Tax Notes logo

Particularized Need – Obtaining Grand Jury Information

Posted on Sep. 1, 2020

As he has done on many occasions during the past seven years of the existence of this blog, Carl Smith alerted me to recent unpublished decision of the 11th Circuit in Berkun v. United States, No. 19-14006 (11th Cir. 2020). This case provides insight into the ability of the IRS to obtain grand jury information for use in a civil proceeding following the criminal case stemming from the grand jury. It also involves a taxpayer Carl and I spent some time working on during an earlier phase of his tax journey.  I will talk below about the grand jury issue and why Mr. Berkun failed in his effort to convince the district court and the 11th Circuit to keep the grand jury information from the IRS. Before getting there, I will take a short detour to provide a tribute to Carl and to discuss Mr. Berkun’s prior Tax Court matter.

Earlier this month Carl notified me and others at PT that he was going into “true retirement.” He will no longer write posts for PT or send us messages about issues on which we should write. More importantly for me, he will no longer volunteer with the Tax Clinic at the Legal Services Center of Harvard Law School. Carl has been an integral member of the writing team of this blog, and he has been an important volunteer at the clinic on the impact litigation in which we engage. It will be impossible to replace his incredible knowledge of tax procedure, his brief writing productivity and prowess, and his daily effort to read Tax Court orders looking for cases with issues needing further attention.  Please join us in thanking Carl for his dedication to the blog as well as to low income taxpayers and the many issues they face. He had an extremely productive retirement over the past decade. We hope for him a wonderful true retirement.

CDP Case

We have featured Mr. Berkun in a previous post concerning his effort to obtain a Collection Due Process (CDP) hearing which contained an argument a variation of which presents itself as of one of the arguments that is now before the 2d Cir. in the case of Castillo v. Commissioner. In the Berkun CDP case, discussed here, the 11th Cir. did not issue a ruling on the CDP issue of interest to Carl and me, because it determined that the argument was raised too late, but the 11th Cir. issued a published opinion because it said the argument deserved consideration in some future case.

The IRS had mailed Berkun a Notice of Intent to Levy (NOIL) to an address that it knew was not his current address (because the IRS had put him in jail, where he was sitting when it mailed the notice to his home address prior to his release from incarceration). A Revenue Officer (RO) handed him a copy of the NOIL about 2 months later, once he emerged from prison, at an in person meeting. Berkun filed a request for a CDP hearing Form 12153 within 30 days after the in-person meeting but well after the 30-day period on the notice mailed while he was incarcerated. The IRS gave him an equivalent hearing, denied his request for relief with a decision letter and Berkun petitioned the Tax Court seeking review of the decision. The Tax Court dismissed the case on the ground that the address used by the IRS was Berkun’s last known address, so he did not timely request a CDP hearing. Carl Smith persuaded Mr. Berkun to move to vacate on the new ground that, even if the NOIL was mailed to his last known address, the ’98 Act Conference Committee Report shows Congress wanted a taxpayer in such circumstance (non-receipt of NOIL) to get a CDP hearing, anyway. The 11th Circuit found the argument worth writing about, albeit raised too late.

A very similar issue has now arisen again in NYC in a case, Castillo v. Commissioner, in which the Fordham Tax Clinic represents the taxpayer. In Castillo, the notice of determination following a CDP hearing was mailed to the taxpayer at her last known address, but she did not receive it. It is still, according to the USPS, in transit. (Don’t read about the case and the discussion of the postal service delivery problems if you want to keep believing that your ballot will make it to the registrar’s office on time.)

Before the Tax Court dismissed Castillo’s case for Lack of Jurisdiction as late-filed, the Fordham clinic included an argument that, by analogy to the Committee report language quoted in Berkun, Congress would have wanted a taxpayer to get a Tax Court review if the taxpayer petitioned within 30 days after learning of the NOD (which happened in Castillo’s case). Despite this argument, the Tax Court dismissed the case. Ms. Castillo has appealed to the 2nd Circuit. A copy of the amicus brief filed by the Center for Taxpayer Rights is here. Ms. Castillo’s opening brief is due in October. The amicus brief was filed early as one of Carl’s last acts before retirement, as he was the principal drafter of the brief. Maybe through the Castillo case, Mr. Berken will get some relief knowing that the arguments first raised in his CDP case made a difference.

Grand Jury Case

When the IRS decides to pursue a criminal tax case, it has a choice to do so administratively or through a grand jury. Each path has its advantages and disadvantages. One of the disadvantages of a grand jury for the IRS is that the information created for and presented to the grand jury becomes cloaked with a powerful presumption of secrecy. The IRS can overcome the presumption of secrecy and obtain some of the grand jury material if it can show a particularized need for the information. It sought to do that in Mr. Berkun’s case.

The IRS sets its civil liability case against a taxpayer on the backburner when it decides to pursue criminal liability.  It followed its normal procedure in Mr. Berkun’s case.  The grand jury that received information about him did so almost a decade ago, although the government eventually filed an information against him rather than having him indicted.  He pled guilty and was sent to prison.  Afterward, the IRS began pulling together the civil liability.  In doing so, the IRS did not seek the grand jury information during the audit of his returns.  It sent a notice of deficiency back in 2017 and he petitioned the Tax Court.  In defending the Tax Court case, the IRS decided that it wanted some of the information developed by the grand jury in order to assist the individuals at the IRS in the civil case.  On August 25, 2020, the IRS filed, for the fourth calendar in a row, a motion to continue the case.  I did not order the motion but I imagine that the IRS mentions in its motion that it would like to obtain the grand jury material before the trial.  Mr. Berkun joined in earlier motions and did not object to the latest one.

On August 26, 2019, well after the filing of the Tax Court case, the IRS made an ex parte request to the district court for the Southern District of Florida for certain grand jury information. In my experience the request would more normally occur at the examination stage of the case but making it at this stage creates no legal barriers to the request. The IRS needs the continued cooperation of the Tax Court to postpone the trial while it waits for the information. The district court said the IRS could have it. Mr. Berkun brought this appeal seeking to have the 11th Circuit overturn the decision to give the information to the IRS. The 11th Circuit described the request as follows:

[P]ursuant to Federal Rule of Criminal Procedure 6(e). The government sought documents obtained by grand jury subpoena in Berkun’s prosecution for criminal tax violations; documents prepared by the IRS’s Criminal Investigation Division; and the IRS Special Agent Report and accompanying documents. The government’s memorandum of law accompanying the petition cited the passage of time between the grand jury proceedings and pending Tax Court litigation as grounds for disclosure. The government also claimed that the records obtained and interviews conducted during the grand jury investigation would be very difficult, if not impossible, to recreate.

The district court found that the IRS made the showing of a particularized need and ordered that the IRS could have the documents from the grand jury for use in the Tax Court case. In addition, it “also permitted IRS attorneys and agents to ‘[u]tilize the services and knowledge of all Government personnel who had access to these matters occurring before the grand jury, for trial preparation and as witnesses” in the Tax Court proceeding.’” This is a big win for the IRS and will make its Tax Court case much easier to prepare and try. He moved for reconsideration by the district court and was denied relief in the reconsideration.

On appeal Mr. Berkun first argued that the district court erred by not giving him an opportunity to argue before the court made its decision based on the representations of the government. The 11th Circuit found:

the government did not proceed ex parte. The Federal Rules of Criminal Procedure therefore required the district court to afford Berkun a “reasonable opportunity to appear and be heard.” Id. Even if the district court failed to comply with this requirement, any error was harmless. See Fed. R. Crim. P. 52(a)… Here, Berkun had the opportunity to present evidence and argument in his motion for reconsideration. The government then stated it would not object to the district court treating the motion as Berkun’s opposition to the request for disclosure. And in its order denying Berkun’s motion for reconsideration, the district court showed that it had considered Berkun’s arguments and rejected them. Given this, Berkun was given a reasonable opportunity to be appear and be heard in opposition to the government’s motion, so any initial error on the district court’s part was “harmless beyond a reasonable doubt.” Roy, 855 F.3d at 1178.

Mr. Berkun also argued that the district court decision denied his due process rights because it did not explain the reason for its decision. He argued that the district court needed to make specific findings regarding the grand jury information and not just make a general statement regarding particularized need. The 11th Circuit chided the district court for not being more careful in its findings but held once again for the IRS, stating that the district court should not have simply adopted the IRS arguments. but “the practice does not amount to a due process violation.”

Lastly, he argued that the district court abused its discretion in allowing the turn- over of this information. The 11th Circuit finds that it did not abuse its discretion and points to the length of time between the grand jury and the request for the information. It discusses the reason for grand jury secrecy and states that in the situation presented in Mr. Berkun’s case no harm to the grand jury process occurs by allowing the IRS to obtain this information.

The Rule 6(e) order here allowing the turn-over of the information does not surprise me. The IRS does not always, however, win these cases. District courts look very carefully at these requests and the IRS must make a strong showing of particularized need in order to obtain the information. If you represent someone who was the subject of a criminal tax investigation that went through a grand jury, be aware that a request like the one in the Berkun case could come during the examination stage following the criminal case or even later as happened here.

Copy RID