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March 12, 2007

IRS Uses Taxpayer Records to Secure Tax Fraud Conviction

Tax Litigation

Houston Tax Attorney

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Taxpayers who are being investigated for tax fraud should be very careful about turning over incriminating records to third parties. The recent Yang v. United States case provides an excellent example of how this can be a problem.

The Yang brothers and their parents were being investigated by the IRS for tax fraud related to the family’s China Buffet Restaurant. You Bin Yang was living with his parents when he called the local police to report that his house was burglarized. The burglars had taken $2,500 from his parents bedroom and a DVD player from You Bin’s bedroom.

During the burglary investigation the local police evidence technician discovered five unsealed notebooks on You Bin’s parents bedroom dresser. Three of the notebooks had a year inscribed on the cover. The evidence technician obtained You Bin’s permission to take the notebooks so that the technician could process them for fingerprints.

You Bin subsequently contacted the police to see if he could pick up the notebooks. The police officer, who knew of the IRS tax fraud investigation, then examined the contents of the notebooks and discovered that they appeared to be the Yang family financial records. They were written in Chinese. The police officer then contacted the IRS Criminal Investigations special agent and the special agent obtained a grand jury subpoena for the copies that the police officer had made (with You Bin’s permission) of the notebooks.

The government translated the notebooks into English and used the notebooks to indict You Bin and his brother for “for conspiracy to commit tax fraud, filing false tax returns, and conspiracy to structure currency transactions for the purpose of evading currency transaction reporting requirements.”

You Bin and his brother filed a motion to suppress the notebook evidence, arguing that the contents were protected under the Fourth Amendment. The district court and the Seventh Circuit Court of Appeals held that the notebooks are not protected by the Fourth Amendment because You Bin and his brother had no expectation of privacy in the copies of the unsealed notebooks that You Bin had turned over to the police.

Based on the Seventh Circuit’s opinion, it appears that You Bin would have prevailed if the notebooks were sealed and if he did not give the local police permission to copy the notebook contents. Of course, the Yang brothers might have avoided prosecution altogether had the taxpayer not turned the records over to the local police in the first place….

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