U.S. v. Nuth

• Decision Date: 30 August 1979
• Docket Number: No. 78-5324,78-5324
• Citation: 605 F.2d 229
• Parties: 79-2 USTC P 13,314 UNITED STATES of America, Plaintiff-Appellee, v. James G. NUTH, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 229

605 F.2d 229

79-2 USTC P 13,314

UNITED STATES of America, Plaintiff-Appellee, v. James G. NUTH, Defendant-Appellant.

No. 78-5324.

United States Court of Appeals Sixth Circuit.

Argued April 5, 1979.

Decided Aug. 30, 1979.

Mitchell Ehrenberg, Buckingham, Doolittle & Burroughs, James C. Herndon, Ronald L. Penner, Akron, Ohio, for defendant-appellant.

James R. Williams, U. S. Atty., James C. Lynch, Asst. U. S. Atty., Cleveland, Ohio, for plaintiff-appellee.

Before LIVELY and MERRITT, Circuit Judges and BROWN, ^* District Judge.

BAILEY BROWN, Chief Judge.

Appellant, James G. Nuth, was charged in four counts with fraud in connection with the preparation and filing of four gift tax returns for the years 1970, 1971, 1973 and 1974. All of the returns were filed in behalf of Nuth's aged aunt, Betty K. Owen, the donor. As to Counts I, II and III, it is charged in substance that Nuth willfully aided and assisted in the preparation of Owen's returns for the years 1970, 1971 and 1973 knowing that Owen had made substantial gifts in those years that were not included in the returns. In Count IV, it is charged in substance that Nuth willfully subscribed to a gift tax return for the year 1974 for Owen, verified under penalties of perjury, which return Nuth did not believe to be true in that it included transfers as being made in 1974 which actually had been made in 1973. Counts I, II and III are based on § 7206(2) and Count IV is based on § 7206(1) of 26 U.S.C., these provisions being set out in the margin. ¹

Upon a jury trial, Nuth was found not guilty as to Count I and guilty as to Counts II, III and IV. The trial judge, Hon. Thomas D. Lambros, thereafter denied a motion for acquittal or for a new trial and also denied a supplemental motion for suppression of evidence, the latter motion being based on evidence alleged by Nuth to have been obtained after the trial.

Nuth has appealed and asserted various errors, and his most weighty contention has to do with the denial of the motion to suppress evidence. No issue is raised by the Government as to the timeliness of the motion.

I

Nuth contends that from the time he was first interviewed by a Revenue Agent and thereafter, this case was viewed by the Internal Revenue Service (IRS) as a criminal matter. His motion to suppress is based on two separate but related propositions. The first is that such Revenue Agent did not give him the Miranda -like warnings required by two News Releases that had been issued by the IRS. Secondly, Nuth contends that the IRS fraudulently misled him with respect to the nature of the audit to be conducted by the Revenue Agent by a statement in an introductory letter sent to him by the Revenue Agent and also misled him by stating, in substance, at the beginning of the audit, that it was a "normal" or "routine" audit.

At this time, to explore such contentions, it is necessary to relate some events that occurred immediately prior to the audit performed by the Revenue Agent.

The investigation of Nuth's tax affairs began in a rather unusual way. It appears that in January, 1974, an IRS representative in Ottawa received information from the Royal Canadian Mounted Police that some United States citizens, including Nuth and some other persons from the Youngstown area, were suspected of attempting to carry out a fraud scheme in Canada. The alleged scheme apparently was to purchase stock of a corporation with washed funds derived from organized crime. This information item was ultimately passed to the IRS at Cleveland, with the result that Special Agent Marzich of the Intelligence Division reviewed the police file at Ottawa and also did some investigation of Nuth's affairs in the Youngstown area, such as his real estate transfers as reflected by courthouse records. Marzich then wrote a report to the Chief, Intelligence Division, at Cleveland via his group manager, Blaha. In this report Marzich stated that, while Nuth associated with racketeers, his involvement in a fraud scheme was "unknown." However, Marzich, based on financial statements he reviewed in Canada filed there by Nuth, stated that Nuth's increase in net worth did not comport with the income shown on his income tax returns. He also pointed out that, although Nuth had dealt substantially in real estate, there was no Schedule D (gains and losses from sales of capital assets) included in his income tax returns. Marzich recommended that an immediate audit of Nuth be made, Blaha forwarded Marzich's report recommending that Nuth be included in the Cleveland Strike Force Program as an audit target.

The Chief, Intelligence Division, at Cleveland was a member of the Selection Committee, and that Committee determined that Nuth should be included in the Special Enforcement Program (Strike Program) as an audit target. Thereafter, Joseph R. Morrow, a Revenue Agent, was assigned to audit Nuth and Morrow reviewed the Special Agent's report before beginning the audit.

On October 3, 1967, the IRS had issued News Release No. 897 that stated:

In response to a number of inquiries the Internal Revenue Service today described its procedures for protecting the Constitutional rights of persons suspected of criminal tax fraud, during all phases of its investigations.

Investigation of suspected criminal tax fraud is conducted by Special Agents of the IRS Intelligence Division. This function differs from the work of Revenue Agents and Tax Technicians who examine returns to determine the correct tax liability.

Instructions issued to IRS Special Agents go beyond most legal requirements to assure that persons are advised of their Constitutional rights.

On initial contact with a taxpayer, IRS Special Agents are instructed to produce their credentials and state: "As a special agent, I have the function of investigating the possibility of criminal tax fraud".

If the potential criminal aspects of the matter are not resolved by preliminary inquiries and further investigation becomes necessary, the special agent is required to advise the taxpayer of his constitutional rights to remain silent and to retain counsel. . . . IRS said although many special agents have had in the past advised persons, not in custody, of their privilege to remain silent and retain counsel, the recently adopted procedure insures uniformity in protecting the constitutional rights of all persons.

And on November 26, 1968, the IRS had issued News Release No. 949 that stated:

One function of a Special Agent is to investigate possible criminal violations of Internal Revenue laws. At the initial meeting with a taxpayer, a Special Agent is now required to identify himself, describe his function, and advise the taxpayer that anything he says may be used against him. The Special Agent will also tell the taxpayer that he cannot be compelled to incriminate himself by answering any questions or producing any documents, and that he has the right to seek the assistance of an attorney before responding.

Preparatory to beginning the audit, Morrow sent a letter to Nuth to arrange for a meeting with him, and the letter stated, Inter alia :

We examine returns to verify income exemptions, and deductions. This does not always result in more tax due, nor does the selection of your return for examination imply dishonesty or suspicion of criminal liability.

Morrow then met with Nuth in August, 1974, initially interviewed him and thereafter met with Nuth on several occasions at which interviews were held and documents turned over to Morrow by Nuth. It is conceded by the Government that Morrow never gave the warnings set out in the News Releases. Nuth testified, which Morrow denied, that Morrow told him at the beginning that it was a routine audit. In any event, Morrow concluded that there were indications of fraud on the part of Nuth, not with respect to income tax, but with respect to the gift tax returns which he had aided and assisted in preparing. Thereupon, on recommendation of Morrow, Marzich, the Special Agent with the Intelligence Division, entered and took over the investigation that resulted in the instant indictment. It was the statements made by Nuth and the documents turned over by Nuth to the Revenue Agent, Morrow, that Nuth sought to suppress.

As stated, Nuth contends that this investigation was looked upon by the IRS as a fraud investigation from the time Revenue Agent Morrow began his audit, and from this proposition Nuth argues that the evidence obtained by Morrow should have been suppressed because of the admitted failure of Morrow to give the Miranda -like warnings provided in the News Releases. Alternatively, as stated, Nuth argues that suppression is required because of the claimed misrepresentation as to the nature of the investigation contained in the form letter and in Morrow's statement to Nuth at the inception.

The short answer to Nuth's suppression contention is that the trial court, after a full evidentiary hearing at which Nuth, Morrow, Marzich and the Chief of the Audit Division at Cleveland testified, found as a fact that, with the evidence the IRS then had, this was not, at the time Morrow began conducting the audit, looked upon by the IRS as a criminal investigation; and such finding is binding on this court unless clearly wrong. (United States v. Jobin, 535 F.2d 154 (1st Cir. 1976)). In this connection, in its opinion denying the motion to suppress, the trial court said:

There is no doubt but that the original audit of defendant by the Internal Revenue Service was prompted by information from the Royal Canadian Mounted Police that James G. Nuth, as well as a number of other United States citizens, were under investigation in Canada for theft, embezzlement and use of stolen and/or counterfeit securities to fraudulently obtain bank loans in Canada. This information was initially evaluated by the Intelligence Division of the IRS. However, when passed on to the Audit Division of the IRS, the Audit Division handled the...