Ford v. Commissioner
| Decision Date | 13 August 2003 |
| Docket Number | Docket No. 4691-99. |
| Citation | 86 T.C.M. 259 |
| Parties | Sam F. Ford and Ingrid D. Ford, v. Commissioner. |
| Court | U.S. Tax Court |
Kenneth G. Gordon, for the petitioner.
Shirley M. Francis, for the respondent.
This case is presently before the Court on two motions. The first motion is petitioners' "Motion to Suppress Evidence Illegally Obtained Through Violation of Fed. R. Crim. P. Rule 6(e) and to Determine Issues of the Burden of Proof". The other motion is respondent's "Motion for Leave to File Amendment to Answer to Amended Petition". Unless otherwise specified, all section references are to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure, with the exception of references to rule 6(e), which are made to that provision as contained in the Federal Rules of Criminal Procedure.
Some of the facts have been stipulated. The parties' stipulation of facts and the accompanying exhibits are incorporated by this reference. Petitioners, Sam F. Ford (hereinafter referred to as petitioner) and Ingrid Doorn Ford, resided in Eugene, Oregon, when they filed their petition in this case.
On November 15, 1990, petitioner pled guilty, in the U.S. District Court for the Southern District of New York, Case No. 90 Cr. 777 (WK), to one count of making a false statement to the Securities and Exchange Commission, pursuant to 18 U.S.C. sec. 1001, and to one count of filing a false tax return for the taxable year 1986, pursuant to section 7206(1). In his allocution incident to the guilty plea, petitioner stated:
In this 1986 federal personal income tax return, I failed to include income in excess of $2.8 million dollars I had received from the sale of securities belonging to me which I had secreted in accounts in the name of my son and others. The income, however, was reported on my son's 1986 personal tax return and the tax was fully paid through him.
In conjunction with his guilty plea, petitioner entered into a cooperation agreement concerning other prosecutions. Thereafter, during March and April of 1992, the District Court conducted a 9-day "Fatico" hearing in petitioner's criminal case. A Fatico hearing is a proceeding held before the sentencing of a convicted criminal at which the prosecution and the defense may introduce evidence relating to the appropriate sentence.1 The principal issues addressed during petitioner's Fatico hearing were whether petitioner had breached his cooperation agreement and whether petitioner was truthful about his interest in or control over certain foreign corporations and bank accounts.
Assistant U.S. Attorney Andrew E. Tomback (AUSA Tomback) represented the United States at the Fatico hearing. His first witness was Corporal Gregory James Pattison (Corporal Pattison) of the Royal Canadian Mounted Police. Corporal Pattison's duties included his being assigned, during September of 1986, to an investigation into the trading of shares in a company called International Tillex. His conduct of that investigation led to an examination of trading in shares of a company known as Beverly Development. Corporal Pattison testified that petitioner, using his own name or that of family members, had traded shares in both International Tillex and Beverly Development through seven corporate brokerage accounts. Corporal Pattison identified those brokerage accounts as "For Doorn Investments, Limited, Pooh Bear Investments, Limited, the Bear and Pebbles Investments, Limited, Canadian American Aquafarms International, Limited, Solar Aquafarms, Limited, Toronado Resources and Blackbird Investments." Corporal Pattison further identified a schedule he had prepared showing the net proceeds of trading in International Tillex in those accounts, stating that the proceeds were in excess of Can$8 million.
AUSA Tomback next called Lawrence Leicht (Agent Leicht), a revenue agent assigned to the U.S. Attorney's Office in criminal investigations. Agent Leicht had been assigned the case involving petitioner and International Tillex during December of 1989 and had reviewed the records in the case that Corporal Pattison had developed. Agent Leicht had prepared schedules that traced funds going through bank or brokerage accounts belonging to petitioner or to members of his family. Agent Leicht identified petitioner as "the prime mover in the promotion of the stock of Beverly Development from day one." Agent Leicht also identified the seven brokerage corporations addressed by Corporal Pattison as the "7 Canadian corporations", although he clarified this classification to include only six Canadian corporations, because one of them, Blackbird, was in fact a Hong Kong corporation. During the course of his testimony, Agent Leicht addressed Government exhibit 3A. This exhibit consisted of some schedules he had prepared before the Fatico proceeding; he testified that they reflected "extensive additional monies from Canada." In response to an objection from Allison Manning, petitioner's counsel in the criminal proceeding, AUSA Tomback stated that the Government would not offer the schedules into evidence. He explained:
I just seek to show because Ms. Manning went through at some length with Mr. Leicht to try to narrow down the figure, that the figure we're dealing with that Mr. Ford got is well above $2.3 million, it is certainly above the $3 million mark and I haven't even calculated it, but it is well above that as well. If Mr. Leicht were to sit down and calculate it, we can get a figure.
At some point during the criminal proceedings, Agent Leicht prepared a one-page handwritten document. It was labeled "Government exhibit 3—For ID" and bore the heading "Corporate Brokerage A/C's Gains & Losses 1985-86". It was not, however, entered into evidence during the Fatico hearing. The document (hereafter exhibit 3) contained the following information:
Brokerage Accounts Total Tillex BVD Other
Black Bird—1986 ................... $2,443,127 $1,826,439 $ 599,115 $ 17,573
Toronado—1986 .................... 1,376,606 1,081,071 235,142 60,393
Canadian American—1986 ........... 351,888 87,678 267,654 (3,444)
Canadian American—1985 ........... 130,690 52,640 12,705 65,345
Solar Aqua—1986 .................. 384,262 60,726 305,704 17,832
Solar Aqua—1985 .................. 48,759 38,199 10,560 --
Bear & Pebble—1986 ............... 24,751 24,751 -- --
For Door—1985 .................... 184,975 160,665 20,935 3,375
Pooh-Bear—1986 ................... 284,408 267,930 -- 16,478
Pooh-Bear—1985 ................... 154,827 151,424 -- 3,403
_________ _________ _________ _________
5,603,734 3,951,553 1,454,295 197,886
Following the Fatico hearing, the U.S. Attorney for the Southern District of New York, in a letter dated May 21, 1992, advised respondent's Regional Counsel that
On May 13, 1992 the court sentenced Mr. Ford to five years of imprisonment, three additional years of imprisonment suspended and five years probation.
Pursuant to IRC §7602(c)(2)(B), the above action constitutes a termination of the referral, and as such, you are now free to seek appropriate civil action.
You are reminded that rule 6(e) of the Federal Rules of Criminal Procedure greatly restricts the civil use of items constituting matters occurring before the Grand Jury.
Eight days later, Regional Counsel's office advised the District Director of Internal Revenue that it had closed petitioner's criminal matter. It advised that the matter "is released for civil consideration." It continued:
You are reminded that no civil use of any grand jury material may be made without a rule 6(e) order, unless such material was made public through trial or otherwise. Additionally, the situations wherein a rule 6(e) order can be obtained are greatly limited. Therefore all information subject to the secrecy requirements of rule 6(e) derived directly or indirectly through the grand jury process, inclusive of exhibits, descriptive statements in reports and all copies thereof, must be purged from the Criminal Investigation Division files prior to closing in turn to the Chief, Examination Division.
At some point during 1997, Marco I. Minervini of respondent's Appeals Office in New York transmitted by facsimile a file copy of a so-called 30-day letter to Sylvia McGee of the Manhattan Examination Division. The 30-day letter was dated May 21, 1996, and was addressed to petitioners. It proposed adjustments to their taxes for the year 1986. The letter advised that petitioners would have 30 days to have respondent's proposed adjustments reviewed in respondent's Appeals Office. It contained two proposed upward adjustments for petitioners' income in 1986—one for $834,857 in short-term capital gains and the other for $4,249,563 in long-term capital gains. An accompanying explanation stated that the adjustments in question were "as set forth in Government exhibit #3, 90-CR-777-1." Additionally, the 30-day letter included the following identical explanations regarding each of the two proposed adjustments: "These exclude transactions in the names of Ingrid Doorn and Marc Ford, either reported by taxpayers or reported elsewhere (by Marc Ford)." Marc Ford is petitioner's son.
Thereafter, respondent's District Counsel in Manhattan (District Counsel) sent a memorandum dated October 13, 1998, to the Chief of Manhattan Appeals, with an attention line to M. Minervini, Appeals Officer. The memorandum indicated that District Counsel's...
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