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United States v. Stein

February 9, 2007


The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.


This matter is before the Court on a motion by defendants*fn1 for disclosure of documents. I assume familiarity with the prior opinions in this case.


A. The Indictment

The superseding indictment contains forty-six counts. Count One (the "Conspiracy Count") charges all defendants with conspiracy to defraud the IRS by designing, marketing, and implementing fraudulent tax shelters for wealthy individual clients and deliberately concealing those shelters from the IRS. Defendants' scheme allegedly involved at least four separate tax shelter vehicles, one of which was called BLIPS, designed to generate phony tax losses through a series of sham transactions. Defendants allegedly sought to protect their clients from potential IRS penalties by paying co-defendant Raymond Ruble, a New York tax attorney, to issue opinion letters falsely representing that the tax shelters were likely to survive IRS review. Count One charges also that the defendants conspired to conceal the fraudulent tax shelters from the IRS by, among other things, preparing tax returns that concealed the phony tax losses, obstructing IRS and Senate investigations into the shelters, and failing to register the shelters with the IRS.*fn2

Counts Two through Forty (the "Tax Evasion Counts") charge all defendants with tax evasion based on the tax returns of approximately twenty-five different tax shelter clients and defendants.*fn3

Counts Forty-one through Forty-four charge defendant Ruble with evading taxes on income related to the alleged scheme, including payments he received from nominee entities controlled by John Larson and Robert Pfaff in exchange for fraudulent opinion letters included in Count One. Two of these counts name defendants Larson and Pfaff as well.*fn4

Finally, Counts Forty-five and Forty-six charge certain defendants with obstructing the IRS investigation of the tax shelters.*fn5

B. The Genesis of the Present Controversy -- the May 17, 2004 E-mail

As the record reflects, the defense has made several applications for disclosure of materials in the hands of the IRS, all or substantially all of which have been denied. At some point, however, the government produced to defendants, inadvertently it says, a database that contained an e-mail dated May 17, 2004 that underlies the present request for discovery.

The e-mail, written by an IRS attorney, summarized for his superiors a meeting among the prosecution team in this case and their supervisor, Assistant United States Attorney Shirah Neiman, and a host of IRS officials.*fn6 It stated that the purposes of the meeting included "discuss[ing] any hazards that the prosecution team may face in addressing the tax shelter registration requirements." It related also that the IRS representatives had given "Shirah [Neiman] a general power point presentation on the tax shelter registration requirements" and supplemented that presentation with a "draft TAM [Technical Advice Memorandum] on registration of BLIPS." According to the e-mail, the IRS representatives explained to the prosecutors "that the registration requirements are still unclear and that we [the IRS representatives] had been advised by Passthroughs that any formal advice on the registration of BLIPS might be favorable to KPMG." It reported also that the IRS representatives "inquired about whether there could be a relaxation of the Halt on certain types of communications" and that Ms. Neiman "stated that she would like to address any concerns that [they] have in a small meeting format, but that any relaxations was [sic] unlikely with any entity involved as a co-promoter of KPMG [and other entities]."

C. The Motion

The crux of defendants' position is their contention that the e-mail shows, and that further discovery will confirm, that the IRS itself believed that it was unclear whether registration of BLIPS was required by law. They further argue that the e-mail suggests that the prosecution team stopped the IRS from preparing the TAM because it feared that a TAM would conclude that registration was not required and thus undermine the prosecution's case. Accordingly, they argue, the draft TAM and related documents are Brady material that will demonstrate the lack of clarity of the legal duty to register and the reasonableness of defendants' position that registration was not required. They seek an order requiring disclosure of (1) the draft TAM and the PowerPoint presentation presented by the IRS at the meeting, (2) all documents relating to the IRS Office of Chief Counsel's decision to begin drafting a TAM relating to BLIPS and the decision to stop that process prior to completion, which defendants argue must have been at the request of the United States Attorney's Office, (3) all documents relating to the May 17, 2004 meeting itself, and (4) documents in possession of the prosecution team that were received from or distributed to IRS personnel other than Criminal Investigation Division ("CID") agents on the prosecution team.

While the government disputes defendants' position, it has produced the so-called draft TAM, which actually is a misnomer,*fn7 as well as the PowerPoint presentation made at the meeting. What remains, therefore, is defendants' requests for documents relating to (1) the decision to begin and to stop drafting a TAM, (2) the May 17, 2004 meeting itself, and (3) all documents that the ...

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