United States v. Maciel, 7786

• Decision Date: 22 November 1972
• Docket Number: 7787.,No. 7786,7786
• Citation: 351 F. Supp. 817
• Court: U.S. District Court — District of Rhode Island
• Parties: UNITED STATES of America v. Anthony H. MACIEL. UNITED STATES of America v. Anthony H. MACIEL, as President of East Providence Ambulance Co., Inc.

351 F. Supp. 817

UNITED STATES of America v. Anthony H. MACIEL.

UNITED STATES of America v. Anthony H. MACIEL, as President of East Providence Ambulance Co., Inc.

Nos. 7786, 7787.

United States District Court, D. Rhode Island.

November 22, 1972.

Lincoln C. Almond, U. S. Atty., Providence, R. I., for plaintiff.

Milton Stanzler, Providence, R. I., for defendant.

MEMORANDUM OPINION

PETTINE, Chief Judge.

Indictments for violation of 26 U.S.C. § 7201 were returned against the defendant, one in his individual capacity and the other as President of East Providence Ambulance Co., Inc. His motions to dismiss pursuant to Rule 12(b)(1) and (2), Fed.R.Crim.P. are treated as motions for the suppression of evidence.¹

The matter was referred to a magistrate pursuant to 28 U.S.C. § 636(b) and after an evidentiary hearing, an order was entered on October 10, 1972.² The defendant, not having waived an appeal, duly filed written objections to the magistrate's report in accordance with Local Rule 32, thus placing the matter before me for a review hearing as the judge to whom the case is assigned.

The defendant seeks to suppress all documents, books, papers, bank statements, check stubs, cancelled checks, and any and all other tangible objects as well as the use of any information resulting therefrom contending the same were obtained by Special Agents, Intelligence Division, Internal Revenue Service in violation of the Fifth Amendment of the United States Constitution.³

Findings of Fact

On December 2, 1968, the Internal Revenue Service contacted the defendant to audit the records of the East Providence Ambulance Co., Inc. Though the facts are not precise in spelling out the stock structure of the company, it is quite conclusive it is a closed entity with stock ownership entirely controlled and owned by the defendant and his wife. Personal and corporate records as requested by the agent were voluntarily made available after obtaining the defendant's permission. The government did not indicate there were any criminal implications until February 18, 1969 when another agent of the Intelligence Division met with the defendant's accountant, Mr. John Mello. The agent, Mr. Robert Gray, though known to the accountant as such, did not identify himself as a criminal investigator nor did he give any advice or warning as to the purpose of his visit. On February 19, 1969, Mr. Gray requested and obtained from Mr. Mello, as permitted by his client, the personal and corporate documents for the years 1965, 1966 and 1967.

Mr. Gray's first meeting with the defendant was on March 5, 1969 and though the testimony is in conflict, this Court finds Mr. Gray did warn the defendant that an investigation was being conducted by the Intelligence Division which was charged with the responsibility of conducting examinations for possible criminal violations of the Internal Revenue laws and that he had a right to remain silent and to counsel. Significantly, I also find there were no warnings of the inculpatory possibilities of produced records or of anything the taxpayer might say as a tax violator suspect, or that he could not be compelled to incriminate himself by producing any documents or information.

Subsequent to this March 5, 1969 meeting, the case was assigned to another agent who readily testified he gave no warnings to the defendant since he relied on the purported one given by his predecessor. Indeed, I further find he advised the defendant he did not need a lawyer and boldly ill advised, "Attorneys get an arm and a leg."

The evidence further shows, and I so find, that subsequent to February 18, 1969, personal and corporate records were delivered to agents of the Internal Revenue Service as they requested and question and answer conferences were held with the defendant.

Finally on October 21, 1970, the Internal Revenue Service notified the defendant in writing that he was personally, and as President of East Providence Ambulance Co., Inc., a prime tax evader candidate.

Conclusions of Law

The failure of Special Agent Gray to effectively warn the taxpayer that anything he said or the records he volunteered could be used to incriminate him, and that he could not be compelled to inculpate himself by producing any documents is a substantial violation of the procedures for advising taxpayers of their rights established by the Internal Revenue Service in News Release IR-949 of November 26, 1968. Such public release provides:

"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."

The situation before me is thus totally unlike that presented the court in United States v. Bembridge, 458 F.2d 1262 (1st Cir. 1972) where the agent was in complete compliance with the latest Service directive, though he omitted a warning required in a prior directive and instead substituted a broader and perhaps more effective warning as recommended in the most recent Service promulgation.

The present case does not involve the omission of any "magic words," but concerns instead, the agent's negligence in failing to advise the taxpayer of crucial rights. A taxpayer may well be cooperative in his answers and in his ready consent to inspection of his records when he is not aware that such evidence as is gathered may be used to incriminate him. Furthermore, the failure to advise the taxpayer that the production of possibly incriminating records could not be compelled is, in itself, a grievous breach of Internal Revenue Service standards of conduct. Written records are to a tax investigation what an oral confession is to a typical police interrogation. And it is unlikely that the average layman would be cognizant of the attachment of the Fifth Amendment privilege to personal records.

Adding insult to injury is the fact that any chance that the prolonged investigation would have awakened the taxpayer to the possible value of having the counsel of an attorney was effectively negated by Agent Hynes' breezy misinformation that counsel was unnecessary, that it would cost the taxpayer money to settle the case, and that "Attorneys get an arm and a leg."

I therefore find that the standard of behavior adopted by the Internal Revenue Service was sufficiently flaunted to bring the instant case into the scope of the doctrine of United States v. Leahey, 434 F.2d 7 (1st Cir. 1970). In the Leahey case, the Internal Revenue Service agents identified themselves but failed to advise the taxpayer that they were investigating the possibility of criminal tax fraud.⁴ The Leahey court found that such a disregard of publicly promulgated agency standards, though more expansive than what is constitutionally required, constitutes a violation of due process and necessitates the exclusion of evidence obtained in the tax investigation. The rationale of the court for a due process standard was twofold: first, the likelihood of the objective of uniform conduct by the agents would be much reduced (particularly in important cases) if the conduct of interviews did not effect the prosecution and would lead to the possible erosion of the citizens' faith in the evenhanded administration of justice; secondly, the taxpayers and their counsel would have expectably and reasonably relied on the public pronouncement of the Internal Revenue Service. The above reasoning is equally applicable where the taxpayer is only partially informed of his rights. In fact, partial compliance which is substantially less than the agency requirements may lead to more confusion than complete disregard, for where a taxpayer is told he has the right to silence, and then is asked to produce records, a reasonable implication is that there is no constitutional privilege as to documents. The exclusionary rule established in Leahey therefore requires that I grant the motion to suppress as to personal records. It is so ordered.

The novel issue which is presented in this case is whether the corporate records volunteered to the Special Agents can similarly be excluded. This motion must be and is hereby denied.

The corporate records delivered to the Internal Revenue Service were those of East Providence Ambulance Co., Inc., wholly owned by Mr. Maciel; and Maciel Realty Co., whose sole shareholders are Mr. Maciel and his wife.⁵ Though United States v. Bembridge, 458 F.2d 1262 (1st Cir. 1972) referred to personal corporate records, and held that the warnings given were in sufficient compliance with the Internal Revenue Service standards to warrant reversal of United States v. Bembridge, 335 F.Supp. 590 (D.C.Mass.1971) which had granted the motion to suppress, I do not find that either the district court or the reviewing court passed on any issue as to the exclusion of corporate records. The corporate records involved in Bembridge were those of a company in which the defendant was chief executive officer — a fact situation analogous to the instant case. However, the defendant moved only to suppress his personal papers (United States v. Bembridge, 335 F. Supp. 590). Thus, the First Circuit has never confronted the issue of whether "personal corporate records" are subject to the exclusionary rule.

As to this issue, the pivotal question is whether or not the directive at issue is applicable to corporate records. The nettling problem arises when there is a lack of an adequate pre-warning to the release of corporate records ultimately spawning an indictment against the taxpayer who then moves to suppress.

If adequately warned and the records are nevertheless released, there...