Brod v. Comm'r of Internal Revenue

• Decision Date: 11 February 1976
• Docket Number: Docket No. 1471-73.
• Citation: 65 T.C. 948
• Parties: ELMER J. BROD AND MARIE BROD, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

65 T.C. 948

ELMER J. BROD AND MARIE BROD, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 1471-73.

United States Tax Court

Filed February 11, 1976.

Held, even though civil tax case involves addition to tax for fraud, petitioner is required to answer interrogatories which will disclose evidence that was suppressed in a criminal fraud case brought against petitioner for the same years on the ground that the evidence was obtained in violation of petitioner's rights under the fifth amendment. Further held, respondent's motion to compel petitioner's to give more complete answers to certain interrogatories is denied and the parties are directed to comply with Rule 91(a) of the Rules of Practice and Procedure of this Court. Melvin M. Engel, for the petitioners.

Daniel A. Taylor, Jr., for the respondent.

OPINION

SCOTT, Judge:

On June 2 and June 4, 1975, pursuant to notice previously given, respondent's ‘Motion to Compel Responses to Respondent's Interrogatories,’ filed April 22, 1975, petitioners' ‘Motion to Strike the Affirmative Pleadings of the Respondent and for Judgment for the Petitioners on the Pleadings,‘ filed May 8, 1975, and petitioners' ‘Motion to Suppress Evidence and to Quash Respondent's Interrogatories to Petitioner,‘ filed May 8, 1975, came on for hearing.

Following the hearing, the Court by order dated July 3, 1975, denied petitioner's motion to strike the affirmative pleadings of respondent and for judgment on the pleadings and denied petitioner's motion to suppress evidence and to quash respondent's interrogatories to petitioners insofar as those interrogatories deal with information obtained by the internal revenue agent prior to September 6, 1967, and granted respondent's motion to compel responses to respondent's interrogatories to the extent that the information sought by the interrogatories deals with information furnished by petitioners to the internal revenue agent or information reasonably expected to be obtained by the internal revenue agent from the information furnished by petitioners to the internal revenue agent prior to September 6, 1967. Thereafter petitioners served on respondent answers to respondent's interrogatories stated to be in accordance with the order of the Court which were subscribed and sworn to on July 3, 1975. On July 15, 1975, respondent filed a ‘Motion to Compel Complete Answers to Respondent's Interrogatories or, in the Alternative, for Sanctions' with respect to certain of the answers made by petitioners. In accordance with the direction of this Court, petitioners filed a response to this motion.

The principal issue left for decision is whether petitioners are justified in refusing to answer questions dealing with information which was obtained by respondent's agents after March 26, 1968, the date when a special agent of the Intelligence Division of the Internal Revenue Service first interviewed petitioners, because the special agent did not inform petitioners of their rights under the fifth amendment of the Constitution.¹

The record shows that prior to a special agent beginning any investigation of this case, a revenue agent had begun a routine examination of petitioners' tax return for the calendar year 1965 and had later expanded his examination to cover the calendar years 1964 and 1966. After conducting his examination over a period of several months and obtaining substantial information with respect to petitioners' bank accounts, bank deposits, and assets, the revenue agent made a computation of petitioners' tax liability by using bank deposits reduced by certain items such as redeposits and other items the agent considered as nontaxable receipts. The agent proceeded in this manner after he concluded that petitioners' books and records were totally inadequate for properly computing their taxable income for the years 1964 through 1966. After making these computations, the agent concluded there was a reasonable basis to suspect that petitioners' returns were fraudulent and on September 6, 1967, referred the case, together with a copy of his report, to the Intelligence Division of the Internal Revenue Service.

Nothing further was done with respect to this case, except the acceptance of the case by the Intelligence Division, until March 26, 1968, when a special agent of the Intelligence Division of the Internal Revenue Service and the revenue agent called on petitioners. The special agent identified himself but did not tell petitioners of their right to remain silent, that any statement made by them might be held against them, and their right to be represented by counsel. The special agent, together with the revenue agent, interviewed petitioners on March 26, 1968, and again on March 27, 1968, April 26, 1968, and April 29, 1968, interviewed Mr. Brod (petitioner). The revenue agent was with the special agent at all of these interviews and both petitioners were present at the March 26, 1968, interview. At the conclusion of his fourth meeting with petitioner on April 29, 1968, the special agent concluded the preliminary investigation he had made to determine whether there was a reasonable basis for further proceeding to investigate the criminal aspects of petitioner's tax liability and recommended the case for a fullscale criminal investigation.

On June 13, 1968, the special agent again called on petitioner and at that time advised him that under the fifth amendment he had the right to refuse to answer any questions or submit any information if he felt that such answers or information might tend to incriminate him in any way and further advised petitioner that anything he said or any submitted information might be used against him in any proceedings which might be undertaken by the United States. The special agent also advised petitioner that he was entitled to be represented by counsel if he desired. At that junction petitioner informed the agent that he had been talking to an attorney and would answer no further questions until he consulted with his attorney. Thereafter, petitioner answered no questions of either the revenue agent or special agent nor did he furnish any representative of the Internal Revenue Service with any further information. Petitioner is a man of limited education who has been primarily engaged in farming most of his life.

After the conclusion of the special agent's investigation, an indictment was returned by a grand jury charging petitioner, Elmer J. Brod, with violation of section 7201, I.R.C. 1954,² for the taxable years 1964, 1965, and 1966. Prior to the trial of that case in the United States District Court for the Southern District of Texas (Houston Division) petitioner filed a motion to suppress evidence, and after hearing, the District Court issued an order (see United States v. Brod, 324 F.Supp. 800 (S.D. Tex. 1971)) suppressing all evidence obtained from Mr. Brod subsequent to March 26, 1968, and before June 13, 1968, when he was informed of his constitutional rights (therein referred to and sometimes herein referred to as Miranda warnings). See Miranda v. Arizona, 384 U.S. 436 (1966). The Government filed an appeal from this order to the United States Court of Appeals for the Fifth Circuit but later dismissed the appeal and the criminal case against petitioner was dismissed.

Petitioners on January 28, 1974, filed a motion in this case to suppress evidence, which motion was argued at Dallas, Tex. Thereafter this Court entered an order denying petitioner's motion and in the memorandum sur order pointed out that the proper time to raise the issue of suppression of evidence was when such evidence was offered at the trial of this case.

After the entry of this order respondent, on February 18, 1975, served interrogatories upon petitioner and on April 22, filed the motion to compel responses to respondent's interrogatories which is here under consideration.

Respondent argues that even though evidence obtained after the special agent's conference with petitioner on March 26, 1968, was suppressed in the criminal case, it should not be suppressed in the instant case which involves the civil fraud penalty. If we agree with respondent, it would be appropriate for us to direct petitioner to answer the interrogatories and order that otherwise sanctions will be imposed on petitioner.

Petitioner argues that the issue as to the suppression of evidence because of violation of a taxpayer's rights under the fifth amendment is identical in a criminal fraud case in a United States District Court and in a civil fraud case in this Court. Also, based on the evidence introduced at the hearing on petitioners' motion to suppress evidence in the criminal case and additional evidence presented at the hearing on the motions now under consideration in this Court, petitioners argue that we should suppress all evidence obtained by respondent's agents after March 26, 1968, even if the issue in this case differs from that in the prior criminal case. If we were to accept petitioners' position that evidence which is suppressed in a criminal case must also be suppressed in a civil fraud case, then because of the decision for the same years here in issue in United States v. Brod, supra, having become final, we would conclude that the evidence obtained by respondent's agents after March 26, 1968, should be suppressed. Although evidence was introduced by each party at the hearing on respondent's and petitioners' motions in this case, it is clear in the record and both parties recognize that we are concerned only with whether petitioner should be required to answer interrogatories based on the same evidence that was suppressed in the District Court case. Under these circumstances if we considered the issue as to suppression of evidence in a civil fraud income tax case to be the same as the issue of suppression of evidence in a criminal case charging a taxpayer with filing a fraudulent income tax return, we would accept the...