Weiss v. C.I.R., 89-70148

• Decision Date: 26 November 1990
• Docket Number: No. 89-70148,89-70148
• Citation: 919 F.2d 115
• Parties: -5953, 59 USLW 2367, 90-2 USTC P 50,589 Eric F. WEISS; Mary E. Weiss, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 115

919 F.2d 115

66 A.F.T.R.2d 90-5953, 59 USLW 2367, 90-2

USTC P 50,589

Eric F. WEISS; Mary E. Weiss, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 89-70148.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 20, 1990.

Decided Nov. 26, 1990.

Walter Tribbey, Ontario, Cal., for petitioners-appellants.

Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, Ann B. Durney, Curtis C. Pett, Tax Div., Dept. of Justice, Washington, D.C., for respondent-appellee.

Appeal from a Decision of the United States Tax Court

Before LIVELY, ^* FLETCHER and REINHARDT, Circuit Judges.

REINHARDT, Circuit Judge:

In April 1984, the IRS determined deficiencies in Eric and Mary Weiss's income tax and assessed additional taxes for 1976, 1977, and 1978. The Weisses petitioned the Tax Court for a redetermination and moved the Tax Court to suppress evidence derived from the IRS's exercise of "institutional bad faith." This institutional bad faith, which was found to exist by a district judge in a prior criminal prosecution based on the same facts, consisted at least in part of violations of internal agency regulations. However, IRS regulatory violations do not require the suppression of evidence. United States v. Caceres, 440 U.S. 741, 99 S.Ct. 1465, 59 L.Ed.2d 733 (1979). On the other hand, it is not clear whether evidence must be suppressed when statutory violations are involved, see Caceres, 440 U.S. at 755 & n. 21, 99 S.Ct. at 1473 & n. 21; United States v. Appoloney, 761 F.2d 520, 522-23 (9th Cir.), cert. denied, 474 U.S. 949, 106 S.Ct. 348, 88 L.Ed.2d 296 (1985); United States v. Snowadzki, 723 F.2d 1427, 1430-31 (9th Cir.), cert. denied, 469 U.S. 839, 105 S.Ct. 140, 83 L.Ed.2d 80 (1984), and the parties are in disagreement on whether the district court found that the IRS had committed statutory as well as regulatory violations by issuing civil summonses for a criminal investigation. See 26 U.S.C. Sec. 7602 (1976) (amended 1982). ¹

The Tax Court denied the Weisses' motion to suppress and upheld the IRS's assessment. The Weisses argue that the Tax Court wrongly ignored the IRS's statutory violations and that, because of these violations, the Tax Court should have suppressed the evidence. We need not decide whether in the earlier criminal case the district court made a finding of statutory violations, nor under what circumstances a finding of a statutory violation would require application of the exclusionary rule in a civil case. We conclude, instead, that regardless of whether statutory violations took place, this is not an appropriate case in which to apply the exclusionary rule. We affirm.

I.

This civil case follows an earlier criminal prosecution of Eric Weiss for tax evasion, based on the same facts. See United States v. Weiss, 566 F.Supp. 1452 (C.D.Cal.1983) ("Weiss I "), appeal dismissed, 730 F.2d 772 (9th Cir.1984). The district court dismissed the criminal prosecution sua sponte, with prejudice, because it found evidence that the IRS had acted with institutional bad faith in gathering evidence for the prosecution. Specifically, the court found that the IRS had failed to comply with its Internal Revenue Manual ("IRM") ² procedures. The court also found evidence that the IRS had improperly issued civil summonses for a solely criminal investigation.

The Weiss I court made the following findings: Although the Civil Audit Division used the proper form to refer the investigation to the Criminal Intelligence Division, the Criminal Intelligence Division did not return the referral report within the fifteen work-day deadline. The Criminal Intelligence Division did not inform the Civil Audit Division that it had accepted the referral until twenty-six work days had passed, and it failed to check a box on the notification form requesting that a cooperating civil officer be assigned to the investigation. Instead, the Criminal Intelligence Division improperly used a separate form to request a cooperating civil officer and did not make this request until October 9, 1979. The Civil Audit Division did not act on the request until October 10, 1979, when it assigned civil officer Floyd Krietz to the investigation.

Meanwhile, the Criminal Intelligence Division had begun its investigation. Krietz unofficially participated in the investigation before his assignment. On October 1 and October 4, Krietz and a criminal officer interviewed Weiss and demanded records. At some point, the IRS issued fifteen summonses pursuant to 26 U.S.C. Sec. 7602 (1976) (amended 1982). ³ This statute, prior to its 1982 amendments, authorized the IRS to issue summonses for civil investigations but not for criminal ones. See United States v. La Salle Nat'l Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978). Because the Assistant United States Attorney did not comply with the district court's repeated requests to supply copies of those summonses, or even a list of dates when they were issued, the court could not determine whether any were issued prior to Krietz's assignment. It therefore concluded that "the Court cannot assume anything except that it was possible, if not probable, that at least some of these Civil Summonses were utilized by the Criminal Special Agent or the Civil Revenue Agent in support of an investigation wholly criminal in nature." Weiss I, 566 F.Supp. at 1455.

The Weiss I court stated that the judiciary could not sanction the wholly criminal use of a civil summons. See Weiss I, 566 F.Supp. at 1455 (citing La Salle). The court then compared the situation to a precedent in which the IRS had improperly issued civil summonses for a criminal investigation. See United States v. Dahlstrum, 493 F.Supp. 966 (C.D.Cal.1980), appeal dismissed, 655 F.2d 971 (9th Cir.1981), cert. denied, 455 U.S. 928, 102 S.Ct. 1293, 71 L.Ed.2d 472 (1982). Stating that "[t]he Dahlstrum factual situation is virtually identical to the facts found here, which compels the Court to conclude that the present case is legally undistinguishable [sic] from Dahlstrum," the court dismissed the indictment. Weiss I, 566 F.Supp. at 1455. Because jeopardy had attached, this court dismissed the government's appeal. United States v. Weiss, 730 F.2d 772 (9th Cir.1984) (unpublished memorandum disposition).

Following the termination of its criminal action against Eric Weiss, the IRS proceeded civilly against Eric and Mary Weiss, determining deficiencies and additions to their taxes for 1976, 1977, and 1978. The Weisses filed this present action in the Tax Court to seek a redetermination. Weiss v. Commissioner of Internal Revenue, T.C.M. (P-H) p 88,586 (Dec. 27, 1988) ("Weiss II "). They also filed a motion to suppress all evidence derived from the IRS's exercise of institutional bad faith, as determined by the district court in Weiss I. The parties stipulated to alternative tax liabilities, depending on whether the Tax Court granted or denied the Weisses' motion to suppress. They also stipulated to the facts and holdings of the district court in Weiss I. Because the only issue remaining in the case was the motion to suppress, the Tax Court treated the motion as a motion for summary judgment. Id. at 88-3033.

The Tax Court refused to suppress the evidence. In determining the basis for the Weiss I court's finding of institutional bad faith, the Tax Court focused on the IRS's failure to comply with the IRM procedures. It found that the Weiss I court had been conditional in its finding of additional violations. Id. at 88-3037. Stating that the dismissal of the criminal case had been a sufficient deterrent, the Tax Court then entered judgment in accordance with the parties' stipulation. Id. at 88-3037 to 88-3038.

The Weisses appeal from the Tax Court's ruling. They argue that the district court made a finding of statutory violations which the Tax Court wrongly ignored, and that, because of res judicata, ⁴ we should accept the conclusion that the IRS's institutional bad faith rested in part on statutory violations. They urge us to suppress all evidence derived from the IRS's exercise of institutional bad faith.

We need not resolve whether the district court's finding of statutory violations was conditional. Even assuming that the IRS did, in fact, improperly issue civil summonses to further a criminal investigation, the acts of misconduct relied upon by the district court were not egregious. This case does not present an appropriate situation for us to apply the exclusionary rule. Therefore, we need not decide under what circumstances the violation of a statute might make the exclusionary rule applicable in a civil case.

II.

Prior to 1982, the IRS was not authorized to issue summonses for wholly criminal investigations. ⁵ See La Salle, 437 U.S. at 316 n. 18, 98 S.Ct. at 2368 n. 18. As the Supreme Court stated: "Congress ... intended the summons authority to be used to aid the determination and collection of taxes. These purposes d[id] not include the goal of filing criminal charges against citizens." Id. The reason for this limitation was that "[n]othing in Sec. 7602 or its legislative history suggests that Congress intended the summons authority to broaden the Justice Department's right of criminal litigation discovery or to infringe on the role of the grand jury as a principal tool of criminal accusation." Id. at 312, 98 S.Ct. at 2365.

We are willing to assume for purposes of this case that the district court in Weiss I made a finding of a statutory violation. In light of La Salle, this finding would mean that the IRS issued summonses to aid an investigation which, from an institutional perspective, was wholly criminal in nature. ⁶ See id. at 316-17, 98 S.Ct. at 2367. This single-minded pursuit of a criminal conviction by the IRS is precisely the situation which Congress sought to avoid; Sec. 7602 required that a case which was being considered only for criminal prosecution be referred to the Justice Department...