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Ninth Circuit:
IRS’ Secrecy Pledge Did Not Imply Concealing From Officers
Opinion Says Agent’s Promise That She ‘Would Not Disclose to Anyone’ Information Shared by Defendants Did Not Mean That Information Would Not Be Forwarded to Criminal Investigators
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals has affirmed the convictions of a married couple, a Sacramento-area mortgage broker and a former attorney, relating to charges that they impeded an IRS audit, rejecting the defendants’ arguments that the agency “acted in bad faith through the use of fraud, deceit, trickery, and misrepresentation in violation of the Fourth and Fifth Amendments.”
In a memorandum opinion, filed Wednesday and signed by Circuit Judges Daniel Aaron Bress and Danielle J. Forrest and District Court Judge Jinsook Ohta of the Southern District of California, sitting by designation, the court held that an IRS agent’s promise that he “would not disclose to anyone the information you give us,” did not amount to a pledge that he would not share statements or evidence with the criminal investigations unit.
Acknowledging that “an IRS agent must not…mislead a taxpayer into participating in an investigation whether by misrepresenting that the proceeding is ‘exclusively civil in nature and will not lead to criminal charges’…or by other means of deceit,” the court said neither the promise of confidentiality nor the alleged covering up of discussions with a private accountant, with whom the couple shared their tax history, amounted to “affirmative misrepresentations.”
Appealing their convictions were Brian Beland and his wife Denae Beland, who were both convicted of corruptly endeavoring to impede an IRS audit in violation of 26 U.S.C. §7212(a). Following a jury trial, District Court Senior Judge William B. Shubb of the Eastern District of California sentenced broker Brian Beland, who was also charged with the additional crime of filing a false tax return, to 21 months in prison and former attorney Denae Beland to five years of supervised release.
Denae Beland’s license to practice law was suspended, on an interim basis, following her conviction.
Allegations Against Defendants
According to the prosecutors, Brian Beland worked for Wells Fargo, and later Bank of America. Between 2011 and 2013, he claimed business expenses in excess of $800,000 for each of the three years, resulting in a tax payment of only 2% on his more than $1.1 million in earnings.
The IRS claims that the couple tried to hide the personal nature of the expenditures during a civil audit by lying to the examiner and by not providing requested documents. The Belands purportedly said that their business records had been shredded and recreated spreadsheets that listed as business expenses, among other things, personal travel to Europe and Cancun, wine racks, a baby shower, automated tiki torches, and a California king-sized bed.
On appeal, the couple challenged the denial of their motion to suppress evidence and dismiss the indictment. In the motion, they alleged:
“[A]t the first interview with Brian and Denae, [IRS Revenue Agent Ivana Raymond] stated that the IRS would ‘not disclose to anyone the information you give us.’….This misleading statement gave Brian and Denae a false sense of security that they would be dealing directly with…Raymond and not working with unknown [Criminal Investigation Division (“CI”)] Special Agents behind the scenes.”
They continued:
“When the defendants asked the IRS which third-parties had been contacted pursuant to I.R.C. § 7602(c), the IRS agents concealed a significant witness: a certified public accountant [named Terrie Prod’hon] to whom Denae had previously divulged confidential and privileged information. The IRS civil revenue agents concealed this witness by purposely not writing a memorandum of interview after holding at least two off-the-record witness interviews, by intentionally failing to record or deleting all written references of that witness and her statements from the civil administrative file, and by keeping notes from the witness interview in a secret file to ultimately turn over to CI after concluding the civil audit. That witness’s statement appeared verbatim from the IRS notes in CI’s search warrant application.”
Ninth Circuit’s View
The panel noted that the rule that an IRS agent may not affirmatively mislead a taxpayer into participating in a criminal investigation is rooted in the Fourth Amendment, saying that it is “well established” that a consent search is invalid if it is induced by lies.
The judges pointed out that the defendants bear the burden of establishing, by clear and convincing evidence, that the agency engaged in “actual deception or trickery.”
Addressing the promise not to disclose information, they said:
“The district court did not err in finding that Defendants failed to show that the IRS made affirmative misrepresentations to obtain Defendants’ consent to participate in the civil audit. First, Defendants have not established that the IRS affirmatively misrepresented that their information would not be shared with the agency’s Criminal Investigations (CI) unit by simply offering proof that the agents told them that they ‘would not disclose to anyone the information you give us.’ This statement does not rise to an affirmative misrepresentation, especially considering that Defendants were repeatedly provided written notice that the IRS may share their information with the Department of Justice for purposes of enforcing criminal laws.”
Turning to the allegations relating to Prod’hon, the jurists wrote:
“Second, Defendants have not provided clear and convincing evidence that the IRS made an affirmative misrepresentation in failing to inform them that it had communicated with Certified Public Accountant (CPA) Prod’hon, who had previously discussed elements of the Belands’ case with an agent while working with the IRS on a different matter. While Defendants requested that the IRS provide them with its ‘third party contacts,’ the IRS was under no obligation to disclose its discussion with CPA Prod’hon because this conversation did not meet the IRS’s definition of a third-party contact.”
The Belands also argued that the IRS misled them about the nature of the investigation by continuing the civil audit after discovering criminal activity. Unpersuaded, Bress, Forrest, and Ohta said:
“Defendants have not established that the IRS affirmatively misrepresented the nature of its investigation when it continued its civil audit after allegedly finding enough evidence to pursue a criminal investigation. Even assuming the IRS had found ‘firm indications of fraud’ prior to the close of Defendants’ civil audit, Defendants have not provided clear and convincing evidence that the audit no longer served any civil purpose….[E]ven if the CI unit was involved, Defendants have not identified instances in which the IRS misinformed them that the proceeding was exclusively civil or that the CI unit was not involved in the matter.”
Addressing the couple’s Fifth Amendment argument in a footnote, the court said:
“[T]o the extent that Defendants raise a Fifth Amendment due process argument, it lacks merit. While the United States may violate a defendant’s Fifth Amendment due process rights if it ‘has brought a civil action solely to obtain evidence for its criminal prosecution or has failed to advise the defendant in its civil proceeding that it contemplates his criminal prosecution,’…the IRS did not run afoul of these principles here.”
The case is U.S. v. Beland, 23-2352.
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