The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
This is a criminal case charging the Defendant Howard Zuckerman with
income tax evasion and tax fraud. He is charged with failing to file
personal income tax returns for the years 1992-1995, and having made false
statements omitting certain income and overstating certain deductions on
those same returns when he eventually filed them. Presently pending
before the Court are Zuckerman's objections to the Report and
Recommendation of United States Magistrate Judge E. Thomas Boyle dated
February 3, 2000 and Zuckerman's motion to dismiss the indictment, or in
the alternative, an order suppressing evidence obtained from meetings
Zuckerman had with IRS agents.
Zuckerman was Senior Vice President of Finance for Tollman-Hundley
Hotels, Inc. In late 1996 and early 1997, the IRS began an investigation
of one of the principals of Tollman-Hundley, and requested an interview
with Zuckerman to obtain certain information about his employer. The
parties dispute' the events surrounding this initial contact. The
Government contends that it looked up information about Zuckerman prior
to contacting him, discovered that he had not filed income tax returns
for the preceding 4 years, visited his home and left a card with
Zuckerman's wife asking that he call them. The Government further
contends that, thereafter, Zuckerman contacted his accountant, and the
accountant contacted the IRS to discuss the interview. During this phone
call, the accountant informed the IRS agent that Zuckerman had not filed
returns from 1992-1996, and indicated that he was in the process of
preparing such returns.
According to Zuckerman, the agent expressed surprise at this statement
by Zuckerman's accountant. Zuckerman agreed to meet with the IRS after
being assured that he was not currently under investigation himself, but
that he might become a subject in the future. Several more meetings were
arranged between the IRS and Zuckerman over the next several months, all
with the same general understanding between the parties regarding
Zuckerman's status. On August 11, 1997, Zuckerman filed returns for the
years 1992-1996, showing tax obligations of $130,000. The IRS contends
that by this point, it had opened up a formal investigation of Zuckerman
for failure to file. About a month later, the Government met with
Zuckerman's attorney regarding the pending criminal investigation.
Zuckerman argued that he was eligible for immunity under the IRS'
Voluntary Disclosure policy, and would shortly be presenting an
offer-in-compromise regarding his outstanding tax liability.
Nevertheless, the IRS continued with the investigation, and on September
8, 1999, indicted Zuckerman on 8 counts of tax evasion and tax fraud.
Zuckerman moved to dismiss the indictment, arguing that he is eligible
for consideration under the IRS' "Voluntary Disclosure Policy." While the
parties disagree as to the exact wording of this policy, they agree that
in general terms, the IRS has a practice of not recommending criminal
prosecution where an individual makes a timely, voluntary disclosure of
his failure to file a return. Based on the factual disputes concerning
the events at issue, this Court referred the case to Magistrate Judge
Boyle for a hearing on the facts underlying Zuckerman's claim under the
Voluntary Disclosure Policy and the facts underlying Zuckerman's motion
to suppress his statements based on claims of "trickery" by the
Following a hearing on December 22, 1999, Judge Boyle made the
following findings: (i) the IRS became aware of Zuckerman's failure to
file tax returns in December 1996, when it began preparing to interview
Zuckerman regarding his employer's tax returns; (ii) IRS agents left a
card in Zuckerman's mailbox on January 23, 1997; (iii) Zuckerman was not
a subject of the investigation at that
time, but because the IRS was already aware of his failure to file, the
IRS agent intended to inform Zuckerman of his rights to refuse to answer
questions and have an attorney present for the interview; (iv)
Zuckerman's accountant contacted the IRS on January 24, 1997 and admitted
that Zuckerman had not filed his returns but intended to do so; (v)
Zuckerman's accountant stated that Zuckerman wished to cooperate with the
investigation even after being informed that Zuckerman himself could
become a subject at some point in the future; (vi) IRS agents met with
Zuckerman's attorney on February 5, 1997, at which time the IRS disclosed
that they were aware of Zuckerman's failure to file and that Zuckerman
could become the subject of an investigation in the future; (vii)
Zuckerman voluntarily appeared for an interview on March 4, 1997; (viii)
at this interview, with his attorney present, Zuckerman was informed that
he was being interviewed as a witness, but could become the subject of an
investigation himself due to his failure to file; (ix) the IRS did not
inform Zuckerman that they became aware of his failure to file before
ever contacting him; (x) Zuckerman was informed of his rights at the
interview and informed that any statements he made could be used against
him in any subsequent criminal proceeding; (xi) Zuckerman stated that he
understood his rights and proceeded to be interviewed; (xii) Zuckerman
eventually explained at the interview that he had not filed his own
returns because he was awaiting information, then acknowledged that he
intended to file when he obtained this information; (xiii) the IRS froze
Zuckerman's account on March 14, 1997, ten days after the interview, in
order to preclude the Civil Division of the IRS from compromising any
future criminal prosecution of Zuckerman; and (xiv) Zuckerman became a
formal subject of a criminal investigation on August 1, 1997, and
Zuckerman claimed to be within the Voluntary Disclosure Policy for the
first time on August 4, 1997.
Zuckerman filed objections to Judge Boyle's Report and Recommendation
on three major grounds: (a) that Judge Boyle erred in not finding that
the IRS agents made false representations and materially omitted relevant
information when speaking to Zuckerman and his tax attorney; (b) that the
Judge failed to address whether the IRS met its obligations under the
Voluntary Disclosure Policy in good faith; and (c) whether the Judge
erred in failing to require the IRS to produce a document claimed to be
Pursuant to 28 U.S.C. § 636(b)(1), any party may file written
objections to the Report and Recommendation of a Magistrate Judge within
ten days after being served with a copy. See also Fed.R.Civ.P. 72(a).
Once objections are filed the district court is required to make a de
novo determination as to those portions of the Report and Recommendation
to which objections were made. see 28 U.S.C. § 636(b)(1); Grassia v.
Scully, 892 F.2d 16, 19 (2d Cir. 1989). The phrase "de novo
determination" in section 636(b)(1) — as opposed to "de novo
hearing" — was selected by Congress "to permit whatever reliance a
district judge, in the exercise of sound judicial discretion, chose to
place on a magistrate's proposed findings and recommendations." U.S. v.
Raddatz, 447 U.S. 667, 676, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980).
Section 636 does not require the district court "to rehear the contested
testimony in order to carry out the required `determination.'" Id. at
674, 100 S.Ct. 2406. Rather, in making such a determination, the district
court may, in its discretion, review the record and hear oral argument on
the matter. See Pan Am. World Airways, Inc. v. International Brotherhood
of Teamsters., 894 F.2d 36, 40 n. 3 (2d Cir. 1990). Furthermore, the
District Judge may also, in his sound discretion, afford a degree of
deference to the Magistrate Judge's Report and Recommendations. See U.S.
v. Raddatz, 447 U.S. 667,
676, 100 S.Ct. 2406, 2412, 65 L.Ed.2d 424 (1980).
In light of these standards, this Court will make a de novo
determination with regard to the three objections raised by the
A. As to the alleged false representations and material omissions made
by the IRS
Zuckerman first objects to Judge Boyle's finding that the IRS agents
made no misrepresentations to him and his attorney. Zuckerman cites two
specific misrepresentations: (i) the affirmative statements by the IRS
that he was not a subject of an investigation when he clearly was, and
(ii) the failure of the IRS to expressly inform Zuckerman that they had
learned of his failure to file before speaking to his accountant.
IRS Agent George Nass testified at the hearing that "a subject
investigation is basically a full-fledged investigation of a . . .
taxpayer . . . to see if there's any merit to the allegations [that the
taxpayer has violated the law]." Similarly, the Internal Revenue
Manual-Administration defines a subject investigation as a situation
where "an individual or entity [is] alleged to be in noncompliance with
the laws enforced by the Internal Revenue Service and having prosecution
potential." While Zuckerman attempted to demonstrate that Nass considered
the case against Zuckerman to have such prosecution potential as early as
December 1996, Nass' testimony clearly establishes that his initial
findings regarding Zuckerman's ...