Opinion ID: 401073
Heading Depth: 1
Heading Rank: 1

Heading: Discriminatory Investigation

Text: 2 The initial issue raised by the Karmes is whether the tax court properly granted the government's motion to strike a post-trial amendment to the taxpayers' petition. The amendment alleged that the deficiency assessment against the Karmes arose out of an investigation of their attorney, and that the government had therefore unconstitutionally singled out the Karmes for audit solely because of their connection with the tax planning of that attorney. As the special trial judge below noted, the attorney, Mr. Margolis, had masterminded the tax planning in each of the several cases then pending in which a similar defense was asserted. The Karmes sought to show through the introduction of voluminous evidence related to all aspects of the Bahamas Project, including documents on hundreds of unrelated IRS tax audits, that the investigation of their attorney deprived the Karmes of their constitutionally protected rights to due process and equal protection of the laws. 3 The taxpayers' claim in this case is closely analogous to a claim of selective or discriminatory prosecution. Even examining the IRS's actions under the standard applied in criminal cases-a standard which is arguably too stringent for review of the initiation of a civil audit to which no criminal penalties attach-we cannot hold there was any impropriety in striking the claim. A recent controlling case with respect to a criminal tax prosecution is United States v. Wilson, 639 F.2d 500 (9th Cir. 1981). In denying taxpayers' claim of alleged discriminatory criminal prosecution this Court stated the test to be whether defendant has shown: 4 (1) That others are generally not prosecuted for the same conduct; 5 (2) The decision to prosecute this defendant was based upon impermissible grounds such as race, religion or the exercise of constitutional rights. 6 Id. at 503. Accord, United States v. Ness, 652 F.2d 890 (9th Cir.) (per curiam), cert. denied, --- U.S. ----, 102 S.Ct. 976, 70 L.Ed.2d 113; United States v. Gillings, 568 F.2d 1307 (9th Cir.), cert. denied, 436 U.S. 919, 98 S.Ct. 2267, 56 L.Ed.2d 760 (1978). 7 Appellants' allegations meet neither part of the test. The Karmes allege no more than that they and others similarly represented were investigated because of their participation in a tax scheme which their attorney engineered. No impermissible selectivity is involved. 8 We therefore do not need to reach the government's suggestion that a more lenient test with respect to government conduct should apply where the charge is a discriminatory civil investigation as opposed to a discriminatory criminal prosecution. See Crowther v. Commissioner, 269 F.2d 292, 293 (9th Cir. 1959), in which the claim was made that the Commissioner had failed to make a proper investigation and this court stated that (t)he propriety of the motives of the Commissioner in giving the notice of deficiency is immaterial. The tax court itself appears to follow the same test which we apply to criminal prosecutions. See Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, 328 (1974), in which the tax court stated that it will look behind the deficiency notice to determine the Commissioner's motives in the extremely rare case where there is substantial evidence of unconstitutional conduct on (the Commissioner's) part ....