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ALTMAN v. U.S.

June 18, 1990

PHYLLIS ALTMAN, INDIVIDUALLY AND AS SURVIVING SPOUSE OF BENNETT ALTMAN, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Nickerson, District Judge:

MEMORANDUM AND ORDER

Plaintiff brought this action under the Internal Revenue Code, 26 U.S.C. § 7422, seeking the refund of income taxes, interest and penalties erroneously and illegally assessed. The court has jurisdiction pursuant to 28 U.S.C. § 1346(a)(1). Plaintiff now moves for summary judgment.

I.

The parties have stipulated to the facts, as follows.

Plaintiff, Phyllis Altman, is the surviving spouse of Bennett Altman, who died on December 25, 1981. The Altmans filed joint tax returns for the years 1976 and 1978.

In 1980, a Special Grand Jury in the Eastern District of New York investigated whether Bennett Altman and other persons violated the Internal Revenue Laws. On October 10, 1980, Bennett Altman pled guilty to one count of a nine count information. That count charged him with a violation of 26 U.S.C. § 7201 for the tax year 1978. Other counts of the information charged him and two others, Joseph and Anthony Cecere, with involvement in a money laundering scheme and with knowingly and willfully failing to file a return in 1977 and filing false and fraudulent tax returns in 1976 and 1978.

In September 1981 the United States applied for an order under Federal Rule of Criminal Procedure 6(e) for release of "books, records, other documents and testimony obtained during the Grand Jury's investigation" which the Assistant United States Attorney described as "vitally necessary to determine, establish, assess and collect the federal civil tax liabilities of BENNETT ALTMAN, JOSEPH CECERE and ANTHONY CECERE." Upon this application, Judge Charles P. Sifton entered an order on September 25, 1981, under Rule 6(e) authorizing the United States Attorney to:

  make available to agents of the Internal Revenue
  Service all books, records, and documents
  subpoenaed by or presented to the Grand Jury
  pertaining to the above-captioned cause and the
  transcripts of testimony presented to the Grand
  Jury in that connection for purposes of
  determining, establishing, assessing and
  collecting the federal civil tax liabilities of
  BENNETT ALTMAN, JOSEPH CECERE AND ANTHONY CECERE,
  and for use in any judicial proceeding related
  thereto.

On April 9, 1982, the Internal Revenue Service (IRS) issued a statutory notice of deficiency to Bennett Altman's estate care of Phyllis Altman, saying that their income tax payments for 1976 and 1978 were deficient in the amounts of $19,168.00 and $38,177.00 respectively, and assessing penalties of $9,584.00 and $19,089.00 respectively. The deficiencies were due to unreported amounts Bennett Altman received through the money laundering scheme charged against him. The notice also said that civil fraud penalties should be charged because the underpayment was due to Bennett Altman's fraudulent conduct. No part of the underpayment, however, was due to fraud on the part of Phyllis Altman, and so no fraud penalty was assessed against her.

Phyllis Altman filed, in February 1983, a claim for abatement of the assessments against her for 1976 and 1978 on the grounds she should be granted innocent spouse status under 26 U.S.C. § 6013(e). She thereafter sold the family home, paid the outstanding tax liabilities, and in 1984, claimed a refund of the amounts paid. In her claim, she said that the IRS improperly used Grand Jury material as the basis of the assessments against her and the denial to her of innocent spouse status. She further claimed that the Rule 6(e) order under which the Grand Jury evidence was obtained would not meet the standards of subsequent Supreme Court decisions. The IRS denied her claim for a refund on March 7, 1986.

The government concedes that the IRS used some of the Grand Jury material in determining Phyllis Altman's tax deficiency and in denying her claim for refund as an innocent spouse. The government also concedes that the Rule 6(e) order would not satisfy the standards for such orders were it issued today.

II.

Rule 6(e) of the Federal Rules of Criminal Procedure prohibits disclosure of "matters occurring before the grand jury" with certain exceptions. Fed.R.Crim.P. 6(e)(2). The relevant exception in this case permits disclosure "when so directed by a court preliminarily to or in connection with a judicial proceeding". Fed.R.Crim.P. 6(e)(3)(C)(i).

On June 30, 1983, the Supreme Court, in United States v. Sells Engineering, Inc., 463 U.S. 418, 103 S.Ct. 3133, 77 L.Ed.2d 743 (1983), held that the government was required to make a showing of particularized need to obtain disclosure of grand jury materials for use in civil suits. In United States v. Baggot, 463 U.S. 476, 103 S.Ct. 3164, 77 L.Ed.2d 785 (1983), decided the same day, the Court held that Rule 6(e)(3)(C)(i) does not permit disclosure to the IRS for use in a civil tax audit, which is normally neither in connection with nor preliminary to a judicial proceeding. It is undisputed that the Assistant United States Attorney's affidavit ...


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