United States v. Posner, 82-352-EPS (Criminal).
| Decision Date | 03 August 1984 |
| Docket Number | No. 82-352-EPS (Criminal).,82-352-EPS (Criminal). |
| Citation | 594 F. Supp. 916 |
| Parties | UNITED STATES of America, Plaintiff, v. Victor POSNER and William Scharrer, Defendants. |
| Court | U.S. District Court — Southern District of Florida |
K. Chris Todd, Neil S. Cartusciello, Asst. U.S. Attys., S.D.N.Y., New York City, for plaintiff.
Edward Bennett Williams, Washington, D.C., for defendant Posner.
Hugh F. Culverhouse, Jr., Miami, Fla., for defendant Scharrer.
THIS CAUSE came before the Court on Defendant POSNER's Motion to Dismiss the Indictment or Suppress Evidence By Reason of the Government's Violation of His Constitutional Rights and of Its Own Standards of Procedure, filed July 28, 1983, docket no. 37. Having reviewed the record in this cause, conducted extensive in camera document reviews and several days of evidentiary hearings, and being otherwise duly advised, it is hereby
ORDERED AND ADJUDGED that the Motion is DENIED.1 The following opinion in narrative form constitutes the Findings of Fact and Conclusions of Law of the Court for the purposes of this Motion.
This case concerns the criminal prosecution of a taxpayer, Victor Posner, and a real estate broker who acted as an appraiser, William Scharrer, for the alleged over-valuation of real property donated to Miami Christian College for the alleged purpose of obtaining an inflated charitable tax deduction for Posner.2
Through a trust, Posner owned a large tract of land in southwest Miami, in Dade County, Florida. A parcel of the land was donated to Miami Christian College in December of 1975; and a smaller contiguous tract was donated to the College in 1978.
Scharrer did an appraisal of the land for tax purposes. The government asserts that both Posner and Scharrer knew the appraised value was falsely inflated and that this figure was arrived at with the intent of deceiving the IRS by taking an excessive tax deduction for a charitable contribution.
Posner attacks the indictment and alternatively moves to suppress evidence because of alleged misconduct by the IRS during the investigatory phase of this case.
Beginning with the 1970 tax year, the IRS has conducted "team audits" of the tax returns filed by Victor Posner and the various companies in which he owns a controlling interest. These audits have been conducted by revenue agents permanently stationed on the premises of Posner's offices and those of his companies. Generally, at least six agents have been assigned to these audits, with four or five of them stationed regularly in Posner's corporate headquarters located in the Victorian Plaza, Miami Beach, Florida. In addition, three or four specialists worked on the Posner audits in Miami.
On October 17, 1979 Revenue Agent David Langlois of the civil audit team in Miami requested that Posner, through his tax advisor, Martin Rosen, provide the IRS with documents relating to the 1975 charitable contribution to Miami Christian College (MCC). On October 23 and December 31, 1979, Rosen supplied the civil audit team with all the documents in Posner's possession dating to 1967 pertaining to the MCC property. These documents are critical to the instant prosecution and are the subject of this motion.3
At the time that the civil auditors requested these documents and Rosen supplied them, a grand jury was investigating Posner for possible criminal violations of the securities laws, and the IRS was in the process of authorizing the grand jury to expand its investigation into possible criminal violations of the tax laws. In this motion, Posner claims that it was a violation of the IRS procedures to continue the civil audit once a criminal investigation has begun.4 Moreover, Posner argues that the failure of the IRS to stop the civil audit misled Rosen into continuing to cooperate and give documents over to the IRS. Had Rosen known of the criminal investigation, he would have stopped providing the documents and would have referred Posner to counsel experienced in criminal matters. Posner further argues that this gathering of information for use in a criminal prosecution under the guise of a civil audit violated his Fourth Amendment right to be free from unreasonable searches and seizures.
As set forth in detail below, the Court finds that neither dismissal of the indictment nor suppression of the evidence is warranted, because (1) technically there were no violations of IRS procedures in continuing the civil audit; (2) under the circumstances of this case the revenue agents conducting the civil audit did not have an affirmative duty to advise Posner's counsel that a grand jury request had been made to the Tax Division, Department of Justice; and (3) the revenue agents did not affirmatively misrepresent the nature of the IRS investigation to Posner's tax counsel.
In 1976 the United States Securities and Exchange Commission ("SEC") began investigating Victor Posner and companies he controlled, and ultimately on September 20, 1977 the SEC filed a complaint in the United States District Court for the District of Columbia charging Posner and others with violations of the federal securities laws, misrepresentation, deceit and fraud.5 The complaint alleged that Posner and his son and daughter caused companies he controlled to pay for a variety of personal expenses including a $100,000 per year suite at the Plaza Hotel in New York City, limousines, chauffeurs, personal servants, travel on corporate jets, use of corporate yachts, liquor, groceries and restaurant tabs. Nothing in this complaint related to the instant allegations concerning improper deductions taken for charitable contributions.
Prior to filing this civil complaint, an attorney with the Enforcement Division of the SEC working on the Posner investigation, contacted the IRS Criminal Investigation Division ("CID") in Miami to discuss information derived from the investigation, in an effort to interest the IRS in a criminal tax investigation of Posner. Apparently, the CID in Miami had no interest in conducting a criminal tax investigation of Posner based on the SEC's information.
During the SEC investigation in July or August of 1977, Posner's attorney and tax advisor, Martin Rosen, Esq., was informed that the United States Attorney's Office for the Southern District of New York had a potential interest in a securities fraud criminal case. Martin Rosen testified that "we knew there was an interest by the United States Attorney's office in the Southern District in the potential criminal effect of the securities settlement." Rosen was, and is, an experienced tax counsel and former IRS Revenue Agent. As a result of being informed that the United States Attorney's Office was considering possible criminal charges against Posner, the attorneys representing Posner discussed this matter and, notwithstanding the potential criminal charges, recommended that Posner consent to the entry of a judgment against him.
Posner consented to the entry of a judgment and order by the United States District Court of the District of Columbia which enjoined Posner from violating the federal securities laws and which required that he and others repay $600,000 to public companies he controlled. Further, this consent judgment and order provided for an audit committee which subsequently recommended that Posner and others reimburse these public companies approximately $1,000,000 to repay personal expenditures which had come from corporate funds.
Thereafter, the SEC files were referred to the U.S. Attorney's Office in the Southern District of New York for criminal investigation. A grand jury then was empaneled to investigate Victor Posner, various companies he controlled and various other individuals. Under the direction of Assistant U.S. Attorney Martin McNamara, the grand jury investigated possible violations of the federal securities laws and of 18 U.S.C. §§ 371, 1001, 1341 and 1343. Posner was totally unaware that the U.S. Attorney's Office was pursuing a criminal case against him and that he was the subject of a grand jury investigation.
In February, 1979, Assistant U.S. Attorney McNamara contacted the CID in the Manhattan District regarding his desire to request a separate grand jury investigation into possible criminal violations of federal income tax laws by Victor Posner. McNamara spoke about this matter with officials from the Manhattan CID and also provided information derived from the SEC's and the U.S. Attorney's Office investigation of Posner to the CID.
Based on information received from McNamara, including information contained in documents derived from the SEC investigation into Posner's affairs, a special agent from the Manhattan CID "numbered" the 1975 and 1976 tax returns of Posner and several of the companies controlled by him on March 1, 1979. The agent understood that when he "numbered" the case, that meant that a criminal investigation into Posner's tax returns had been opened.6
On March 2, 1979, Assistant U.S. Attorney McNamara began the administrative process to obtain authorization to conduct a grand jury investigation into tax-related offenses.
Each indictment concerning violations of the federal criminal tax laws first must be authorized by the Assistant Attorney General of the Tax Division, Department of Justice, upon the recommendation of the Criminal Section, Tax Division, Department of Justice. Likewise, before a grand jury investigation of possible violations of the federal criminal tax laws may be initiated by a United States Attorney's Office, the Tax Division of the Department of Justice must first authorize such an investigation. Before the Tax Division will authorize a grand jury investigation of any person or entity, it first obtains from the...
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