The United States Versus Loren C. Troescher
The District Order That Started The Appeal!
Reproduced below is the Order by the Federal District Court -- the Order which required Troescher to testify against himself, the Order which Troescher appealed to the Ninth Circuit Court of Appeals. Note that all previous legal work in this case, including the filing of the Appeal itself, was done by Troescher without an attorney. Attorney Joe Izen came aboard AFTER the Appeal had been filed, and in time to file the first brief at the Appellate Court.
Note that there are certain inaccuracies in the data provided in this Order. Apparently these inaccuracies had no effect on the final decision of the Judge. The inaccuracies and anomalies are described on another page. Click Here for that information. [not completed]
As mentioned elsewhere, the Order, below, is unique in that the Federal District Judge ordered Troescher to testify against himself only after having heard from Troescher that Troescher would appeal that ruling. The Federal District Judge deserves full credit for the astonishing language of his Order -- where he granted an automatic stay of execution, gave his opinion that the cases which the IRS had cited were unconstitutional, and invited the Ninth Circuit to reverse themselves.
Here is the Order. It was "filed" on March 20, 1995, and "entered" by the clerk on March 24, 1995.
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA )
.
TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:I. Background
Respondent was served with an IRS summons ordering him to appear before an IRS agent on March 9, 1993. he was also ordered to bring "all documents and records [he] posses[ed] or controll[ed] that reflect income [he] earned/received," for the years 1986, 1987, 1988, 1989, 1990 and 1992. Respondent made no appearance.
On November 22, 1993, petitioner moved the Court for an order compelling respondent's compliance with the summons. Although respondent made no appearance at the hearing, he did file an opposition. The opposition listed seven defenses to enforcement. None of these defenses mentioned respondent's Fifth Amendment privilege against self-incrimination.
On December 6, 1993, the Court issued an order enforcing the IRS summons. On January 14, 1994, respondent appeared before an IRS agent, but he refused to answer the agent's questions, invoking the Fifth Amendment. he also refused to produce the requested documents, claiming that the act of production would amount to incriminating testimony as well.
In August 1994, the Government moved to hold respondent in contempt for failing to comply with the Court's December 6, 1993 Order, arguing that defendant had waived his Fifth Amendment rights. The Court found that respondent had not waived his Fifth Amendment rights and denied the Motion in an unpublished opinion. Order filed August 4, 1994, 94-2 U.S. Tax Cas. (CCH) P 50579, 74 A.F.T,.R.2d 94-6250, 1994 WL 547514, 1994 U.S. Dist. LEXIS 12128 (C.D.Cal. 1994).
As the Court had found that respondent did not waive his Fifth Amendment rights, the next step was to look at his Fifth Amendment claims on their merits. The Court had anticipated that it would examine in camera each question and respondent's reasons for not answering to determine whether he had a valid Fifth Amendment claim. The Court ordered respondent to file a statement under seal to determine whether he was justified in refusing to answer each question posed by the IRS and in refusing to produce each document requested under the subject summons. Order filed December 14, 1994. Respondent did so.
The Court then held a hearing on January 3, 1995. After eliciting argument from both respondent and the Government, the Court determined that respondent's Fifth Amendment claims were most likely valid. However, the Court offered the Government one last opportunity to explain in writing why the Fifth Amendment would not apply to any particular question posed by the IRS.
On January 17, 1995 the Government filed a supplemental brief. Rather than discuss the individual questions, the Government argued broadly for the first time that respondent could not take comfort in the Fifth Amendment because he feared prosecution for a tax crime rather than a non-tax crime. The Court has researched this matter thoroughly, and has determined that the government is technically correct under current Ninth Circuit law. The Court believes that it must decide this issue in the Government's favor, but it urges the Ninth Circuit to revisit this issue.
II. Analysis
Since at least 1951, federal courts have used a simple test to determine whether a taxpayer may assert the Fifth Amendment to avoid providing the IRS tax information. As recently stated by the Ninth Circuit,
'To claim the privilege validly a defendant must be faced with substantial hazards of self-incrimination that are real and appreciable and not merely imaginary and unsubstantial. moreover, he must have reasonable cause to apprehend [such] danger from a direct answer to questions posed to him.'
In re Grand Jury Proceedings, 13 F.3d 1293, 1295 (9th Cir. 1994) (quoting United States v. Neff, 615 F.2d 1235, 1239-40 (9th Cir. 1980), cert. denied, 447 U.S. 925, 100 S. Ct. 3018, 65 L. Ed. 2d 1117 (1981). See also, e.g., Hoffman v. United States, 341 U.S. 479, 486, 71 S. Ct. 814, 818, 95 L. Ed. 1118, 1124 (1951); United States v. Argomaniz, 925 F.2d 1349, 1353 (11th Cir. 1991); Estate of Fisher v. Commissioner, 905 F.2d 645, 648-49 (2nd Cir. 1990); United States v. Clark, 847 F.2d 1467, 1474 (10th Cir. 1988).
Courts must determine whether such a hazard exists by examining the questions, the setting, and the peculiarities of the case. In re Grand Jury Proceedings, 13 F.3d at 1295.
The Court had expected that it would apply this test to determine whether or not respondent could validly assert the Fifth Amendment. The Government, however, pointed out that the Ninth Circuit distinguishes between fear of prosecution for tax crimes and fear of prosecution for non-tax crimes in determining whether a taxpayer may assert the Fifth Amendment.
The first case to make this distinction was Fuller v. United States, 786 F.2d 1437, 1439 (9th Cir. 1986). The Ninth Circuit stated:
The fifth amendment's self-incrimination clause provides no right to taxpayers to refuse to provide the IRS with financial information unless they make some showing that there is an appreciable possibility of prosecution for a non-tax crime.
Id. at 1439. The Fuller Court cited five cases for this proposition: Hudson v. United States, 766 F.23d 1288, 1291 (9th Cir. 1985); Boday v. United States, 759 F.2d 1472, 1474 (9th Cir. 1985); McCoy v. Commissioner, 696 F.2d 1234, 1236 (9th Cir. 1983); Edwards v. Commissioner, 680 F.2d 1268, 1270 (9th Cir. 1982) (per curiam); and Neff, 615 F.2d at 1238-40.
The Court has examined each of the five cases in detail. Each case applies the original test described in Neff and In re Grand Jury Proceedings, and none distinguishes between tax crimes and non-tax crimes. In each case, though, the court was dealing with a situation where the taxpayer feared prosecution for a tax crime. And in all five cases the Ninth Circuit held that the taxpayer had failed to satisfactorily show that responding to the questions would be incriminating. Thus, after applying the test, the Court ruled for the Government each time.
Unfortunately, it appears that the Fuller court took each of these individual examples and created a principle that does not comport with other decisions from the Supreme Court, Ninth Circuit and other circuits. This Court would have been inclined to distinguish this case from Fuller on its facts if it were not for more recent Ninth Circuit authority.
In Brooks v. Hilton Casinos, Inc., the Ninth Circuit applied Fuller in a discovery sanction context. 959 F.2d 757, 767 (9th Cir. 1992). The Court stated:
[Plaintiff's] concern is that disclosure of this information might have subjected him to prosecution for tax crimes. But the fifth amendment's self-incrimination clause does not give taxpayers a right to withhold financial information from the IRS unless they can show an appreciable possibility of prosecution for a non-tax crime.
Id. (citing Fuller) (emphasis in original). Again, the Court would be inclined to distinguish the present case on its facts from Brooks. But Brooks makes a very strong, blanket statement that the Fifth Amendment just does not apply when the taxpayer fears prosecution for a tax crime.
Finally, the Ninth Circuit reiterated this rule in an unpublished opinion. United States v. Turri, No. 93-16724, 74 A.F.T.R.2d 94-5102, 1994 WL 242125 (9th Cir. June 3, 1994) (citing Brooks). Turri is not distinguishable on its facts. The Court could have ignored it, however, since it is not a published opinion.
The Court has researched this area thoroughly and finds that no other circuit has distinguished between tax crimes and non-tax crimes for Fifth Amendment purposes. The Court has also researched treatises discussing tax law. Interestingly, no treatise has even mentioned these unusual Ninth Circuit opinions.
The Court has struggled with this doctrine and has come to the conclusion that Fuller, Brooks and Turri are simply wrong. There is no reason under law or policy to create a "Tax-Crime Exception" to the Fifth Amendment. The Constitution does not concern itself with labels. it states that no person "shall be compelled in any criminal case to be a witness against himself . . ." U.S. Const. amend V. This Court cannot comprehend why the Fifth Amendment is abrogated simply because the person may be prosecuted for a tax-crime.
The Court would have preferred to apply the test derived from Hoffman. Based on respondent's in camera statement, the Court would have concluded that respondent is faced with substantial hazards of self-incrimination that are real and appreciable and not merely imaginary and unsubstantial. Moreover, respondent has reasonable cause to apprehend such danger from a direct answer to questions posed to him. Thus, the Court would have found that respondent's fears of incriminating himself for a tax crime justified his refusal to answer each question posed by the IRS.
After having two chances to change the Fuller rule, the Ninth Circuit has instead strengthened it. Rather than attempt to distinguish the cases on their facts, the Court has chosen to confront the cases head on. The Court hopes that the Ninth Circuit takes this opportunity to critically examine Fuller and its progeny.
Respondent has no appreciable fear of prosecution for a non-tax crime. Thus, the Court reluctantly COMPELS respondent to answer the IRS questions and produce the documents demanded in the IRS Summons. The Court STAYS enforcement of this Order pending appeal, Fed. R. Civ. P. 62(c), and respectfully urges the Ninth Circuit to revisit this issue.
IT IS SO ORDERED
DATED: [ 3/21/95 ]
[signed]
STEPHEN V. WILSON
UNITED STATES DISTRICT JUDGE
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