Department of Justice Participation on the Internal Revenue Service Undercover Review Committee

Department of Justice Participation on the Internal Revenue

Service Undercover Review Committee

Disclosure o f tax return information to a Department o f Justice attorney serving on the Undercover

Review Com mittee o f the Internal Revenue Service is permissible under §6103 o f title 26 of

the United States Code as a limited referral for legal advice.

October 8, 1996

M e m o r a n d u m O pin io n for the A s s is t a n t A t t o r n e y G e n e r a l

T a x D iv is io n

This memorandum responds to your request for our legal opinion on what limi­

tations, if any, are imposed by the provisions of §6103 of the Internal Revenue

Code on the participation by Department of Justice (“ DOJ” ) attorneys on the

Undercover Review Committee of the Internal Revenue Service (“ IRS” ). Letter

for Walter Dellinger, Assistant Attorney General, Office of Legal Counsel, from

Loretta C. Argrett, Assistant Attorney General, Tax Division (July 6, 1995) (“ DOJ

July 6, 1995 Letter” ). Specifically, we have been asked to determine whether

tax return information can be disclosed to DOJ attorneys sitting on the IRS Under­

cover Review Committee (“ Committee” ) in investigations that have not been for­

mally referred to DOJ by the IRS. As set forth below, we conclude that disclosure

of tax return information to a DOJ attorney serving on the Committee is permis­

sible under section 6103 as a limited referral for legal advice.

I. B ackground

A. Section 6103

Section 6103 of title 26 of the United States Code imposes restrictions on the

disclosure of tax returns or tax return information. Only if authorized by statute

can such information be disclosed. 26 U.S.C. § 6103(a). In pertinent part,

§ 6103(h)(2) and (3) provides for disclosure of tax returns or return information

to DOJ attorneys. Section 6103(h)(2) states:

(2) D epartm ent of Justice. — In a matter involving tax administra­

tion, a return or return information shall be open to inspection by

or disclosure to officers and employees of the Department of Justice

(including United States attorneys) personally and directly engaged

in, and solely for their use in, any proceeding before a Federal

grand jury or preparation for any proceeding (or investigation which

may result in such a proceeding) before a Federal grand jury or

any Federal or State court, but only if—

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Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee

(A) the taxpayer is or may be a party to the proceeding,

or the proceeding arose out of, or in connection with, deter­

mining the taxpayer’s civil or criminal liability, or the col­

lection of such civil liability in respect of any tax imposed

under this title;

(B) the treatment of an item reflected on such return is

or may be related to the resolution of an issue in the pro­

ceeding or investigation; or

(C) such return or return information relates or may relate

to a transactional relationship between a person who is or

may be a party to the proceeding and the taxpayer which

affects, or may affect, the resolution of an issue in such pro­

ceeding or investigation.

Section 6103(h)(3) provides:

(3) Form of request.— In any case in which the Secretary is au­

thorized to disclose a return or return information to the Department

of Justice pursuant to the provisions of this subsection —

(A) if the Secretary has referred the case to the Depart­

ment of Justice, or if the proceeding is authorized by sub-

chapter B of chapter 76, the Secretary may make such dis­

closure on his own motion, or

(B) if the Secretary receives a written request from the

Attorney General, the Deputy Attorney General, or an As­

sistant Attorney General for a return of, or return informa­

tion relating to, a person named in such request and setting

forth the need for the disclosure, the Secretary shall disclose

return or return information so requested.

A disagreement has arisen between the IRS and the Tax Division of DOJ as

to what limitations, if any, are imposed by § 6103(h)(2) and (3) on the participa­

tion by a DOJ attorney on the Committee.

B. The U ndercover R eview Com m ittee

The IRS has promulgated, in the form of guidelines, specific procedures for

the review, approval, conduct, and oversight of undercover operations. As set forth

in these guidelines, the IRS recognizes that although the undercover technique

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is lawful and valuable as an investigative tool, undercover operations can create

legal problems. Internal Revenue M anual 910 at 9781-551 (“ IRM” ).

Undercover operations conducted by the IRS are classified into two groups.

Group I operations are deemed more sensitive in nature, and the approval of the

Assistant Commissioner (Criminal Investigation) of the IRS must be obtained.

These operations include those that exceed six months in duration and/or exceed

the Director of Investigations’ level of approval for confidential expenditures. IRM

922 at 9781-551. Group I operations also include any operation in which there

is a reasonable chance that one or more of fourteen specified sensitive factors

will arise. These factors include, inter alia, operations that will: result in significant

civil claims against the United States; have an impact on investigations in numer­

ous regions; involve public corruption crimes; involve an undercover person run­

ning the risk of being arrested or being required to give sworn testimony or attend­

ing a meeting where the subject understood a privilege would exist. Id. at 9781—

551 to 552.

Group II operations are those undercover activities that do not meet the Group

I requirements. The IRS Director of Investigations is authorized to approve re­

quests for Group II operations. Id. at 9781-552.

Requests for undercover operations must be submitted in writing, setting forth

information necessary to evaluate the particular request. Each request must include

in narrative form the evidence obtained to date that would lead a reasonable person

to believe a violation of law has occurred. Not all undercover operations involve

tax or tax-related crimes. Some investigations involve crimes such as money laun­

dering.

The request must also establish that the undercover operation is the only effi­

cient investigative alternative available. IRM 931 at 9781-553. We have been ad­

vised by the IRS that every submission to the Committee for a tax or tax-related

investigation includes all information generated or collected by the IRS regarding

the investigation, the identity of the taxpayer and the nature and plan of investiga­

tion and the potential charges, and tax return information for purposes of §6103.

Letter for Richard L. Shiffrin, Deputy Assistant Attorney General, Office of Legal

Counsel, from Eliot D. Fielding, Associate Chief Counsel, Enforcement Litigation,

Internal Revenue Service (Jan. 22, 1996) (“ IRS Jan. 22, 1996 Letter” ).

All requests for Group I operations are reviewed by the Committee. The Com­

mittee also reviews significant deviations in ongoing Group I operations and all

requests for recoverable funds which exceed an aggregate of $50,000 in Group

II operations. The Committee is advisory in nature and makes recommendations

to the Assistant Commissioner (Criminal Division).

The Attorney General and the IRS Commissioner have agreed in a Memo­

randum of Understanding (“ MOU” ), signed in August 1995, on following speci­

fied procedures for the review and approval of certain undercover operations con­

ducted by the IRS. According to the MOU, an attorney from either the Criminal

Division or Tax Division of the Department of Justice will serve on the Committee

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Department o f Justice Participation on the Internal Revenue Service Undercover R eview Committee

in assessing Group I operations that exceed one year in duration and/or require

approval of more than $40,000 in confidential funds.

With the exception of the DOJ attorney, the Committee is comprised of IRS

officials: the Director, National Operations Division; the Assistant Chief Counsel

(Criminal Tax); and the Chief, Office of Special Investigative Techniques; or their

designees. The Assistant Commissioner (Criminal Investigation) may invite other

individuals to participate in the Committee. IRM 932 at 9781-554(2); MOU at

3.

According to the MOU, the Committee shall meet on a regular basis to consider

initial requests for qualifying Group I undercover operations or significant devi­

ations to previously approved plans of action. No more than four operations will

be scheduled for each meeting. Prior to each meeting, Committee members are

to receive a sealed packet containing the undercover requests. The materials must

be securely maintained and may not be copied. The materials must be returned

after the Committee meeting. MOU at 3-4.

The IRS National Operations Division, Office of Special Investigative Tech­

niques, is responsible for the presentation of the undercover request packets to

the Committee. Prior to the Office of the Special Investigative Techniques’ receipt

of the requests, however, each request has been reviewed and approved by the

respective IRS Division Chief, District Director and Area Director of Investiga­

tions. MOU at 3.

After consideration of each request is completed, the Committee makes a rec­

ommendation to the Assistant Commissioner (Criminal Investigation) that the op­

eration be approved, approved with conditions, or disapproved. The recommenda­

tion is based upon a majority vote of the Committee members. The Committee’s

recommendation, minutes from the Committee meeting and the undercover request

is then sent to the Assistant Commissioner (Criminal Investigation) for final ac­

tion. MOU at 4.

In the event the DOJ attorney disagrees with the Committee’s recommendation

for approval because of legal, ethical, prosecutive, or departmental policy consid­

erations, the appropriate Assistant Attorney General shall consult with the Assist­

ant Commissioner (Criminal Investigation). If the disagreement is not resolved,

no further action shall be taken on the undercover request without the approval

of the IRS Chief Compliance Officer.

The MOU states that the “ undercover technique is a valuable law enforcement

investigative tool” and is essential to the enforcement of tax and tax related stat­

utes. MOU at 1. The MOU acknowledges that because the undercover tool is

sensitive and potentially intrusive, care must be exercised to ensure that the tech­

nique is used properly. The parties agree that the participation of a DOJ attorney

in the approval process for the sensitive operations is necessary “ to ensure legal,

ethical, and prosecutorial uniformity in the application of the undercover technique

for Federal law enforcement.” MOU at 2. The IRS has informed us that the “ DOJ

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Opinions o f the O ffice o f Legal Counsel in Volume 20

attorney would necessarily require access to tax data in order to permit a meaning­

ful review of the details” of the operation. IRS Jan. 22, 1996 Letter at 10.

C. The Positions o f the IRS and the Tax Division

The IRS and the Tax Division have informed us of their respective positions

in several letter submissions, all of which we have reviewed and considered in

reaching the conclusions set forth herein. Letter for Walter Dellinger, Assistant

Attorney General, Office of Legal Counsel, from Stuart L. Brown, Chief Counsel,

Internal Revenue Service (Aug. 21, 1995) (“ IRS Aug. 21, 1995 Letter” ); Letter

for Walter Dellinger, Assistant Attorney General, Office of Legal Counsel, from

Eliot D. Fielding, Associate Chief Counsel, Enforcement Litigation, Internal Rev­

enue Service (Sept. 11, 1995); IRS Jan. 22, 1996 Letter; DOJ July 6, 1995 Letter;

Letter for Walter Dellinger, Assistant Attorney General, Office of Legal Counsel,

from Loretta C. Argrett, Assistant Attorney General, Tax Division (Aug. 25, 1995)

(“ DOJ Aug. 25, 1995 Letter” ); Letter for Richard L. Shiffrin, Deputy Assistant

Attorney General, Office of Legal Counsel, from Mark E. Matthews, Deputy As­

sistant Attorney General, Tax Division (Jan. 24, 1996) (“ DOJ Jan. 24, 1996 Let­

ter” ).

The IRS takes the position that the disclosure of tax information to a DOJ attor­

ney serving on the Committee is not permissible under §6103. The IRS believes

that § 6103(h)(2) and (3) must be read in conjunction with one another because

§ 6103(h)(2) alone does not provide independent disclosure authorization. Accord­

ing to the IRS, even where the requirements of § 6103(h)(2) are satisfied, a disclo­

sure is authorized only where the Secretary or his designee has referred a case

to DOJ, the proceeding falls under subchapter B of chapter 76 or a written request

is submitted by a DOJ official listed in § 6103(h)(3)(B).

In construing what constitutes a “ referral” for purposes of §6103(h)(3), the

IRS asserts that an “ institutional decision” must first be made by the IRS to

request that DOJ provide advice or assistance. Once that decision has been made,

a “ referral” is appropriate in one of three forms. First, a “ formal” referral (also

known as a referral of “ the case on the merits” ) is where the IRS requests that

DOJ conduct a grand jury investigation, or prosecute, defend, or take some other

affirmative action in court with respect to a case. IRS Aug. 21, 1995 Letter, at­

tached memorandum at 15; IRS Jan. 22, 1996 Letter at 1-2.

Another type of referral is where a limited aspect of the case is referred by

the IRS to DOJ for purposes o f DOJ representing the IRS in court for a specific

purpose, such as to obtain approval for an immunity order, to enforce a summons,

or to obtain a search or arrest warrant or writ of entry. IRS Jan. 22, 1996 Letter

at 2-4.

The third type of referral, and the one most relevant to the issue herein, is

where the IRS makes tax return information disclosures to DOJ in seeking advice

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Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee

on issues arising during the investigative stage and prior to a formal referral of

the case. IRS Jan. 22, 1996 Letter at 4-6. In this type of referral, the IRS asserts

that DOJ advice may be sought only on a case-by-case basis by those officers

with authority to make the referral. According to the IRS, the solicitation must

be made of the DOJ division to which a formal referral would be submitted, and

only after the IRS has made a preliminary determination that a formal referral

may be appropriate.1 In addition, the disclosures must be limited to the informa­

tion necessary to obtain the legal advice sought on the specific case. Id. at 4 -

5.

The IRS relies upon the “ Blue Book” 2 on the Tax Reform Act of 1976 and

various IRS publications as authority for its practice of referring a limited aspect

of the case to DOJ or seeking advice prior to a formal referral. Id. at 3-4, n.4

& 7. The Blue Book states in relevant part:

For purposes of [6103(h)(3)], the referral of a tax matter by the

IRS to the Justice Department would include those disclosures

made by the IRS to the Justice Department in connection with the

necessary solicitation of advice and assistance with respect to a case

prior to formal referral of the entire case to the Justice Department

for defense, prosecution, or other affirmative action.

Staff of Joint Comm, on Taxation, 94th Cong., 2d Sess., General Explanation

o f the Tax Reform A ct o f 1976, at 322 (Comm. Print 1976) (“ Blue Book” ).

The IRS rejects the notion that DOJ’s participation on the Committee would

constitute any of the referral types permitted by §6103. The IRS argues that the

disclosures to the DOJ attorney would not qualify as the type of pre-formal referral

“ advice” contemplated by the Blue Book because certain prerequisites to solic­

iting advice from DOJ are not satisfied. Specifically, the IRS claims that an “ insti­

tutional decision” to seek DOJ advice is lacking and that no decision has been

made on a “ case-by-case” basis after a preliminary determination that a formal

referral may thereafter be appropriate. In addition, IRS officials submitting re­

quests to the Committee are not necessarily authorized to “ refer” matters to DOJ

for purposes of §6103 and the DOJ attorney serving on the Committee would

not necessarily be from the division to which a formal referral would be made.

The Tax Division agrees with the IRS that §6103(h)(2) and (3) must be read

in conjunction with one another. The Tax Division characterizes the only issue

in dispute as centering on what constitutes a “ referral” under § 6103(h)(3). The

Tax Division agrees with the IRS that a §6103 referral includes a formal referral

1 According to the IRS, the question o f which officials have authority to refer matters to DOJ depends upon

the type of investigation involved. IRS documents specify who these officials are. Disclosures to DOJ are generally

made by IRS District and Regional Counsel, and the Assistant Commissioner o f Criminal Investigation. IRM (22)55.1,

at 1272-298.2; see also IRS Jan. 22, 1996 Letter at 4-5, Tabs C & L.

2 For further discussion o f the Blue Book see infra pp. 360-61.

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of the case and a limited referral for the purpose of seeking DOJ assistance in

court or advice during the investigative stages of cases. The Tax Division ac­

knowledges that a limited referral terminates once the advice or assistance has

been rendered. The Tax Division disagrees, however, with the IRS as to whether

disclosures to the DOJ attorney serving on the Committee constitute the type of

limited referrals permitted by §6103. Relying upon the plain meaning of the stat­

ute, the Blue Book, and the practices of the IRS, the Tax Division claims that

the disclosures to the DOJ attorney are permissible under the statute as a limited

referral for purposes of seeking advice. See DOJ Aug. 25, 1995 Letter; DOJ Jan.

24, 1996 Letter.

II. Analysis

We believe that the IRS and the Tax Division are correct that § 6103(h)(2) and

(3) must be read in conjunction with one another. Section 6103(h)(3) provides

in relevant part that “ [i]n any case in which the Secretary is authorized to disclose

a return or return information to the Department of Justice pursuant to the provi­

sions of this subsection,” the Secretary may make such disclosure if the Secretary

has referred a case to DOJ, the proceeding falls under subchapter B of chapter

76, or a written request is submitted by an authorized DOJ official. In its plain

meaning, the quoted language refers to a disclosure authorized by § 6103(h)(2).

The primary guide to statutory interpretation is the plain meaning of the text.

As stated by the Supreme Court in U nited States v. Ron P air Enterprises, Inc.,

489 U.S. 235, 242 (1989):

The plain meaning of legislation should be conclusive, except

in the “ rare cases [in which] the literal application of a statute will

produce a result demonstrably at odds with the intentions of its

drafters.” Griffin v. O ceanic Contractors, Inc., 458 U.S. 564, 571

(1982). In such cases, the intention of the drafters, rather than the

strict language, controls.

This is not the “ rare case[]” where the result that follows from the statute’s

text is “ demonstrably at odds” with its underlying congressional purpose. See

Griffin v. O ceanic Contractors, Inc., 458 U.S. 564, 571 (1982). The legislative

history supports the conclusion we have reached from a plain reading of the stat­

ute.

In explaining the provisions relating to disclosures to DOJ representatives in

tax cases, the Senate Committee on Finance stated:

The Justice Department would continue to receive returns and

return information with respect to the taxpayer whose civil or crimi­

nal tax liability was at issue.

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Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee

Except in those instances where a tax matter was referred by the

IRS to the Department of Justice, and tax refund cases under Sub­

chapter B of Chapter 76, the Department of Justice would be re­

quired to make a written request (by the Attorney General, the Dep­

uty Attorney General, or an Assistant Attorney General) for the in­

spection or disclosure of returns and return information, setting

forth the reasons for such disclosure or inspection.

S. Rep. No. 94-938, at 325-26 (1976). The conference agreement adopted a short­

ened version of this explanation in its report. “ The Justice Department will con­

tinue to receive returns and return information with respect to the taxpayer whose

civil or criminal tax liability is at issue. Written request is required in cases other

than refund cases and cases referred by the IRS.” Staff of House Comm, on Ways

and Means, 94th Cong., 2d Sess., Summary o f Conference Agreement on the Tax

Reform Act o f 1976, at 44 (Comm. Print 1976). See also H.R. Conf. Rep. No.

94-1515, at 477 (1976); S. Conf. Rep. No. 94-1236, at 477 (1976).

Courts addressing the issue have adopted the same plain meaning of

§ 6103(h)(2) and (3). In United States v. Chemical Bank, 593 F.2d 451, 457 (2d

Cir. 1979), the Second Circuit found that DOJ attorneys may obtain tax returns

and return information pursuant to § 6103(h)(2) “ only on compliance with”

§ 6103(h)(3). Similarly, the Third Circuit found that in tax cases “ there are two

possible routes under which disclosure of tax returns and return information can

be made” to DOJ attorneys— compliance with either § 6103(h)(3)(A) or

§ 6103(h)(3)(B). United States v. Bacheler, 611 F.2d 443 , 447 (3d Cir. 1979).

See also United States v. Robertson, 634 F. Supp. 1020, 1027 n.9 (E.D. Cal. 1986)

(“ Section 6103(h)(3) sets forth two alternative procedures by which the Depart­

ment of Justice may inspect return information when [§ 6103(h)(2)] is satisfied

. . . •” ), a ffd , 815 F.2d 714 (9th Cir.), cert, denied, 484 U.S. 912 (1987).

We now turn to the issue in dispute, whether disclosure of tax return information

to a DOJ attorney serving on the Committee is permissible under §6103 as a

limited referral for advice. Section 6103 provides that the IRS may make disclo­

sures of tax information to DOJ attorneys if the case has been “ referred” to DOJ.

We agree with the IRS and the Tax Division that referrals under §6103 include

a formal referral of the entire case, as well as a limited referral for purposes of

seeking DOJ assistance in court or advice during the investigative stages.

Nothing in the plain meaning of the statute or in its legislative history suggest

that Congress intended that the term “ referred” be narrowly construed. Section

6103 states, in relevant part, that tax information may be disclosed to DOJ em­

ployees for use in the grand jury or other proceeding, or in an “ investigation

which may result in such a proceeding.” 26 U.S.C. §6103(h)(2). This language

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Opinions o f the Office o f Legal Counsel in Volume 20

clearly contemplates disclosures to DOJ not only when a tax matter is far enough

along for presentment to the grand jury or in some court proceeding, but where

disclosures are needed at the investigative stage. We know from the practices

of the IRS and DOJ, as discussed below, that disclosures at the investigative stage

are often made in seeking legal advice from DOJ attorneys prior to a formal refer­

ral of the entire case. These pre-formal referral practices play a critical role in

the effective enforcement of tax statutes.

The legislative history confirms that pre-formal referral disclosure is permissible

as a § 6103 referral. As the IRS has stated:

the legislative history of [Section] 6103 indicates that Congress in­

tended a broad interpretation of the term [referred] and acceptance

of the defmition traditionally used by the Service and the Depart­

ment of Justice.

IRM, (22)53, at 1272-298.2. The legislative history reveals that Congress did not

intend to limit DOJ’s access to tax information that was necessary in enforcing

criminal tax statutes. See S. Rep. No. 94-938, at 324-25; Staff of House Comm,

on Ways and Means, 94th Cong., 2d Sess., Summary o f Conference Agreement

on the Tax Reform A ct o f 1976, at 44—45 (Comm. Print 1976); see also United

States v. Bacheler, 611 F.2d at 449 (“ Section 6103 recognized the need of the

Justice Department for continued access to tax returns and return information in

carrying out its statutory responsibility in the civil and criminal tax areas and

did not seek to change the rules pertaining to the disclosure of returns and return

information of the taxpayer whose civil and criminal tax liability is at issue.” ).

And, we know from the agencies’ practices that disclosures prior to formal referral

are essential to prosecuting tax crimes. The legislative history reveals that in

adopting the statute, Congress was concerned with protecting individuals against

misuses of tax information by the government. See Beresford v. United States,

123 F.R.D. 232 (E.D. Mich. 1988); McSurely v. M cAdams, 502 F. Supp. 52

(D.D.C. 1980). For example, Congress sought to address DOJ’s use of tax infor­

mation in nontax cases. See S. Rep. No. 94-938, at 316-17; Staff of House Comm,

on Ways and Means, 94th Cong., 2d Sess., Summary o f Conference Agreement

on the Tax Reform A ct of 1976, at 45 (Comm. Print 1976); see also McLarty

v. United States, 741 F. Supp. 751, 755 (D. Minn. 1990), reconsideration granted

on other grounds, 784 F.Supp. 1401 (D. Minn. 1991).

In addition, the Blue Book specifically states that a referral includes disclosures

made in connection with “ the necessary solicitation of advice and assistance with

respect to a case prior to formal referral of the entire case to the Justice Depart­

ment for defense, prosecution, or other affirmative action.” Blue Book at 322.

Although some courts have held that the Blue Book is not part of the statute’s

“ legislative history” per se, see, Flood v. United States, 33 F.3d 1174, 1178 (9th

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Department o f Justice Participation on the Internal Revenue Service Undercover R eview Committee

Cir. 1994); Estate o f Wallace v. Commissioner, 965 F.2d 1038, 1050 n.15 (11th

Cir. 1992); Todd v. Commissioner, 862 F.2d 540, 541—42 (5th Cir. 1988); Hutch­

inson v. Commissioner, 765 F.2d 665, 669-70 (7th Cir. 1985); Redlark v. Commis­

sioner, 141 F.3d 936 (9th Cir. 1998); Zinniel v. Commissioner, 89 T.C. 357, 365-

66 (1987), courts agree that the Blue Book is a valuable aid in understanding

and interpreting the federal tax code, see Condor Int’l, Inc. v. Commissioner, 98

T.C. 203, 227 (1992), a j f d in p a rt and rev’d in part, 78 F.3d 1355 (9th Cir.

1996); Estate o f Wallace, 965 F.2d at 1050 n.15; Todd, 862 F.2d at 542-43;

M cDonald v. Commissioner, 764 F.2d 322, 336 n.25 (5th Cir. 1985); Allison v.

United States, 701 F.2d 933, 940 n.9 (Fed. Cir. 1983); Hutchinson, 765 F.2d at

669-70; Estate o f Ceppi v. Commissioner, 698 F.2d 17, 19 (1st Cir. 1983), cert,

denied, 462 U.S. 1120 (1983); Bank o f C learwater v. United States, 7 Cl. Ct.

289, 294 (1985). Indeed, the Supreme Court observed that the Blue Book con­

stituted a “ compelling contemporary indication” of legislative intent. Federal

P ow er Comm’n v. Memphis Light, Gas & W ater D iv., 411 U.S. 458, 472 (1973).

The IRS does not dispute the relevance of the Blue Book as to the issue raised

herein. Indeed, an IRS training manual entitled D isclosure Litigation Training Ref­

erence, states in relevant part:

As for prereferral advice, although no court has addressed the

issue, a referral for purposes of section 6103(h)(3) may, in appro­

priate circumstances, include disclosures made by the IRS to Justice

in connection with the necessary solicitation of advice and assist­

ance with respect to a case prior to the formal referral (citing the

Blue Book).

Office of Chief Counsel, IRS, Disclosure Litigation Training Reference 45 (July

1994).

In sum, we believe a §6103 referral does include those occasions where the

IRS solicits DOJ advice during the investigative stage, but prior to a formal refer­

ral of the case.3 We now turn to the issue whether DOJ’s participation on the

Committee would fall within this type of referral category.

The IRS claims that the solicitation of advice from the DOJ attorney on the

Committee does not qualify as a §6103 referral because the undercover proposals

do not satisfy certain prerequisites. The Tax Division takes the contrary position,

citing current practices of the IRS in seeking pre-formal referral advice from DOJ

attorneys as analogous to the advice sought from the Committee attorney. These

practices include the following:

3 Although no court has decided the issue presented herein, at least one court has broadly construed w hat constitutes

a “ referral” for purposes o f §6103. See United States v. Bacheler, 611 F.2d 443 (3d Cir. 1979). C ourts have also

acknowledged the importance o f DOJ and IRS working together in investigating and prosecuting tax crimes. See

id.; United States v. Chemical Bank, 593 F.2d 451 (2d Cir. 1979).

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A dvice concerning IRS summons fo r records andlor testimony. IRS agents or

District Counsel attorneys often contact DOJ civil trial or appellate attorneys in

the Tax Division for advice relating to the defensibility of the procedures or scope

of an IRS summons. Disclosure of tax information and often the identity of the

taxpayer are essential to rendering the opinion requested.

C ase developm ent and strategy. On a regular basis, Tax Division lawyers re­

ceive telephone calls from IRS District Counsel attorneys seeking advice about

the course of legal action that should be pursued in certain factual situations to

build a strong case against the defendant. Full disclosure is made in seeking this

type of advice. In some instances, representatives from the IRS Criminal Investiga­

tion Division meet with Tax Division managers to discuss a whole class of cases

focused on a particular market segment. Tax information has been disclosed so

that the Tax Division could assess the likelihood that the cases would be pros­

ecuted.

Coordination o f multi-district litigation. In IRS investigations that cross judicial

districts, IRS District Counsel attorneys may disclose details of the cases to DOJ

in seeking advice as to whether all of the cases would be prosecuted and to facili­

tate the coordination of those prosecutions.

A ppellate issues. IRS personnel frequently contact the Tax Division appellate

attorneys about specific issues pending in DOJ cases that are similar to ones aris­

ing in IRS investigations. To fully discuss the legal implications, IRS personnel

often disclose tax information to the DOJ attorney.

C ases requiring prom pt D O J action. In exigent circumstances where prompt

DOJ action is necessary, IRS personnel will make disclosures to DOJ so that

DOJ attorneys can begin working on the case. The IRS describes these cir­

cumstances as part of the referral procedure and not a request for prereferral ad­

vice. IRS Jan. 22, 1996 Letter at n.2. The Tax Division asserts that the disclosures

are made before any formal referral of the case has been made.

D O J prosecution policies. The Tax Division and the IRS describe another situa­

tion where pre-formal referral solicitation occurs. In determining whether DOJ’s

dual prosecution policy applies to preclude a particular federal prosecution, certain

procedures must be followed by the IRS and DOJ. In compliance with these re­

quirements, tax information must be disclosed. The IRS describes this procedure

as rarely used during the past several years.

Consensual monitoring o f conversations. The Tax Division and the IRS ac­

knowledge that pre-formal referral disclosures are made in compliance with DOJ

policy that IRS agents seek DOJ approval prior to engaging in any consensual

monitoring during an investigation. The DOJ policy is set forth in a 1983 Attorney

General Memorandum signed by William French Smith and in the United States

Attorney’s Manual. Memorandum to Heads and Inspectors General of Executive

Departments and Agencies, from William French Smith, Attorney General, Re:

P rocedures f o r Lawful, W arrantless Interceptions o f Verbal Communications

(Nov. 7, 1983); USAM 9-7.302 (July 1, 1992). The IRS requires compliance with

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the DOJ policy. IRM 9389. As explained in the Internal Revenue Manual, the

purpose of the policy is “ to avoid any abuse or any unwarranted invasion of

privacy.” Id. at 9389.1 at 9-228.4. The Tax Division explained that the policy

has the additional purposes of ensuring that the interception be carried out in a

way that will withstand challenge in court and that a uniform approach to moni­

toring be utilized throughout the country. DOJ Jan. 24, 1996 Letter at 6.

We agree with the Tax Division that the current practices are analogous to and

legally indistinguishable from DOJ’s participation on the Committee.4 We also

agree that disclosures to the DOJ attorney on the Committee would be permissible

referrals under §6103. DOJ’s involvement on the Committee is necessary' “ to

ensure legal, ethical, and prosecutorial uniformity in the application of the under­

cover technique for Federal law enforcement.” MOU at 2. The role played by

the DOJ attorney would include assisting in the development of a uniform ap­

proach to the use of the undercover technique and to ensure that prosecutive issues

are addressed at the earliest stage. The attorney could help ensure that the inves­

tigation would withstand challenge in court, by advising on entrapment and double

jeopardy defenses, as well as other issues. To fulfill the role of providing the

desired advice and assistance, the DOJ attorney would need full, access to the

relevant tax information. We understand that the disclosures, however, would be

limited to the information necessary to obtain the advice sought on the specific

proposal and that such. information would be returned upon completion of the

assignment.

The nature of Group I operations creates the necessity for the solicitation of

DOJ advice in approving the proposals. A Group I undercover operation is a sen­

sitive and potentially intrusive technique, and care must be exercised to ensure

that it be used properly. MOU at 2. A flawed operation could create significant

legal impediments to a tax prosecution. If done correctly, however, the technique

is a valuable law enforcement investigative tool and is essential to the enforcement

of tax and tax related statutes. MOU at 1. IRS policies associated with these oper­

ations underscore the legitimate legal concerns associated with the practice.

Under these circumstances, we are compelled to conclude that DOJ’s participa­

tion on the Committee falls within the rubric of the pre-formal referral advice

contemplated by §6103, as articulated in the Blue Book and applied in other prac­

tices by the IRS and DOJ. We do not find persuasive the contrary arguments

made by the IRS. Specifically, the IRS claims that the disclosures are not permis­

sible because no “ institutional decision” to refer a specific question to DOJ exists.

Nor has a preliminary determination been made that a formal referral may there­

after be appropriate. The IRS also states that the proposals to the Committee would

not necessarily be submitted by an IRS official with authority to make a §6103

■•Although the IRS now raises a question as to the propriety o f its 20 year compliance with DOJ policy relating

to consensual monitoring (see IRS Jan. 22, 1996 Letter at 10), we think the practice is permissible under the scope

o f §6103.

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Opinions o f the Office o f Legal Counsel in Volume 20

referral. Nor would the DOJ attorney on the Committee necessarily be from the

DOJ division to which a formal referral would be made.

First, assuming §6103 requires that solicitations for advice must be made on

a case-by-case basis or after an “ institutional decision” has been made, as well

as a preliminary determination that a formal referral may be appropriate, we be­

lieve that referring requests to the Committee for approval of Group I operations

would satisfy these standards. The qualifying requirements for Group I operations

necessarily limit the types of requests made to the Committee. Determining that

a matter satisfies the prerequisites for a proposed undercover operation constitutes

a case-by-case determination. Indeed, before proposals are submitted to the Com­

mittee, several IRS officials must review and approve the proposals. We under­

stand that the number of undercover requests submitted to the Committee are few

in relation to the total number of IRS investigations and that no more than four

operations are considered at any one Committee meeting.

In addition, the very nature of Group I operations and the associated approval

process would suggest that the IRS views these type of investigations as ones

that may be appropriate for referral to DOJ for prosecution. And, the assistance

proffered by the DOJ attorney would be limited in nature based upon the issues

posed by the particular operation and relevant tax information. These cir­

cumstances, that is the special role of the Committee, the policies associated with

referring qualifying proposals to the Committee for approval, the particular nature

of Group I undercover investigations, and the IRS decision to enter into an MOU

for DOJ participation, would suggest that an “ institutional decision” has been

made to seek DOJ advice in a particular matter. Simply put, we cannot agree

that these facts support IRS’ claim that disclosures to the DOJ attorney would

be tantamount to giving DOJ “ free and unfettered” access to tax information

in a whole class of cases.

Even if, however, the submissions to the Committee were correctly character­

ized as a referral of “ a class o f cases,” we do not believe §6103 precludes such

referrals. Some of the IRS’ current practices of consulting with DOJ attorneys

prior to a formal referral could also be characterized as referrals of whole classes

of cases. For example, as discussed above, IRS representatives occasionally meet

with DOJ attorneys to discuss whole classes of cases, wherein tax information

is disclosed in seeking legal advice. Similarly, the IRS practice of complying with

the DOJ consensual monitoring policy could be characterized as a referral of a

whole class of cases. In these practices, as well as the proposed Committee work,

the solicitations for advice are essential to the successful prosecutions of tax viola­

tions. For example, as to the consensual monitoring cases, the solicitations help

“ to avoid any abuse or any unwarranted invasion of privacy,” IRM 9389.1 at

9-228.4, and to build a legally stronger investigation. DOJ Jan. 24, 1996 Letter

at 6. No one can dispute that uniformity in tax investigations and prosecutions

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Department o f Justice Participation on the Internal Revenue Service Undercover Review Committee

is critical to the success of the federal tax enforcement program. See USAM

6-4.000 (Mar. 1, 1994).

In sum, we do not believe §6103 was intended to preclude DOJ from providing

advice in cases that as a class present legitimate legal concerns. The objectives

behind the current practices, as well as DOJ’s participation on the Committee,

are entirely consistent with the statute’s legislative history and Blue Book provi­

sion. The legislative history shows that §6103 was not intended to interfere with

DOJ’s access to tax information that is necessary in enforcing the tax laws. See

S. Rep. No. 94-938, at 324-25; Staff of House Comm, on Ways and Means,

94th Cong., 2d Sess., Summary o f Conference Agreement o f the Tax Reform Act

o f 1976, at 44-45 (Comm. Print 1976); see also Bacheler, 611 F.2d at 449. And,

the Blue Book explicitly states that the IRS may make disclosures to DOJ “ in

connection with the necessary solicitation of advice.” 5 Blue Book at 322.

Finally, we are not persuaded by IRS’ claim that DOJ’s full participation on

the Committee is impermissible because the “ referrals” are not necessarily made

by IRS officials with authority to do so, or that the DOJ attorney would not be

from the division to which a formal referral would be made. We agree that the

“ referral” must be made by IRS personnel with the authority to do so. We also

believe, however, that this prerequisite can be satisfied. To the extent persons

involved in submitting requests to the Committee are not currently authorized to

“ refer” matters to DOJ for purposes of §6103, the IRS orders or practices can

be amended to guarantee that the persons referring the matters to the Committee

have the appropriate authority. We are unaware of any authority for the remaining

alleged prerequisite, that the DOJ attorney must be from the division to which

a formal referral would be made, nor has any been called to our attention. More­

over, the current practices of the IRS in soliciting DOJ advice, as discussed above,

do not appear to be consistent with the existence of such a requirement. In any

event, if such a prerequisite is desired, it could easily be complied with by redesig­

nating, as necessary, which DOJ attorney would sit on the Committee for specific

proposals.

CHRISTOPHER H. SCHROEDER

Acting A ssistant Attorney General

Office o f Legal Counsel

5 We construe “ necessary” here to mean solicitation that will further federal efforts in the tax enforcement pro­

gram.

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