The opinion of the court was delivered by: BRIEANT
By motion docketed March 4, 1996, James L. Tenzer, the single defendant in a four count misdemeanor Information filed November 30, 1995, charging failure to file income tax returns, seeks to dismiss the Information on grounds that his Constitutional rights were violated by the filing of the charges, and that he is entitled to immunity granted by the Internal Revenue Service ("IRS"). Alternatively, Mr. Tenzer seeks to dismiss Count One on the ground that it is time barred and to suppress certain statements and documents received by the Government from Mr. Tenzer prior to the filing of the criminal Information and all leads and other derivative evidence derived therefrom.
For the most part, the motion is based on the IRS Voluntary Disclosure Policy (the "Policy") discussed below, and the so-called "Caceres doctrine" which holds that once an agency adopts regulations they are duty bound to obey them, even if the agency was not required by the Constitution to adopt them in the first instance. The doctrine was set forth in United States v. Caceres, 440 U.S. 741, 59 L. Ed. 2d 733, 99 S. Ct. 1465 (1979), where the Supreme Court noted that:
"Our decisions in Lopez and White demonstrate that the IRS was not required by the Constitution to adopt these regulations. n. 14
[Footnote 14 reads as follows:]
It does not necessarily follow, however, as a matter of either logic or law, that the Agency had no duty to obey them. 'Where the rights of individuals are affected, it is incumbent upon agencies to follow their own procedures. This is so even where the internal procedures are possibly more rigorous than otherwise would be required.' (Citations omitted.)
The misdemeanor Information charges defendant Tenzer with having unlawfully, willingly and knowingly failed to make income tax returns for the calendar years 1987, 1988, 1989 and 1990. The Information charges that during each of those years the gross income of the defendant ranged between $ 261,488.00 and $ 717,344.00.
The following facts were developed at an evidentiary hearing or are presumed to be true for purposes of the motion. Defendant himself did not testify at the hearing.
Mr. Tenzer is an experienced tax attorney and one of the principals of Margolin, Winer and Evens, described as a large accounting firm located in Long Island New York. It is clear that defendant received substantial income during the four years charged and paid little or no estimated tax. The primary source of his income was from approximately six partnerships. The fact of his existence and his receipt of funds from the partnerships was fully known at all times to the IRS. During the period 1976 through 1991, Mr. Tenzer filed his tax returns timely only for the years 1983, 1984, and 1985. Mr. Tenzer never filed any tax return at all, nor did he pay any tax for the years 1978 and 1979.
During this period, the IRS treated the repeated incidents of late filing only as a civil, not a criminal matter, and did nothing about 1978 and 1979.
On February 29, 1988, the IRS sent Mr. Tenzer a computer generated notice stating "we have not received your tax return" for 1986, and requesting that a return be filed. (Gov. Ex. 2.) Additional notices were sent on April 25, 1988, (Gov. Ex. 3,) and June 6, 1988. (Gov. Ex. 4.) On July 18, 1988, the IRS sent another warning that "we may have to .. begin criminal proceedings ... if you willfully fail to file a tax return." (Gov. Ex. 5.)
Despite these notices, the first evidence of Mr. Tenzer's intent to comply with IRS filing requirements did not occur until March 29, 1991, when he retained Steven Solomon, Esq., also an experienced tax practitioner, to assist him in filing his returns.
For many years, the Margolin firm, through Mr. Tenzer, acted as the tax accountants for a major real estate enterprise in Westchester County known as "JRD". JRD, its principals and several of its employees were under Grand Jury investigation, not only for income tax violations but for other crimes, including violations of the Taft Hartley law, making false statements and similar activities. This was a lengthy and elaborate investigation.
In July of 1991, the Margolin firm was notified by JRD that JRD had been served with a Federal Grand Jury subpoena seeking records in connection with a Title 26 tax investigation of JRD. In November 1991, the Margolin firm was itself served with a Federal Grand Jury subpoena calling for the production of the accounting firm's documents relating to JRD. This service was effected on Mr. Tenzer by Special Agent Trezza of the IRS, who testified before me. Mr. Trezza recalled that upon the service of the subpoena upon Mr. Tenzer, which showed on its face that it was in connection with an investigation of JRD under Section 7201 of Title 26, Mr. Tenzer displayed considerable nervousness and inquired whether "his personal taxes were the subject of the investigation." (Transcript, 394.) This was an unusual reaction for a tax accountant in the experience of Agent Trezza. While the Court finds Mr. Trezza's testimony credible in all respects, I decline to find the weight and significance which the Government attributes to this event. The Government now argues that this service of process (unrelated to Tenzer's own records) was a triggering event which constituted a "contact" by the IRS "notifying" the taxpayer that he was under criminal investigation for failure to file, a relevant issue under the Policy. This Court rejects this inference.
There is a high level of suspicion attached to Tenzer's activities as a possible aider and abettor of JRD's tax frauds. His nervousness, and inquiry about his own taxes may merely reflect a consciousness of guilt concerning JRD. Reading the Policy literally, service of a subpoena to produce the records of a crooked client does not, as a matter of law, arise to a level of notification that the record custodian's own failure to file was known, or under criminal investigation, and indeed, at that point in time it was not. This "triggering event" is also discounted by this Court's finding that by the spring of 1991, prior to the service of the JRD subpoena, Mr. Tenzer had retained Mr. Solomon to assist him in becoming current on his obligations to the IRS. (Transcript, 310.)
On October 7, 1991, by another computer generated notice as a result of activity unrelated to Mr. Trezza or the JRD investigation, the IRS notified Tenzer and his wife that due to their continued failure to respond to repeated inquiries, their accounts had been referred to enforcement action. The letter noted that Tenzer could still avoid enforcement action if he filed all delinquent returns and paid all outstanding taxes within ten days or if he immediately contacted the IRS by telephone.
Following receipt of this letter, Myron Weinberg, Esq., a law partner of Steven Solomon, called the IRS to pledge that the returns would soon be filed, and requested additional time to do so. The IRS granted a series of extensions, through January 31, 1992. On February 10, 1992, Mr. Tenzer filed his tax returns for 1986, 1987, 1988, and 1989. The truthfulness of these returns was not questioned by the IRS at the time and they were "cleared for assessment." The returns were not accompanied with payment for his tax liabilities. Despite filing the returns, Mr. Tenzer failed to make any estimated tax payments throughout the year and thus did not remain current on his 1992 accruing taxes.
In September of 1992, Revenue Officer Elizabeth Kishlansky was assigned to collect the tax deficiency resulting from the returns as filed. On October 15, 1992, Revenue Officer Kishlansky met with Attorney Weinberg regarding the Tenzer matter. Weinberg advised Kishlansky that Tenzer was unable to make full payment, but instead wanted to enter into a Installment Agreement with the IRS whereby he would be allowed to make full payment to the IRS over time. Revenue Officer Kishlansky informed Weinberg that Tenzer would only be given 30 days, until November 16, 1992, to resolve the collection situation. Kishlansky also informed Weinberg that Tenzer would have to submit a financial statement to evaluate this proposed Installment Agreement, and if the situation was not resolved by that time, the IRS would take enforcement action by levy, seizure and/or administrative action.
On October 16, 1992, Revenue Officer Kishlansky filed liens in New York County and Nassau County to protect the IRS' interest. On October 22, 1992, Kishlansky learned that Tenzer had not filed his 1990 or 1991 tax returns. She then "demanded" that those returns be filed. (GX C; Tr.. 446.) This was a "solicitation" of the 1990 return, which is the subject of Count Four of the Information. The effect of this is discussed below.
On November 13, 1992, Tenzer filed his tax returns for the years 1990 and 1991.
On January 8, 1993, Ms. Kishlansky attended a meeting with Tenzer's tax counsel Myron Weinberg, Steven Solomon, and newcomer Ernest Honecker, an attorney who formerly was employed with the IRS in the Chief Counsel's office. Mr. Honecker testified, and I find, that he asked Ms. Kishlansky at the start of the meeting for assurances that Mr. Tenzer's voluntary disclosure was being handled as a civil matter. Kishlansky assured Honecker that it was a civil matter and that she was there only for collection. Revenue Officer Kishlansky was informed that rather than enter into an Installment Agreement, Mr. Tenzer wished to submit an Offer in Compromise. Kishlansky advised the representatives that if Tenzer wanted an Offer in Compromise to be considered by the IRS, he would have to start becoming current on accruing taxes and make all required current estimated tax payments. Tenzer's representatives indicated that the Offer would be approximately $ 250,000. Because a financial statement submitted at that time indicated that Tenzer had substantial assets and significant earnings potential, Kishlansky estimated that a reasonable Offer would be closer to $ 600,000.
After the meeting, but on that same day, Kishlansky called Weinberg and demanded that Tenzer sell several assets and begin making monthly payments of $ 7,000 towards his tax liability. ...