Kivela v. Department of Treasury, Docket No. 97196
| Decision Date | 18 July 1995 |
| Docket Number | No. 12,Docket No. 97196,12 |
| Parties | Diane KIVELA, Petitioner-Appellee, v. DEPARTMENT OF TREASURY, Respondent-Appellant. Calendar |
| Court | Michigan Supreme Court |
Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., and E. David Brockman, and Daniel M. Levy, Asst. Attys. Gen., Detroit, for respondent-appellant.
We granted leave in this case to determine whether evidence seized in an improper police search may be used in a separate and independent civil jeopardy tax assessment proceeding. More specifically, we are asked to determine whether financial records detailing sales and purchases of narcotics that were seized during a criminal investigation pursuant to an invalid search warrant are admissible for purposes of a civil tax assessment proceeding.
The Tax Tribunal held that the improperly seized records were admissible; however, the Court of Appeals reversed in favor of petitioner Diane Kivela. We reverse the Court of Appeals determination and find in favor of respondent Department of Treasury. In the intrasovereign context, we hold that in the absence of collusion, unlawfully seized evidence may properly be admitted for purposes of an independent civil tax assessment proceeding.
On July 7, 1989, police officers searched the home of petitioner Diane Kivela pursuant to a search warrant. The search warrant was issued on the basis of information provided by an informant who indicated that Ms. Kivela had been selling drugs since July, 1988. As a result of the search, the police officers seized four ounces of marijuana and several financial records documenting the sales and purchases of narcotics.
Kivela was charged with possession of marijuana with intent to deliver. 1 However, the charge was dismissed when the judge held that the search warrant was invalid because it was not supported by probable cause.
In the meantime, however, Kivela's financial records were turned over to the Department of Treasury. On the basis of the illegally seized financial records, the department determined that Kivela owed unpaid sales, use, personal income, and single business taxes, together with penalties and interest. The department issued a jeopardy tax assessment of $26,079 for unpaid taxes on drug sales between July, 1988, and July, 1989, pursuant to M.C.L. § 205.26; M.S.A. § 7.657(26). 2
Kivela filed a petition with the Tax Tribunal in which she argued that the Department of Treasury could not use evidence seized during an illegal search as the basis for a civil tax case. Both Kivela and the Department of Treasury moved for summary disposition pursuant to MCR 2.116(C)(10). The Tax Tribunal granted the department's motion for summary disposition, denied Kivela's motion, and held that the evidence was admissible.
The Court of Appeals reversed, 3 stating that "the Tax Tribunal is not permitted to base its jeopardy tax assessment upon unlawfully seized evidence, nor may the unlawful search and seizure serve as the triggering event for the tax assessment." 200 Mich.App. 545, 552, 505 N.W.2d 11 (1993). The Court of Appeals noted:
The Michigan Constitution is construed to provide no greater protection against unreasonable searches and seizures than does the Fourth Amendment, absent a compelling reason to apply a different interpretation. Const 1963, art 1, § 11; People v. Collins, 438 Mich 8, 11, 25-31; 475 NW2d 684 (1991); People v. Cooke, 194 Mich App 534, 537; 487 NW2d 497 (1992). It does not necessarily follow, however, that Michigan's exclusionary rule must be applied in the same manner as the federal exclusionary rule, nor is Michigan required to follow the interpretation offered by the Second Circuit Court of Appeals. Our Supreme Court has acknowledged that Michigan's exclusionary rule differs from and provides greater protection than that established by the United States Supreme Court. In re Jenkins, 437 Mich 15, 28; 465 NW2d 317 (1991). [Id. at 550, 505 N.W.2d 11.]
This Court granted the Attorney General's application for leave to appeal. 447 Mich. 886 (1994).
It is undisputed that under federal authority, the financial records documenting the sales and purchases of narcotics seized from a defendant by one sovereign pursuant to an invalid search warrant, may be used as evidence in a civil tax assessment proceeding by another sovereign. United States v. Janis, 428 U.S. 433, 96 S.Ct. 3021, 49 L.Ed.2d 1046 (1976).
In Janis, the United States Supreme Court held that evidence seized by state police officers pursuant to an invalid search warrant may be used in a civil suit brought by the Internal Revenue Service to determine the suspect's tax liability. A Los Angeles police officer obtained a search warrant from a state-court judge and seized $4,940 in cash and incriminating wagering records. The officer notified the IRS that Mr. Janis had been arrested for bookmaking activities, and the IRS levied upon the cash.
Although Mr. Janis was able to convince a state judge to quash the warrant in a state criminal proceeding, the United States Supreme Court held that "the judicially created exclusionary rule should not be extended to forbid the use in the civil proceeding of one sovereign of evidence seized by a criminal law enforcement agent of another sovereign." Id. at 459-460, 96 S.Ct. at 3034-3035, 49 L.Ed.2d at 1063-1064. The Court reasoned that the deterrent effect of the exclusionary rule does not outweigh the societal cost that would result from the exclusion of incriminating evidence.
The United States Court of Appeals for the Second Circuit extended the rule of Janis to intrasovereign situations, and held that unconstitutionally seized evidence collected by federal agents could still be used by the IRS to determine the suspect's tax liability for narcotics-related income in a federal civil tax proceeding. Tirado v. Comm'r of Internal Revenue, 689 F.2d 307 (CA 2, 1982), cert. den. 460 U.S. 1014, 103 S.Ct. 1256, 75 L.Ed.2d 484 (1983). Similar to the reasoning in Janis, the Tirado court concluded that the deterrence rationale of the exclusionary rule was not furthered by excluding evidence that was seized without the contemplation of use in a subsequent civil tax proceeding. Thus, according to the Second Circuit Court of Appeals, the key inquiry in such cases is whether the unconstitutional search and seizure was motivated by the use of the evidence in the proceeding in which it is presented. The court stated:
Tax deficiency proceedings are too remote from the "zone of primary interest" of the narcotics agents who made the seizures in Tirado's apartment. As in Janis, it is not reasonable to suppose that a rule barring use of the evidence in a civil tax proceeding would have materially influenced those agents in their decision whether to make the particular seizures.... Nor would agents of the Drug Enforcement Agency be likely to harbor a general motivating interest in assisting the enforcement of civil tax obligations. [Id. at 314.]
Therefore, Tirado does not prohibit the use of the federal exclusionary rule in all civil cases, but instead calls for an analysis of the facts of each case. Unless there is collusion between the agency that performed the illegal search and the agency seeking to admit the incriminating evidence, the evidence is admissible. See also Wolf v. Comm'r of Internal Revenue, 13 F.3d 189 (CA 6, 1993), 4 and Adamson v. Comm'r of Internal Revenue, 745 F.2d 541 (CA 9, 1984). 5 The United States Court of Appeals for the Sixth Circuit has taken a different approach than that found in Tirado, although reaching the same result as the Court of Appeals for the Second Circuit in Tirado. 6 In Wolf, federal and local law enforcement officers searched the residence of Michael Wolf on two occasions and "seized 400.2 grams of cocaine, 201 pounds of marijuana, and $143,286 in cash." Id. at 192.
Approximately four years after Wolf pleaded guilty to one count of possession with intent to distribute approximately twelve ounces of cocaine, the IRS issued a notice of deficiency to Wolf when it recalculated his taxable income to include the seized cash, cocaine, and marijuana. The IRS also asserted that Wolf negligently failed to report taxable income and wrongly filed a substantial understatement of tax. Id. at 191.
The Tax Court admitted the evidence of the cocaine, marijuana, and cash, and found that Wolf's taxes were deficient and imposed additions to the tax. 7 Mr. Wolf appealed, and the Court of Appeals for the Sixth Circuit affirmed.
In holding that the Fourth Amendment did not bar the admission of the illegally seized evidence, the court formulated a five-pronged balancing test to determine whether to apply the exclusionary rule to civil tax proceedings. The court considered the following factors:
1. The nature of the proceeding;
2. Whether the proposed use of unconstitutionally seized material is intersovereign or intrasovereign;
3. Whether the search and the second proceeding are initiated by the same agency;
4. Absent an explicit and demonstrable understanding between the two agencies, whether there is statutory regime in which both agencies share resources, particularly resources derived from one of the proceedings; and
5. The relationship between the law enforcement responsibilities and expertise of the seizing officials and the type of proceeding at which the seized material is being offered.
Upon reaching the decision that the exclusionary rule does not bar the admission of illegally seized evidence during a criminal narcotics investigation in a civil tax proceeding, the court stated:
In this case, the use of the seized cash and drugs as evidence in subsequent civil tax proceedings cannot be said to have been within the zone of primary interest of Agent Brawner. The secondary tax proceedings were civil in nature. They were not intended to punish Wolf for his narcotics...
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