Opinion ID: 610805
Heading Depth: 3
Heading Rank: 1

Heading: Active and Ongoing Tax Investigation

Text: 11 The district court found that, at the time of the unlawful search, the government was involved in an ongoing investigation of Eng's narcotics violations, which necessarily and customarily included an investigation of his finances in relation to the proceeds of the narcotics trade. Such an inquiry would typically, and did in fact, lead to an investigation of Eng's tax returns. The district court found: That the indictment was thereafter superseded to include tax counts did not negate the ongoing nature of the investigation in October of 1989. United States v. Eng, 819 F.Supp. 1198, 1211 (E.D.N.Y.1993) (Eng II ). We agree. 12 To support this finding, the district court referred to Agent Interdonato's testimony and documents admitted at the suppression hearing that related to the status of the tax evasion investigation at the time of Eng's arrest in October of 1989. The district court relied particularly on: Interdonato's testimony that he commenced the investigation in the summer of 1989 and discovered from public records that Eng had purchased a building at 26 Bowery on behalf of a corporation of which he was president; information from the title search of 26 Bowery; the request for Eng's personal and corporate tax returns; the preparation of various subpoenas; and the fact that other agents on the DEA Southeast Asian Task Force were reporting information about Eng's assets to Interdonato. 13 To further support its findings, the district court made the following observation regarding the nature of tax evasion investigations in general: 14 [I]n order to establish the type of behavior that constitutes tax evasion, the government must engage in a lengthy and detailed analysis of the taxpayer's resources and expenditures; thus, although the tax evasion investigation of Eng was still in its formative stages when the illegal search of the safe occurred, the government's motivation to pursue that investigation was compelling, and the agents' behavior in the Summer and Fall of 1989 was consistent with their active pursuit of this investigation. 15 Id. at 1212. Specific to this investigation, the district court noted the short time span between the initiation of the investigation and the illegal search and the degree of investigative activity during that period (i.e., there were no subpoenas lying dormant for months prior to the illegal search as in United States v. Roberts, 852 F.2d 671 (2d Cir.), cert. denied, 488 U.S. 993, 109 S.Ct. 556, 102 L.Ed.2d 583 (1988)). Thus, the district court concluded that the government's investigation was in a sufficiently advanced stage to compel the finding that 'alternate means of obtaining the evidence' were 'in existence and, at least to some degree, imminent, if yet unrealized' and that 'the evidence produced by the investigation was simply the normal output of that investigation.'  Eng II, 819 F.Supp. at 1212-13 (quoting Eng I, 971 F.2d at 861). In sum, the district court found, the evidence supports this court's original conclusion that the tax evasion investigation was neither spurred nor catalyzed by the illegal search. Eng II, 819 F.Supp. at 1212. 16 Eng contends that the district court has engaged in speculation, rather than in an analysis of the demonstrated historical facts in this case, by relying on the customary practices and standard procedures of tax evasion investigations to support its conclusion of inevitable discovery. See Nix, 467 U.S. at 457 n. 8, 104 S.Ct. at 2516 n. 8 (Stevens, J., concurring) (the inevitable discovery rule requires a court to assess the scope of the ongoing investigation which can be objectively verified or impeached). We think that this argument is without merit. 17 It is evident from the historical and objective facts of Interdonato's investigation before the unlawful search that the agent was immersed in an active and ongoing investigation of Eng that included an examination of financial matters as well as tax returns. Eng was charged with importing and distributing more than 800 pounds of heroin and deriving substantial income from those activities. Accordingly, the government was motivated to obtain additional evidence of Eng's narcotics activities and to seek forfeiture of the proceeds derived from his distribution of heroin. See United States v. 228 Acres of Land & Dwelling Located on Whites Hill Road in Chester, Vt., 916 F.2d 808, 813-14 (2d Cir.1990) (claimant-appellant's attempts to conceal his income and assets, ... his unexplained accumulation of the substantial cash used to acquire the forfeited parcels, and his demonstrably false claim that he had paid for these parcels with income from businesses on which the 'income taxes were paid,'  were factors establishing probable cause that properties were proceeds traceable to illegal drug activities, as required for civil forfeiture under 21 U.S.C. § 881), cert. denied, 498 U.S. 1091, 111 S.Ct. 972, 112 L.Ed.2d 1058 (1991); United States v. St. Prix, 672 F.2d 1077, 1084 (2d Cir.) (In a narcotics prosecution, it is well established that the government may introduce evidence of cash purchases coupled with tax evidence tending to show that a defendant had no legitimate source of cash.), cert. denied, 456 U.S. 992, 102 S.Ct. 2274, 73 L.Ed.2d 1287 (1982); see also United States v. Briscoe, 896 F.2d 1476, 1500 (7th Cir.) (It is well settled that in narcotics prosecutions, a defendant's possession and expenditure of large sums of money, as well as his or her failure to file tax returns, are relevant to establish that the defendant lacked a legitimate source of income and that, in all probability, the reason for the failure to report this income is due to the defendant's participation in illegal activities.), cert. denied, 498 U.S. 863, 111 S.Ct. 173, 112 L.Ed.2d 137 (1990). The government ultimately did in fact initiate forfeiture proceedings against 26 Bowery and the French Ice Cream Parlor. These proceedings were initiated on the same day as Eng's arrest. 18 Furthermore, an analysis of the demonstrated historical facts leads to the conclusion that the scope of the investigation necessarily would have included a determination of the source of funds used to purchase the known assets. See Eng I, 971 F.2d at 861. Those demonstrated facts were: (1) the government, prior to the illegal search, was aware of substantially all of Eng's major assets (except for the Florida properties) and was aware that Eng used money orders for expenses; and (2) Interdonato already had obtained Eng's personal and corporate tax returns. A careful review of Eng's tax returns logically mandated an investigation of Eng's sources of funds. Although Interdonato participated in the narcotics and money laundering investigation that began in February of 1989, he testified that he commenced his tax evasion investigation in the summer of 1989, when he discovered through the examination of public records that Eng had purchased a building at 26 Bowery on behalf of a corporation of which he was president. Thus, the government's tax evasion investigation was not  'trigger[ed]'  or  'catalyzed'  by the information unlawfully gained by the illegal search. Id. at 861 (quoting United States v. Falley, 489 F.2d 33, 41 (2d Cir.1973) and United States v. Cole, 463 F.2d 163, 173-74 (2d Cir.), cert. denied, 409 U.S. 942, 93 S.Ct. 238, 34 L.Ed.2d 193 (1972)). 19 Because the tax evasion investigation sufficiently was developed prior to the search of Eng's safe to support the government's inevitable discovery claim, we proceed to our second inquiry--whether the discovery of each piece of challenged evidence  'would have been' more likely than not 'inevitable' absent the search of Eng's safe. Eng I, 971 F.2d at 862 (quoting Nix, 467 U.S. at 444, 104 S.Ct. at 2509). 20