Jones v. Comm'r of Internal Revenue
| Decision Date | 03 July 1991 |
| Docket Number | Docket No. 4609-87,31664-87.,4610-87 |
| Citation | 60 USLW 2071,97 T.C. No. 2,97 T.C. 7 |
| Parties | JAMES KENNETH JONES AND GRACE A. JONES, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Ps contend that R's criminal investigators, after uncovering sufficient information from which a criminal case could have been opened, instead referred the case for civil examination. Ps further contend that R's civil examiner knowingly used the civil examination process to obtain additional evidence for purposes of supplying it to R's criminal investigators for prosecution in violation of P's Fourth Amendment rights. HELD, even if R's agents did violate P's constitutional rights, in the setting of this civil case, the exclusionary rule will not be employed. David D. Aughtry and J. Rene Hawkings, Jr., for petitioners James Kenneth Jones, and Ken's Audio Specialties and Sewing Center, Inc.
John E. James and Kathryn Weigand, for petitioner Grace A. Jones.
Eric B. Jorgensen, for the respondent.GERBER, JUDGE:
Petitioners have moved to suppress evidence allegedly obtained by respondent through trickery, deceit, and misrepresentation. Petitioners contend that respondent's agents improperly obtained information to be used in a criminal prosecution under the guise of a civil examination. Essentially, petitioners contend: (1) That respondent's criminal investigators, during a preliminary inquiry, developed sufficient information from which a full-scale investigation could have been commenced; (2) that instead, the matter was referred to a revenue agent ostensibly for civil examination but with the actual intent of obtaining more information from petitioners, for the purpose of criminal prosecution; (3) that respondent's criminal and civil agents collaborated in obtaining criminal prosecution information through the civil examination process; and (4) finally, that petitioners cooperated and were unaware of the true intent of respondent's agents and turned over records and information which would not have been provided if they had known it was a criminal investigation. Petitioners assert that such conduct constitutes an illegal search and seizure violating their constitutional rights, and they ask us to sanction respondent by excluding all illegally obtained evidence and/or shifting the burden of going forward with the evidence to him on all matters. Based upon the notices of deficiency and without considering petitioners' request for sanctions on respondent, respondent would bear the burden of proof only with respect to the addition to tax for fraud under sec. 6653(b). 2
This matter was the subject of a lengthy trial, substantial briefs, and a large volume of requested findings of fact. We decide, as a matter of law, that even if all of petitioners' requested findings were adopted and a Fourth or Fifth Amendment violation did occur, in the setting of this case we will not employ the exclusionary rule. Background facts are provided in order to explain our denial of petitioners' motion.
Respondent determined deficiencies in petitioners' Federal income tax and additions to tax as follows:
BACKGROUND
Petitioners James Kenneth Jones and Grace A. Jones were husband and wife during the years at issue, but were divorced at the time of the hearing on petitioners' motion to suppress. At the time their petitions were filed, the legal residence of Mr. and Mrs. Jones was Macon, Georgia. Unless otherwise noted, “petitioners” in the plural refers to James Kenneth and Grace A. Jones and “Jones” in the singular refers to James Kenneth Jones. For the taxable years 1980, 1981, 1982, and 1983, petitioners filed joint Federal individual income tax returns using the cash method of accounting. Jones did not file Federal income tax returns for 1984 and 1985.
Petitioner Ken's Audio Specialties and Sewing Center, Inc. (hereinafter referred to as Ken's Audio or the Company), a Georgia corporation, had its principal place of business in Macon, Georgia, at the time its petition was filed. Ken's Audio was incorporated by Jones on May 5, 1978, to conduct a retail electronics business under the name Ken's Stereo Junction. During November 1980, Jones expanded his business and built a stereo and video specialty store in Macon, Georgia. During August 1984, he opened a second store in Warner Robins, Georgia. Both stores specialized in the business of selling, servicing, and installing electronic goods, such as automobile stereo radio systems, video cassette recorders, and stereo equipment, including turntables, stereo receivers, speakers, and tape recorders. Jones was president of Ken's Audio. Petitioners owned 90 percent of the stock of Ken's Audio, and Jones' brother owned the remaining 10 percent of the stock.
Ken's Audio filed small business corporation income tax returns, Forms 1120-S, reporting income and deductions by means of the accrual method of accounting for its taxable years ended April 30, 1981, and April 30, 1982. For its taxable years ended April 30, 1983, and April 30, 1984, Ken's Audio filed Federal corporate income tax returns, Forms 1120, reporting under the accrual method of accounting.
For the taxable years 1979, 1980, 1981, and 1982, petitioners operated a partnership known as ABC Day Care Center which provided day care services for children in petitioners' residence.
THE CRIMINAL INVESTIGATION INFORMATION ITEM
On or about August 16, 1983, Special Agent Gary W. Schwab (Schwab or Special Agent Schwab), Criminal Investigation Division (CID), Internal Revenue Service (IRS), Macon, Georgia, discovered a newspaper article concerning petitioners' new home, Woodcrest Manor. The story and pictures portrayed a large and lavish home consisting of 6,000 square feet of living space and a 1,000-square-foot bedroom on three levels with a jacuzzi on the center level. Schwab also learned that Mrs. Jones had told an interior decorator, who was also Schwab's neighbor, that petitioners paid for the new house with savings from the day care center Mrs. Jones had operated in their old home. Schwab prepared an “information item” 4 and he and Special Agent Cathy Cunard (Cunard or Special Agent Cunard) were assigned to evaluate the case for its “criminal potential.”
Corporate, partnership, and individual income tax returns for the 5-year period 1979 through 1983 were sought in order to consider whether the expenditures for the home were in line with the income reported. All returns were internally available, except that the corporate Federal income tax returns of Ken's Audio could not be located due to an error in the corporate taxpayer identification number. Schwab sent Jones a form letter requesting information about the returns for Ken's Audio, and Jones...
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