US v. Cates

• Decision Date: 23 May 1988
• Docket Number: Civ. No. B-86-2328.
• Citation: 686 F. Supp. 1185
• Parties: UNITED STATES of America and Revenue Officer B.D. Walling of the Internal Revenue Service v. William J. CATES.
• Court: U.S. District Court — District of Maryland

686 F. Supp. 1185

UNITED STATES of America and Revenue Officer B.D. Walling of the Internal Revenue Service v. William J. CATES.

Civ. No. B-86-2328.

United States District Court, D. Maryland.

May 23, 1988.

Breckinridge L. Willcox, U.S. Atty., Larry D. Adams, Asst. U.S. Atty., Baltimore, Md., Iryna A. Kwasny, Trial Atty., Washington, D.C., for plaintiffs.

William J. Cates, Derwood, Md., pro se.

WALTER E. BLACK, Jr., District Judge.

While the United States system of taxation is built on the principle of self-assessment and voluntary compliance with the Internal Revenue Code's rules and regulations by individuals, which necessarily relies upon "the good faith and integrity of each potential taxpayer to disclose honestly all information relevant to tax liability," United States v. Bisceglia, 420 U.S. 141, 145, 95 S.Ct. 915, 918, 43 L.Ed.2d 88 (1975), tax protestors are no strangers to the Internal Revenue Service (IRS). For these protestors and others who attempt to outwit the system, the IRS is an integral and indispensable part of the enforcement of the revenue laws. United States v. Fox, 721 F.2d 32 (2d Cir.1983), (citing United States v. Harrington, 388 F.2d 520, 525 (2d Cir.1968)). Courts, however, have also recognized that in appropriate cases answers by an individual to questions surrounding a tax investigation or the supplying of requested documents may tend to incriminate, and the individual's Fifth Amendment rights would apply to such responses. See, e.g., Mathis v. United States, 391 U.S. 1, 88 S.Ct. 1503, 20 L.Ed.2d 381 (1968); Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973); Fisher v. United States, 425 U.S. 391, 96 S.Ct. 1569, 48 L.Ed.2d 39 (1976). In recognizing such a privilege, the IRS is faced with the unfortunate reality that tax protestors, too, may assert their Fifth Amendment privilege against self-incrimination in response to questions and requests for documents, and that other methods of obtaining the information sought may have to be employed. This Court must now consider the very issue of whether the Fifth Amendment privilege against self-incrimination is properly raised in response to questions and document requests of the IRS by a self-employed physician who has not filed a processable tax return since 1979.

On March 4, 1986, two Internal Revenue Service summonses were issued and served on William J. Cates, directing him to appear before Revenue Officer B.D. Walling, or her delegate, at a designated place and time.¹ The summonses required Cates to appear before the officer to give testimony and to bring documents and records in connection with an IRS investigation of his tax liability for the years 1977 through 1979 and 1980 through 1984.

Cates was to appear before Walling on March 17, 1986 and March 27, 1986, respectively. While Cates did in fact appear at both hearings, accompanied by a man holding a recording device, who identified himself as Throckmorton P. Gildersleeve,² questioning of Cates never took place. Walling explained to him and his companion that under IRS regulations unilateral recording of meetings between Revenue Officers and taxpayers was not permitted. She then asked him for the information sought in the summonses, to which he replied that he was asserting his rights under the Fourth and Fifth Amendments to the Constitution. The interview was then terminated.

Petitioners, the United States of America and Walling, brought the instant proceeding pursuant to 26 U.S.C. §§ 7402(b)³ and 7604⁴ to require Cates to show cause why he should not comply with the summonses and to compel compliance with the summonses. Pursuant to Walling's declaration that Cates had not complied with either of the summonses as of June 11, 1986, this Court issued an order to show cause why Cates should not be compelled to obey the IRS summonses served on March 4, 1986. The matter came before the Court for hearing on March 27, 1987. Because of the problem with unilateral tape recording, a record had not been made on Cates' appearance before the IRS, the interview having been terminated before any questioning had occurred. The Court therefore entered an order on March 27, 1987 requiring Cates to appear on April 27, 1987 before Walling pursuant to the summonses, assuming that the IRS would have a recording device available to avoid the problem encountered at the previous meeting. As expected, Cates appeared in response to the Court's order, but declined to answer any substantive questions asked by Walling, asserting his First and Fourth Amendment rights as well as his Fifth Amendment privilege against self-incrimination. Walling did not ask Cates for any of his records or documents reflecting his income for the years in question at this hearing.

A record having been established, and the issues raised by Cates' response to the show cause being ripe for consideration, the Court held a second hearing on the petition to enforce the summons on July 16, 1987. Counsel for the government further argued their position with respect to Cates' Fifth Amendment rights, and Cates, being unrepresented by counsel, chose to rely on his written submissions.

Although Cates asserted certain constitutional rights in addition to those under the Fifth Amendment, the primary focus of the papers submitted and oral argument was whether Cates could invoke his Fifth Amendment privilege against self-incrimination to prevent the production of his records relating to income for the years in question. Whether the privilege could be similarly asserted in response to the questions posed by the Revenue Officer was also addressed.

The Fifth Amendment privilege is a personal one, adhering to the person, and not the information that may tend to incriminate him, and Courts have long recognized the importance of preserving it inviolate. See, e.g., Couch, 409 U.S. at 327, 93 S.Ct. at 615; Fisher, 425 U.S. at 397, 96 S.Ct. at 1574. Courts have also acknowledged, both expressly and implicitly, that a routine tax investigation is a situation in which answers to questions posed by an agent of the IRS might tend to incriminate, allowing the Fifth Amendment privilege against self-incrimination to protect the individual from providing answers to such inquiries and, indeed, in some instances from the production of documents. See Fisher, 425 U.S. at 397, 96 S.Ct. at 1574 (concluding that the taxpayer's privilege is not violated by enforcement of a summons against the taxpayer's attorney since the taxpayer would not be compelled to do anything); United States v. Daffin, 653 F.2d 121 (4th Cir.1981) (documents possessed by a taxpayer's accountant are not subject to taxpayer's Fifth Amendment privilege); United States v. O'Henry's Film Works, Inc., 598 F.2d 313, 316-317 (2d Cir.1979) (answers to questions in a routine tax investigation might tend to incriminate and Fifth Amendment rights apply to such answers, except that the privilege does not extend to corporations and similar organizations).

This line of cases allowing taxpayers to assert their Fifth Amendment privilege against self-incrimination seems to stem from the Court's decision in Mathis v. United States, 391 U.S. 1, 88 S.Ct. 1503, 20 L.Ed.2d 381 (1968), where the petitioner had been convicted of fraud arising out of claims for tax refunds. Evidence admitted at trial and consisting of documents and oral statements obtained from the petitioner by a government agent, while the petitioner was in prison serving a state sentence for a separate crime, was determined to have been improperly admitted as the self-incriminating evidence was obtained without warning of the petitioner's right to be silent and right to counsel under the Court's ruling in Miranda v. State of Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966). In so holding, the Court rejected the government's arguments that these questions were asked as part of a routine tax investigation where no criminal proceedings had been brought and that petitioner had not been incarcerated by the officers questioning him, but instead was serving a sentence for an entirely separate offense. Although the Court recognized that a "routine tax investigation" may be commenced in a civil action for purposes other than criminal prosecution, the Court was also mindful of the fact that tax investigations frequently lead to criminal prosecutions, rejecting the contention that Miranda warnings need not be given to a person in custody prior to questioning pursuant to a tax investigation. Mathis, 391 U.S. at 4, 88 S.Ct. at 1505.

The proposition that the Fifth Amendment prevents compelled production of documents over objection that the production might be incriminating has its origins in Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746 (1886). This was a civil forfeiture proceeding brought by the government against two partners for their attempt to import cases of glass without paying the required duty. Over the Fifth Amendment objection of the partners, the government was successful at trial in obtaining a court order directing the partners to produce an invoice evidencing such fraud. On appeal, the Supreme Court concluded that the invoice was inadmissible under the Fourth Amendment.⁵ The Court went on to hold that an accused in a criminal case or the defendant in a forfeiture action could not be compelled to produce evidentiary documents without similarly violating the Fifth Amendment rights of the individual, providing that "a compulsory production of the private books and papers of the owner of goods sought to be forfeited ... is compelling him to be a witness against himself, within the meaning of the fifth amendment to the constitution." 116 U.S. at 634-635, 6 S.Ct. at 534; Fisher, 425 U.S. at 407, 96 S.Ct. at 1579.

The Court in Boyd spoke of the protection of privacy and was understood to provide that seizure of any private papers from the taxpayer for evidentiary purposes violated the ...