[00:00:00] Speaker 04: Good morning. [00:00:01] Speaker 02: Good morning, Your Honour. [00:00:03] Speaker 02: David Garvin on behalf of the appellant, Mr. and Mrs. Beland. [00:00:10] Speaker 02: If it please the court, I'd like to reserve four minutes of my time. [00:00:15] Speaker 02: So it would be 11 and four. [00:00:18] Speaker 02: It is well established that a consent search or interview is unreasonable under the Fourth Amendment if obtained through fraud, deceit, trickery, or affirmative misrepresentation. [00:00:35] Speaker 02: To make this determination, the Court in United States v. Grunfeld established a three-step test. [00:00:45] Speaker 02: And that three-step test consisted of the following. [00:00:49] Speaker 02: One, firm indications of fraud. [00:00:52] Speaker 02: Two, clear and convincing evidence that defendant was affirmatively misled. [00:00:58] Speaker 02: And three, prejudice to defendant's constitutional rights. [00:01:02] Speaker 02: It is important to note that in this case, a unique situation, the district court found that the first element of the three-step process had been met. [00:01:12] Speaker 02: That is, the firm indications of fraud. [00:01:15] Speaker 02: In addition, the court found that the B. Lynn's constitutional rights had in fact been prejudiced. [00:01:23] Speaker 02: So that left us with the second step, clear evidence of the defendant being affirmatively misled. [00:01:32] Speaker 02: If we turn to the United States versus Peters, we see that the courts say that a civil tax audit evolves into a criminal investigation at the point when the auditors develop firm indication of fraud. [00:01:52] Speaker 02: Well, in this case, the court found that firm indication of fraud had been established. [00:01:58] Speaker 04: But does there not need to be an affirmative misrepresentation? [00:02:02] Speaker 02: Yes, sir, and I am going to direct my attention to that because that is, and I felt, the overriding important question. [00:02:12] Speaker 02: So, in Peters, [00:02:16] Speaker 02: It was determined that a revenue agent has developed a firm indication of fraud when she has established that a taxpayer has engaged in a consistent pattern. [00:02:29] Speaker 01: Counsel, I'd really appreciate it if you could walk me through the difference between what I see as a lot of possibly vague statements or possibly evasive statements and the difference between that and what is required for affirmative misrepresentations. [00:02:45] Speaker 02: Yes, Your Honor, and I will do just that. [00:02:49] Speaker 02: The point is that when you have firm indications of fraud under the Peters Court and you continue to act, because at that point, the IRS should stop the civil investigation and should refer it to the criminal investigation division. [00:03:11] Speaker 02: At that point, if the IRS [00:03:14] Speaker 02: audit does not stop, then you are conducting a criminal investigation under the auspices of a ordinary civil tax examination. [00:03:29] Speaker 02: And that in and of itself is a substantial misrepresentation. [00:03:36] Speaker 04: You seem to be arguing that [00:03:40] Speaker 04: Once the amount of proof before the civil tax investigators reaches a certain point, anything they do after that is sort of impliedly misleading. [00:03:50] Speaker 04: But it seems that the cases are talking about something more, something more affirmative in terms of telling the taxpayer who's in the process of a civil audit, you're not going to be prosecuted criminally. [00:04:01] Speaker 04: Don't worry about this. [00:04:02] Speaker 04: And then it turns out that's what's happening. [00:04:04] Speaker 04: But that's not quite what we have here. [00:04:07] Speaker 02: Yes, you are correct, Judge Briss. [00:04:12] Speaker 02: We have two things going on here. [00:04:14] Speaker 02: First, we have in Peters the situation in which were the firm indications of fraud established. [00:04:24] Speaker 02: In many of the cases that you are alluding to, that determination was to the negative. [00:04:30] Speaker 02: They said it were not established. [00:04:32] Speaker 02: In this particular case, the court found that it was established. [00:04:37] Speaker 02: So at that point, [00:04:39] Speaker 01: Counsel, you're focusing a lot on Peters, which is a Seventh Circuit case, but under our Ninth Circuit law, and I'm referring specifically to United States versus Snowatsky, we have case law that says, absent unusual circumstances, the exclusionary rule doesn't apply when IRS agents violate internal regulations. [00:04:58] Speaker 01: And I think what you're arguing here is that the violation of internal regulation, which is the proceeding past the point of finding firm indications of fraud, that that is what is transforming this into this higher threshold showing of affirmative misrepresentations. [00:05:13] Speaker 02: Well, actually, the court accurately stated the law except when the unusual circumstances when it adversely affects the taxpayer's constitutional rights. [00:05:31] Speaker 02: And the court in this case found that unusual circumstance that it did, in fact, prejudice the Belin's constitutional rights. [00:05:41] Speaker 02: So because we have both of those elements in this case, then it's the unusual circumstance in which they should have stopped [00:05:51] Speaker 02: They did not stop, and by not stopping, we go back to what Peter teaches us, and by not stopping, the fact that they continued what was alleged to be a typical civil tax audit, when in fact, it was a criminal investigation, in and of itself, is a misrepresentation. [00:06:15] Speaker 03: However, I do want to- Council, do you agree that at the outset [00:06:18] Speaker 03: when the IRS started the civil audit process that it did not have what you're describing as sort of firm indications of fraud? [00:06:25] Speaker 02: Yes, I would agree. [00:06:29] Speaker 03: Okay, so that was just sort of a preface question. [00:06:31] Speaker 03: If that's true, at the outset they didn't already have this strong indication of fraud. [00:06:37] Speaker 03: Under the Supreme Court's decision in Cordell and later our decision in Stringer, isn't that timing relevant? [00:06:43] Speaker 03: Because I understand the Supreme Court's standard when talking about dual investigations on civil and criminal side. [00:06:49] Speaker 03: It's only improper if the civil investigation was brought solely. [00:06:54] Speaker 03: to pursue criminal investigation goals. [00:06:59] Speaker 03: And we have talked about the timing of the different investigations being a relevant factor and assessing whether the government's sole purpose was a criminal one. [00:07:10] Speaker 03: So how do you square the order of events in this case with Cordell and Stringer? [00:07:17] Speaker 02: On December 12th, the fraud technical advisor met with revenue agent Raymond. [00:07:26] Speaker 02: That was in 2014. [00:07:27] Speaker 02: And four days later, the fraud technical advisor, Domador, together with the group manager and with revenue agent Raymond, decided that the case was [00:07:45] Speaker 02: are warranted a fraud development and they proceeded at that point to fill out the form 11661 which was the fraud development recommendation and it was based quote on false expense and deductions. [00:08:05] Speaker 02: That false expense and deductions the court has shown that if a revenue agent develops [00:08:14] Speaker 02: does develop firm indications of fraud when she has established that the taxpayer has engaged in a consistent pattern of substantial underreporting of income and overstating of deductions. [00:08:26] Speaker 02: That was established on December 16, 2014, before any interview was accomplished, because the B. Lynn's tax returns from 2009 through 2013 showed those very types of deductions in the Schedule C. [00:08:44] Speaker 04: In terms of the rule that you're asking for, is it that once you have firm indications, once a civil investigator has firm indications of fraud that what happens thereafter is then effectively misleading? [00:08:59] Speaker 04: I just want to make sure I understand kind of what rule you're asking us to adopt. [00:09:04] Speaker 04: I have questions about whether that rule would be consistent with our precedent, but the first question is just is that the rule you want? [00:09:10] Speaker 02: If they did not stop the civil investigation and did not, they proceeded as the civil investigation instead of referring it to the criminal investigation division, by going forward from at that point, it is a misrepresentation to the taxpayer because they're under the guise of a standard civil audit, they are conducting a criminal investigation. [00:09:41] Speaker 04: Okay, so I think the answer, and that's fine if that's your position, but the question I would then have is have we said this before? [00:09:48] Speaker 04: Is that consistent with Robeson and with other cases? [00:09:50] Speaker 04: We don't have a lot of cases in this area, but we have some and it doesn't seem like something we've articulated before. [00:09:57] Speaker 02: Well, I think that we have adopted Grunwald, which I believe is an 8th Circuit case, but in Robson, I don't believe that Robson found in that case that there was the firm indications of fraud established, and that's what makes this case unique. [00:10:18] Speaker 01: However, there are oral... But even in Grunwald, that three-part test requires affirmative misrepresentations in addition to proceeding past the firm indications of fraud, correct? [00:10:29] Speaker 02: Correct. [00:10:29] Speaker 02: And that's why the court below, our district court in this case, found that we did not satisfy the second element. [00:10:40] Speaker 02: However, he did not apply [00:10:43] Speaker 02: the test impeders that if you find the firm indications of fraud, you must stop. [00:10:49] Speaker 02: And that is also in the Internal Revenue Manual 25.1.2.2.6 requires that. [00:10:58] Speaker 02: And as the Court obviously stated and correctly, by itself in the normal situation, violation of the Internal Revenue Manual own rules would not be enough. [00:11:11] Speaker 02: unless it's the unusual circumstance that it prejudiced the person's constitutional rights. [00:11:18] Speaker 01: But I would like to address the... Weren't there some civil investigatory purposes remaining? [00:11:24] Speaker 01: For example, didn't the agents from a civil standpoint, even if criminal purposes were going on at the same time, from a civil standpoint, didn't they still need to question the Belens about their reconstructed taxes? [00:11:38] Speaker 02: No, they did not. [00:11:39] Speaker 02: And that is one of the misrepresentations here, is that prior to the interview taking place, the first set of interviews in January, not the second set of interviews that occurred in August, prior to that, they said that they had to [00:11:59] Speaker 02: do the interview so that they can determine whether or not they were going to allow the expenses. [00:12:07] Speaker 02: And that was a false statement, and it was repeated several times and was used as a basis for the second set of interviews when, in fact, Revenue Agent Raymond prepared the Revenue Agent report [00:12:23] Speaker 02: And I don't know where my time is. [00:12:27] Speaker 02: But we prepared that report in July, a month before the second interview took place. [00:12:34] Speaker 02: And on that revenue agent report, all of the expenses were disallowed. [00:12:38] Speaker 02: Also, the fact that the burden is on the taxpayer to substantiate expenses. [00:12:46] Speaker 02: So if there would have been no interview and no substantiation, [00:12:52] Speaker 02: expenses would have been disallowed anyway. [00:12:55] Speaker 02: So there's no requirement that Revenue Agent Raymond conduct that interview for that purpose. [00:13:02] Speaker 02: And there were other matters that she stated that were also false, that she needed that first interview because [00:13:10] Speaker 02: the taxpayers could not raise new matters at the appellate level or during appeals, which was an incorrect statement. [00:13:18] Speaker 02: She also stated that no new matters could be raised for the first time at tax court. [00:13:24] Speaker 02: And that was also wrong. [00:13:27] Speaker 02: And then she stated that the documents and questions requested were standard. [00:13:33] Speaker 02: That was not true either. [00:13:35] Speaker 02: And perhaps the most important one, she read [00:13:39] Speaker 02: the initial interview form, she had previously mailed the publication one and the Privacy Act, the notice under 609. [00:13:50] Speaker 02: But there is nothing in our record that shows that those were received or read by the Belens. [00:13:56] Speaker 02: But before she conducted the interview, this is what she said to the Belens verbatim because it's in her notes. [00:14:04] Speaker 02: First, the way an audit works is that we will ask a series of standard questions for each audit. [00:14:11] Speaker 02: And in this case, as we saw on December 14th and December 16th, Fraud Technical Advisor meetings, the Fraud Technical Advisor, Domador, presented questions to be asked. [00:14:26] Speaker 02: So this was not standard. [00:14:28] Speaker 02: But most importantly, the privacy confidentiality, the IRS will not disclose to anyone the information you give us. [00:14:36] Speaker 02: And that was not true, because they gave the information to the Department of Justice, and she knew that, that if this went, it was already in the fraud development stage, and that it was going to, the CIA was going to go to the Department of Justice. [00:14:53] Speaker 02: However, there was no warning [00:14:56] Speaker 02: with regard to that. [00:14:58] Speaker 02: And finally, and notice 609, what she said was, when we ask you for information, we must tell you our legal right to ask for the information, why we are asking for the information, and how it will be used. [00:15:12] Speaker 02: We must also tell you what could happen if you do not provide it and whether or not you must respond under the law. [00:15:20] Speaker 02: That is what was said. [00:15:21] Speaker 02: There was no warning that we're going to give your information to the Department of Justice. [00:15:26] Speaker 04: Why don't we ask you, since your time's expired, why don't we ask you to sit down. [00:15:29] Speaker 04: We'll put two minutes on the clock of extra time for rebuttal. [00:15:32] Speaker 04: We'll hear from the government. [00:15:43] Speaker 00: Good morning, Your Honors, and may it please the Court. [00:15:45] Speaker 00: Veronica Alegria on behalf of the United States. [00:15:48] Speaker 00: The Ninth Circuit test for the last five decades is straightforward and should be applied here on de novo review. [00:15:54] Speaker 00: There is no constitutional violation unless consent was induced by fraud, trickery, or misrepresentation as to the nature of the IRS audit. [00:16:06] Speaker 00: I hear that fails in two ways, and I will explain why. [00:16:08] Speaker 00: First, as the district court found, there was no fraud, trickery, or deceit. [00:16:16] Speaker 00: The audit was entirely civil until it was referred to IRS criminal investigations. [00:16:24] Speaker 00: Now, the Belins could not show by clear and convincing evidence that there was no fraud, trickery, or deceit as to the nature of the audit. [00:16:32] Speaker 00: The uncontroverted testimony by both the revenue agents that testified during the six-day hearing and the Belin's own CPA all agreed [00:16:43] Speaker 00: that the revenue agents never told the Blands that this was an entirely civil audit, never told the Blands that their documents and information would not be provided to the Department of Justice, and never told the Blands that this could not become a criminal referral. [00:16:59] Speaker 00: Additionally, the Blands received at least three times through the mail the 609 notice which explicitly stated [00:17:06] Speaker 00: that their information could be provided to the Department of Justice and it could be used to enforce criminal laws. [00:17:12] Speaker 03: How do you respond to your friend's argument that there's no evidence that those were received? [00:17:17] Speaker 00: That is contrary to the record in the trial where the documents that were discovered during the execution of the search warrant in the Beelan's home found [00:17:29] Speaker 00: the notices and the IDR's information document requests from the IRS in the file cabinet in the Belin's home office right next to the receipts and notices from those tax years. [00:17:46] Speaker 00: Additionally, Your Honors, this was not a criminal investigation. [00:17:52] Speaker 00: All the revenue agents and the criminal investigators stated under oath that there was no direction from the DOJ as occurred in Twiel of the audit and there was no parallel criminal and civil investigation. [00:18:08] Speaker 00: as occurred in Stringer. [00:18:10] Speaker 01: The internal memo that says at the direction of or at the instruction of the CID and we also have some testimony in the record that the agents had already fully signed. [00:18:24] Speaker 01: signed their civil findings even before that interview. [00:18:28] Speaker 01: So is it correct that this was a civil proceeding through and through? [00:18:33] Speaker 00: Yes, Your Honor, and I will explain each of those issues. [00:18:36] Speaker 00: First, the revenue agent who wrote that email at the direction of CI and FTI [00:18:44] Speaker 00: testified under oath that that was a mistake. [00:18:47] Speaker 00: The court credited that testimony and agreed that it was a mistake. [00:18:50] Speaker 00: There was no other evidence and all other testimony explained that there had been no communication or direction between CI and the revenue agents during the entire course of that audit. [00:19:03] Speaker 00: And there is, it is not clearly erroneous for the court to agree with that testimony in the face of all the evidence during that hearing. [00:19:13] Speaker 00: And additionally, your honor, at the direction of IRS civil counsel in determining whether or not to apply fraud penalties and whether or not to hold the statute of limitations open for the 2011, [00:19:30] Speaker 00: tax filings. [00:19:31] Speaker 00: They asked the revenue agent to prepare the report. [00:19:34] Speaker 00: Now, I think it's important to recognize here that the IRM requires the FTA, the fraud technical advisor, the revenue agent, and the supervisor to all agree that there are firm indications of fraud. [00:19:47] Speaker 00: And that did not occur until after the Belin's interview. [00:19:51] Speaker 00: And that the civil council also said that they needed [00:19:57] Speaker 00: the interview, the final interview to happen to allow the Belens to explain their reconstructed expenses before they would even [00:20:05] Speaker 00: apply the fraud statute, and that requires badges of fraud, not firm indicators. [00:20:12] Speaker 00: So IRS civil counsel said there were not badges of fraud enough to hold the statute open on the 2011 taxes until after that final interview. [00:20:22] Speaker 04: Let's just assume that there were firm indications of fraud before the interview, just for purposes of argument. [00:20:29] Speaker 04: Would that change your position? [00:20:32] Speaker 00: No, Your Honour. [00:20:33] Speaker 00: I encourage this Court to not follow what the appellants argue should be the test in this Court. [00:20:40] Speaker 00: It is not about whether or not the District Court imposes an objective determination after the fact as to whether or not there were firm indicators of fraud. [00:20:52] Speaker 00: It is [00:20:54] Speaker 00: It would be an unconstitutional and an unworkable rule, and it would be contrary to all our sister circuits, and I can explain each of those. [00:21:04] Speaker 00: First, to adopt that sort of test would be unconstitutional. [00:21:09] Speaker 00: As the Supreme Court has held all the way since Caceres, the IRM does not create constitutional rights. [00:21:18] Speaker 00: Also in Snodowski, in Bridges, in Crystal, this court has continuously affirmed that ruling and said you cannot base an exclusionary rule just because there's been a violation of the IRM. [00:21:33] Speaker 00: Now it's also unworkable and sister circuits and this court have explained various ways why that rule could be unworkable. [00:21:41] Speaker 00: First, as is replete throughout the record, this is a very difficult [00:21:47] Speaker 00: decision for a district court to impose on where there are firm indicators of fraud versus just first indicators of fraud or badges of fraud. [00:21:57] Speaker 00: Now, as this court held in Liberty Financial Services all the way in 1985, there is good reason to defer to the IRS's expertise [00:22:08] Speaker 00: and they have been congressionally mandated to enforce the IRS rules. [00:22:14] Speaker 04: What is the difference between firm indications of fraud and a badge of fraud? [00:22:19] Speaker 00: Well, as the IRM explains, it is very difficult to determine and it's subjected to the experience and the determination of the revenue agent, the fraud technical advisor, and the revenue agent's supervisor. [00:22:38] Speaker 00: Now in this case, the revenue agent first thought that there could be badges of fraud, and so she went to her supervisor and her fraud technical advisor. [00:22:48] Speaker 00: The fraud technical advisor in December outlined a series of steps that she needed to complete in order to find that there were firm indications of fraud. [00:23:03] Speaker 00: Your Honors, every circuit to look at this issue [00:23:07] Speaker 00: has not applied the tests that the appellants wish. [00:23:12] Speaker 00: Now, I want to start with Grunwald. [00:23:14] Speaker 00: Even in Grunwald, the appellants there urged the district court to find firm indicators of fraud before the final interview. [00:23:22] Speaker 00: The district court did not do so. [00:23:25] Speaker 00: It found not only was there no misrepresentation, but there were no firm indicators of fraud after that final interview. [00:23:31] Speaker 00: I think Peters is very instructive. [00:23:34] Speaker 00: In Peters, [00:23:36] Speaker 00: That began with a tip to criminal investigations. [00:23:39] Speaker 00: Criminal investigations decided there wasn't enough there, and they handed it off to the auditor. [00:23:45] Speaker 00: Now, in Peters, unlike in here, there was an affirmative statement. [00:23:50] Speaker 00: The Peters court said that they're the revenue agent told the taxpayers that this was a, quote, routine civil audit. [00:23:59] Speaker 00: We don't have any such affirmative statement here. [00:24:03] Speaker 00: there had been firm indicators of fraud, there was no affirmative misstatement. [00:24:10] Speaker 00: And then the revenue agent believed in Peters that they had firm indicators of fraud. [00:24:16] Speaker 00: So she went to her supervisor and presented the case. [00:24:18] Speaker 00: The supervisor disagreed. [00:24:20] Speaker 00: Now the court had to determine, OK, here you have an affirmative misstatement. [00:24:25] Speaker 00: Was that a false statement to the taxpayer when the revenue agent thought there were firm indicators of fraud? [00:24:31] Speaker 00: The court said no, because [00:24:34] Speaker 00: At that time, in order for there to be firm indicators of fraud, the IRM said that the supervisor had to agree. [00:24:42] Speaker 00: And because the supervisor didn't agree, the examination continued until there was a final interview of the taxpayer. [00:24:49] Speaker 00: And only then, when there was an agreement between the revenue agent and the supervisor that there were firm indications of fraud, did that go on and be referred to criminal investigations, just like here. [00:25:01] Speaker 03: does seem inconsistent to tell taxpayers we might share the information you give us with the Department of Justice and then to later tell them we're not going to share the information you give us with anybody. [00:25:13] Speaker 03: Why isn't that a problem? [00:25:15] Speaker 00: Your Honor, the [00:25:18] Speaker 00: It might be confusing to have both publication one and publication 609, which both tell the taxpayer that their information is going to be kept private, but also tell the taxpayer that their information could be shared with the Department of Justice. [00:25:34] Speaker 00: But publication one clearly states [00:25:37] Speaker 00: except as authorized by law. [00:25:39] Speaker 00: So when you put the two publications together, the exception in publication one with the explicit language of rule 609, it should not be clear. [00:25:52] Speaker 00: And additionally, there was no affirmative misrepresentation. [00:25:58] Speaker 03: I think that that's correct, and I've looked at both of those documents, and the argument you're making makes sense to me. [00:26:05] Speaker 03: But in the record, and what your friend across the aisle relies on, is some interview notes where it purports to describe what is discussed, and particularly what rights were advised to the Belens. [00:26:21] Speaker 03: And there, that document says, and I quote, IRS will not disclose to anyone the information you give us. [00:26:26] Speaker 03: That seems sort of categorical. [00:26:28] Speaker 03: So I come back to what's the government's argument in terms of what we should make of that particular document. [00:26:36] Speaker 00: In the same vein that your documents are private, it was also 609 was discussed. [00:26:46] Speaker 00: And that says clearly that documents may be shared in the course of law. [00:26:51] Speaker 00: And Your Honors, there was no explicit mention [00:26:58] Speaker 00: whether or not documents would be shared to criminal or not, except for in 609 when it says they can't. [00:27:06] Speaker 00: This court has even allowed evasive answers to a direct question of whether or not there is a criminal investigation pending. [00:27:15] Speaker 00: That's what happened in Stringer, where there was a parallel criminal and civil case. [00:27:23] Speaker 00: And the direct question was, well, is there a criminal case going on? [00:27:28] Speaker 00: The evasive answer was, I refer you to the Department of Justice. [00:27:33] Speaker 00: And this court said, well, that wasn't an affirmative misrepresentation. [00:27:36] Speaker 00: It's fine. [00:27:39] Speaker 03: So this document that I was just asking about, is this something that was given to the Belens? [00:27:43] Speaker 03: or is this an internal document? [00:27:44] Speaker 00: That is the internal notes from the revenue agent. [00:27:49] Speaker 00: The testimony was during the hearing that there was no affirmative statement that documents would not be provided to the Department of Justice, and that was uncontroverted on the record, even by the Belin's own CPA. [00:28:05] Speaker 04: What about this issue with the time to appeal? [00:28:09] Speaker 00: Your honor, I'd like to make two points as to that. [00:28:12] Speaker 00: First, it was not technically incorrect, although granted it might have been confusing. [00:28:20] Speaker 00: But technically, because the 2011 tax return had such few time left on it, the internal IRS appeals process would not have taken it unless the Bealands signed the waiver extending the statute of limitations, which is what [00:28:37] Speaker 00: the revenue agent was trying to convince the Belants to do. [00:28:42] Speaker 00: But they did not sign it and instead they petitioned to the tax court, which they always have the right to do and which they knew they had the right to do. [00:28:53] Speaker 00: But Your Honor, I think more importantly, whether or not that was confusing, it was not deceit. [00:29:00] Speaker 04: Um, I guess I'm, yeah, I mean, I don't know. [00:29:02] Speaker 04: I'm having trouble understanding how it latches on to the issue we're focused on, which is, was there an affirmative misrepresentation that criminal proceedings wouldn't happen or that they weren't underway? [00:29:13] Speaker 04: It may be confusing and perhaps there's some additional argument or claim that could be based on it, but in terms of suggesting that there wouldn't be criminal proceedings, that's where I'm having confusion. [00:29:24] Speaker 00: Exactly, Your Honor. [00:29:26] Speaker 00: There might have been other confusing statements or some argument about whether this is technically correct or a misstatement, but the crucial issue is whether or not it was intentional deception as to the nature. [00:29:41] Speaker 00: Now, even an incorrect statement, such as in Crystal, is not deception if the revenue agent doesn't understand that. [00:29:49] Speaker 04: This was just a statement made by a revenue agent in orally or in writing? [00:29:55] Speaker 00: This is orally, Your Honor. [00:29:57] Speaker 00: This is during their interview. [00:30:00] Speaker 01: But does the legal standard require that the [00:30:04] Speaker 01: misrepresentation go to the civil versus criminal nature can't it be any misrepresentation that induces some further participation or step in the process no your honor it must go to the criminal versus civil nature now as this court held in jones versus berry in 1983 [00:30:22] Speaker 00: Even an IRS agent that goes undercover and lies and pretends that they're criminals, that's fine. [00:30:30] Speaker 00: The IRS agent can lie about that. [00:30:33] Speaker 00: What they can't lie about is that the audit is entirely civil in nature when it is criminal. [00:30:39] Speaker 00: Now, they can have that, like they could have had in Twiel, like they had in Stringer, parallel criminal and civil cases, but there just can't be an affirmative misrepresentation. [00:30:53] Speaker 00: And that is exactly what happened in Groeder in the Fourth Circuit, very similar case to this case, where the court was asked whether or not to second guess whether there were firm indications of fraud. [00:31:09] Speaker 00: And the court held that even if a more experienced agent had found earlier that there were firm indications of fraud, there was no deception because that agent [00:31:21] Speaker 00: that there were firm indications of fraud only after the final interview. [00:31:26] Speaker 00: And therefore, there was no deception and there was no affirmative misrepresentation. [00:31:31] Speaker 04: We'd like to go a little over. [00:31:32] Speaker 04: Do you want to make a brief concluding remark? [00:31:36] Speaker 00: Yes, Your Honor. [00:31:37] Speaker 00: The district court's finding as to fact, as to whether or not there was an affirmative misrepresentation should not be overturned. [00:31:50] Speaker 00: And this court need go no further than that on de novo review. [00:31:53] Speaker 00: Thank you. [00:31:55] Speaker 04: We'll hear a rebuttal from Mr. Garvin. [00:31:57] Speaker 04: Let's put three minutes on the clock. [00:31:59] Speaker 04: Thank you. [00:32:02] Speaker 02: Thank you, Your Honor. [00:32:03] Speaker 02: I'd like to address a few points that the court has inquired about. [00:32:07] Speaker 02: And first is we cannot forget that the district court below found that there were firm indications of fraud by no later than April. [00:32:19] Speaker 02: and the second set of interviews were in August. [00:32:23] Speaker 02: The revenue agent report was completed in July before the interviews ever took place, and that the remarks that are being made and the representations that are being made to the Blands are incorrect, are all designed to get them to voluntarily appear for a second set of interviews [00:32:45] Speaker 02: which was all designed because they had firm indications of fraud, which meant this case was going to be transferred to the criminal division. [00:32:54] Speaker 02: And by continuing on, they were making a misrepresentation. [00:32:59] Speaker 02: And I want to go back to the Stringer case. [00:33:02] Speaker 02: Of course, the court realizes that the Stringer case was not an IRS case at all. [00:33:07] Speaker 02: It was an SEC case, and that the notice in that case was not publication 1 or 609. [00:33:15] Speaker 02: It was the SEC form 1662, which clearly provided that the individuals had a Fifth Amendment right not to answer any questions. [00:33:28] Speaker 02: That language is found nowhere in the IRS materials. [00:33:32] Speaker 02: There is no Fifth Amendment warning. [00:33:34] Speaker 02: And in the Stringer case, on the day that the interview was taking place, Stringer was there with counsel, and the SEC lawyers warned them again that, orally, that what they were going to do, they could assert their Fifth Amendment rights. [00:33:53] Speaker 02: In Stringer, they chose not to. [00:33:56] Speaker 02: That has nothing to do with what this case is about. [00:34:00] Speaker 02: And with regards to the publication one, [00:34:04] Speaker 02: and the privacy notice under 609. [00:34:08] Speaker 02: Consul states, well, they found it in the closet. [00:34:11] Speaker 02: There's no evidence in this record that either of the B-lens read these documents, but what we do have is the initial interview [00:34:21] Speaker 02: Prior to it starting, on the record 21ER 3303, they checked the box if they made the statement to the taxpayer. [00:34:34] Speaker 02: And with regards to the taxpayer rights, which is publication one, what is checked, and I quote, privacy confidentiality, IRS will not disclose to anyone the information you give us, end quote. [00:34:48] Speaker 02: There is no warning whatsoever that is going to end in the hands of the Department of Justice for criminal prosecution. [00:34:55] Speaker 02: And counsel says, well, there is some reference to it in 609. [00:34:59] Speaker 02: But when you see what the IRS thought was important and is in their interview notes, as I read to you earlier, when we ask you for information, this is a quote, we must tell you our legal right to ask for the information, why we are asking for the information, and how it will be used. [00:35:16] Speaker 02: They never told them how it would be used. [00:35:19] Speaker 02: They never told them that this was going to the Department of Justice. [00:35:23] Speaker 02: Your Honor, you have correctly analyzed this case that you can make affirmative misrepresentations as we found in Tweedle, the classic one. [00:35:35] Speaker 02: I ask, is there a special agent in this case? [00:35:38] Speaker 02: And the answer was no, which was a bold-faced lie. [00:35:41] Speaker 02: You have that type of misrepresentation because of the things that I just told you. [00:35:48] Speaker 02: But you also have, in this case, the court found that there were firm indicators of fraud. [00:35:58] Speaker 02: And at that point, the Internal Revenue Manual says that you stop there with the civil case and you transfer it. [00:36:07] Speaker 02: And then we have cases that say, OK, [00:36:11] Speaker 02: Just because the IRS has an internal manual, they don't have to be bound by it unless the unusual situation on which it adversely affects the taxpayers' constitutional rights. [00:36:25] Speaker 02: And in this case, the district court found [00:36:28] Speaker 02: that their constitutional rights were prejudiced. [00:36:32] Speaker 02: So we have a situation here in which they have firm indications of fraud found by the district court and the prejudice to their constitutional rights found by the district court and therefore they had no choice. [00:36:46] Speaker 02: The Fraud Technical Advisor, Domador, the Group Manager, Pardo, and Ms. [00:36:52] Speaker 02: Raymond had to stop that investigation under the context or the auspices of that it was a standard civil tax audit. [00:37:03] Speaker 02: That had to stop and they had to refer it. [00:37:07] Speaker 04: We let you go over your time. [00:37:09] Speaker 04: I want to thank you, Mr. Garvin, for your argument this morning. [00:37:12] Speaker 04: We thank Ms. [00:37:12] Speaker 04: Alegría for her argument. [00:37:14] Speaker 04: This matter is submitted.