE POWER OF THIS COURT TO REVIEW THE RULE 6(e) ORDER

A. JURISDICTION

Respondent's contention that this Court is without authority to consider the ultimate issue presented on this motion, being jurisdictional in nature, must be addressed as a threshold matter. Shelton v. Commissioner, 63 T.C. 193, 194-195 (1974).

There is no question that this Court is a court of limited authority and may exercise jurisdiction only to the extent expressly provided by Congress. Section 7442; Medeiros v. Commissioner, 77 T.C. 1255, 1259 (1981); Wilt v. Commissioner, 60 T.C. 977, 978 (1973). We nevertheless have jurisdiction to determine whether we have jurisdiction. Hazim v. Commissioner, 82 T.C. 471 (1984); Brannon's of Shawnee, Inc. v. Commissioner, 69 T.C. 999, 1001 (1978). Section 6213 confers...