Opinion
Criminal No.: 05-249 (JLL).
November 13, 2008
For the Government: Thomas J. Eicher and Rachel A. Honig.
For the Defense: Robert S. Fink and David M. Zinn.
ORDER
This matter comes before the Court on the September 12, 2008 motion of Defendant Richard Stadtmauer ("Defendant" or "Stadtmauer") motion for production of tax returns. [CM/ECF #303, 306.] No oral argument was heard. For the reasons set forth in the accompanying Opinion,
IT IS on this 13th day of November, 2008,
ORDERED that Stadtmauer's motion to produce additional tax returns under I.R.C. § 6103 is hereby DENIED.
OPINION
This matter comes before the Court on the September 12, 2008 motion of Defendant Richard Stadtmauer ("Defendant" or "Stadtmauer") motion for production of tax returns. [CM/ECF #303, 306.] No oral argument was heard. For the reasons set forth in this Opinion, Defendant's motion is denied.
On June 3, 2008, Stadtmauer was convicted by a jury on one count of conspiracy under 18 U.S.C. § 371 and eight counts of aiding and assisting in the filing of materially false tax returns under I.R.C. § 7206(2). The convictions stem from Stadtmauer's activities with the Kushner Companies, a group of commercial real estate partnerships.
At trial, the Government presented evidence concerning $6,333,258 in false deductions taken by the Kushner Company partnerships in question. (Gov't Opp. Br. at 2.) After the conviction of Stadtmauer, the United States Attorney for the District of New Jersey issued a press release containing a preliminary sentencing calculation under the United States Sentencing Guidelines (the "Guidelines") using that figure.
DISCUSSION
Stadtmauer argues in the instant motion that the Government should be compelled to acquire the tax returns of the partners in the partnerships at issue, in order to calculate the tax loss to the Government with greater accuracy for use in the Guidelines calculation. (Def. Br. at 2-3.) His motion presents the Court with two issues: can a defendant utilize I.R.C. § 6103(h) to compel the Government to obtain additional third-party tax returns at this stage of the proceedings, and if so, are the third-party tax returns required for a proper calculation of Stadtmauer's offense level under the United States Sentencing Guidelines. As this Court concludes herein that it may not order the Government to produce the tax information in question on the instant showing, only the first of these issues will be addressed.
A. I.R.C. § 6103(h)
This Court has previously interpreted § 6103 in this case on the issue of subpoenas served by Defendants on the Internal Revenue Service ("IRS"), which this Court quashed on January 11, 2008. (Op. of Jan. 11, 2008 at 21.) In that Opinion, this Court examined the text of § 6103(h) and found that the caselaw on § 6103(h) did not generally support the release of tax returns to defendants during criminal discovery for non-testifying third parties, and that, alternatively, § 6103(h)(4) "primarily" permitted the release of tax information to Government employees only. (Op. of Jan. 11, 2008 at 20-21.)
The context in which this Court is being asked to construe § 6103(h) by Stadtmauer at this time is quite different from that in which the Court analyzed the statute earlier this year. Stadtmauer does not couch the issue as one of limited criminal discovery under Rule 16; instead, the issue is one of obtaining the information required to arrive at the correct Guidelines calculation. This Court, however, agrees with Stadtmauer that the guidelines calculation in question is a matter of "tax administration" within the meaning of the phrase as used in § 6103, and that § 6103 applies to the situation at hand. I.R.C. § 6103(b); Op. of Jan. 11, 2008 at 16; Def. Br. at 14. Even if Stadtmauer may compel the Government to request the additional returns, therefore, the IRS may not release this information unless it is permitted to do so within one of the exceptions enumerated in § 6103. I.R.C. § 6103(a).
1. The Exceptions to § 6103
The exception Stadtmauer argues applies on this instant motion is § 6103(h)(4)(B) or (C), which relate to the disclosure of non-party tax records in a tax administration proceeding such as Stadtmauer's sentencing. Specifically, subsection (B) permits disclosure if tax records are "directly related to the resolution of an issue in the proceeding;" subsection (C) permits disclosure if tax records "directly relate to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding." I.R.C. § 6103(h)(4)(B)-(C). Stadtmauer looks to the case of Davidson v. Brady, 559 F. Supp. 456 (W.D. Mich. 1983), as instructive. In Davidson, the plaintiff sued several government employees — Assistant United States Attorneys and IRS Agents — for attaching certain tax records pertaining to him to the sentencing memorandum of Edward Solomon. 559 F. Supp. at 458. Davidson claimed that the release of his tax information via the sentencing memorandum exposed him to numerous civil lawsuits. Id. The Davidson court held that § 6103(h)(4)(C) permitted the attachment of a third party's tax information to a sentencing memorandum when the attachment is directly related to a transaction with the criminal defendant in question sentencing memorandum. Id. at 461-62. This Court agrees with Stadtmauer thatDavidson permits the release of tax records that meet the "transactional" requirement of § 6103(h)(4)(C).
Stadtmauer also looks to the cases of Tavery v. United States, 32 F.3d 1423 (10th Cir. 1994), and Confidential Informant 92-95-932X v. United States, 45 Fed. Cl. 556 (2000), for support of the release of the third party returns in analogous contexts. In Tavery, the plaintiff filed a civil action against an Assistant United States Attorney for violating I.R.C. § 6103. 32 F.3d at 1425-26. The tax information disclosed by the AUSA inTavery was the amount of tax refunded to the plaintiff and her husband, and the plaintiff's annual income. Id. at 1425. The information was disclosed in a brief concerning the entitlement of her husband to court-appointed counsel as an indigent. Id. at 1426. The majority in Tavery held that the information disclosed by the AUSA was firmly within the disclosure permitted by § 6103(h)(4)(B): the plaintiff's return information was found to be "directly related to the resolution of an issue in the proceeding," namely the determination of her husband's eligibility for appointed counsel. I.R.C. § 6103(h)(4)(B); Taney, 32 F.3d at 1428. This Court agrees with Stadtmauer, once again, that if § 6103 permits disclosure of tax information to determine the indigency of an individual on the issue of court-appointed counsel, it would also permit disclosure of information relevant to the sentencing of a criminal defendant. (Def. Br. at 17.)
In Confidential Informant 92-95-932X, the Court of Federal Claims held that a confidential informant could discover the tax information of a third party in a dispute with the Government over the amount due under the informant's agreement with the Government. 45 Fed. Cl. at 559. In Confidential Informant 92-95-932X, however, the informant had an agreement with the Government that specified payment depending upon tax deficiencies a a third party taxpayer, and the Court merely found that § 6103 did not bar discovery requests to the Government to obtain that information. 45 Fed. Cl. at 556, 559.
This Court agrees with the Defendant's position to the extent that if the Government possessed the tax information sought by Stadtmauer relevant to calculating his sentence under the Guidelines, § 6103(a) would not bar disclosure under the exceptions delineated in subsection (h)(4). U.S.S.G. 2T1.1, Note B. The Government apparently agrees, as it has provided Stadtmauer with tax information in its possession relevant to his sentencing. (Def. Reply Br. at 13-14.) The cases discussed so far, however, do not stand for the proposition that a criminal defendant may compel the prosecution to seek information it does not yet possess in order to more accurately calculate a sentence under the United States Sentencing Guidelines.
2. Compelling Release of Tax Records Under § 6103(h)
Stadtmauer urges this Court to read § 6103 in conjunction with U.S.S.G § 2T1.1 and require that the Government obtain additional tax returns in order to more accurately calculate any tax loss that Stadtmauer will be sentenced for. (Def. Br. at 2-4; Def. Reply Br. at 11-12.) The Government, on the other hand, argues that Stadtmauer's request to have this Court order the Government to obtain the tax information pertinent to the tax loss at sentencing impermissibly transforms § 6103 from a tax privacy statute into a discovery mechanism. (Gov't Opp. Br. at 5-6.)
The only case extant that supports Defendant's contention that he may compel the Government to procure additional third party tax information in order to more accurately calculate his guidelines range is United States v. Schroeder. 536 F.3d 746, 750 (7th Cir. 2008). Schroeder discusses a district court order requiring the government to disclose tax returns upon which certain loss calculations were based for a sentencing hearing. Stadtmauer claims that Schroeder stands for the proposition that he is entitled to any returns on which the Government's loss is based. (Def. Br. at 16.) There is no indication in the Schroeder opinion, however, that the prosecution was ever asked to produce returns or tax information it did not already possess. 536 F.3d at 750. This Court does not, therefore, find Schroeder persuasive on this issue of a defendant compelling the Government to seek additional disclosures through § 6103.
The parties, however, have come to a sharp disagreement on the application of United States v. Gricco, a case more on point to the matter at bar. 277 F.3d 339 (3d Cir. 2002). In Gricco, the defendants engaged in a scheme to skim money from parking lot receipts at the Philadelphia International Airport by generating substitute parking tickets. 277 F.3d at 346-47. The failure of the individuals in the scheme to report the income from their illicit parking revenues resulted in a federal criminal tax case, and defendants Gricco and McCardell were subsequently convicted of engaging in a Klein conspiracy, along with counts of tax evasion and filing false returns. Id. at 347, 350. The Court of Appeals vacated the sentences of both defendants because the District Court in Gricco had not made specific findings on each of the disputed issues with regard to the defendants' presentencing reports. Id. at 355. The Court of Appeals, however, in coming to that conclusion, discussed in detail how the 1998 version of U.S.S.G. § 2T1.1 operated with respect to the Gricco underreporting of income scenario. Id. at 355 n. 7, 356.
The Court of Appeals did not announce in Gricco that a district court had to make a perfect calculation of a tax loss under the Sentencing Guidelines. Id. at 356 ("The district court was not obligated to pore through the tax returns of all of the participants in the airport theft to determine the exact amount of unreported income."). Instead, Gricco emphasized that the district court must make a reasonable use of the available facts, but that where the tax loss is uncertain, the district court may make a "reasonable estimate." Id. The Court of Appeals found, inGricco, that the one of the Government's means of calculating the tax loss was not before the district court when the sentences were handed down, and, further, that mathematical errors appeared to exist in the calculations in the record on appeal. Id. at 357-58. Based on the variety of inadequacies in the record, the Court of Appeals found that the defendants' sentences in Gricco could not stand: "[s]ince the government's memorandum, the district court, and the PSRs all fail to provide a coherent factual basis for the calculation of a $3.4 million theft loss, the corresponding tax loss of $952,000 is not a `reasonable estimate.'" Id. at 358.
Gricco, as noted above, was an underreported income case, and the Court of Appeals found that in such a case, certain assumptions could be made about the tax loss: "[s]ince the cashiers who testified admitted that they did not report any of their illicit gains on their tax returns, the assumption that the entire amount stolen from the airport contributed to the tax loss is valid." Id. at 356. Stadtmauer argues that his case is fundamentally different than that of the defendants in Gricco, because the facts at bar concern improper deductions taken by partnerships, and that the actual tax loss could only be determined after an examination of the tax paid by the owners of those pass-through entities. (Def. Reply Br. at 6.) This Court finds that Gricco mandates that a district court make findings with respect the facts available at sentencing in assessing the amount of the tax loss under U.S.S.G. § 2T1.1, but not that the case operates so as to read the 28% default rule out of the Guidelines or to mandate infinite discovery and legal argument with respect to the hypothetical tax positions of third parties.See, e.g., United States v. Jimenez, 513 F.3d 62, 89 (3d Cir. 2008); United States v. Roudakov, No. 03-91, 2005 WL 3263048, at *4-5 (E.D. Pa. Dec. 1, 2005), aff'd, 239 F. App'x 776, 778 (3d Cir. 2007) (unreported).
Such a finding also agrees with the statutory text of § 6103(h). In examining this lengthy specimen of Congressional drafting, Courts are well-advised to examine the statutory text when construing § 6103. See United States v. Mangan, 575 F.2d 32, 40 (2nd Cir. 1978) (finding that when construing § 6103, that "this would be a case in which to apply `the canon of construction of the wag who said, when the legislative history is doubtful, go to the statute.'" (quoting Greenwood v. United States, 350 U.S. 366, 374 (1956)). Subsection (h)(4) of the statute provides the following grounds for release in a judicial proceeding related to tax administration, such as this case:
A) if the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability, or the collection of such civil liability, in respect of any tax imposed under this title;
(B) if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding;
(C) if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding; or
(D) to the extent required by order of a court pursuant to section 3500 of title 18, United States Code, or rule 16 of the Federal Rules of Criminal Procedure, such court being authorized in the issuance of such order to give due consideration to congressional policy favoring the confidentiality of returns and return information as set forth in this title.
I.R.C. § 6103(h)(4). Stadtmauer requests this Court to order the Government to request additional tax records under subsections (B) or (C). (Def. Br. at 15-16.) However, Congress provided for the needs or criminal defendants to obtain tax information under subsection (D), which permits this Court to order release of tax information under the Jencks Act or for Rule 16 discovery. 26 I.R.C. § 6103(h)(4)(D). Stadtmauer does not claim that he is entitled to the information he seeks under either Rule 16 or under the Jencks Act. Given that Congress expressly considered the need for court-ordered release of tax information within the very set of subsections that Stadtmauer seeks to utilize here, and included a court-ordered release mechanism only for the express purposes of Rule 16 discovery and for Jencks material, this Court finds that neither § 6103(h)(4)(B) nor § 6103(h)(4)(C) may be used to order the Government to obtain information on the instant showing.
CONCLUSION
For the reasons heretofore given, Stadtmauer's motion to produce is denied. An appropriate Order accompanies this Opinion.