By Anthony Diosdi
There are more ways for people to connect with other people now than ever. The widespread use of social media organizations such as Facebook, Instagram, Linkedin, and Twitter means there is more evidence being created everyday. In some cases, this evidence can be used by the Internal Revenue Service (or “IRS”) to build a tax fraud case against an individual. For example, let’s assume Bob lives in San Francisco, California. Let’s also assume that Bob reports an annual income on his tax returns of $50,000. Bob’s posts on social media regarding expensive vacations or a luxurious lifestyle would be highly probative in an IRS criminal tax fraud investigation. Financial documents uploaded to cloud storage services (such as Google Cloud) may also be highly relevant in an IRS criminal tax fraud investigation. Finally, sometimes people say things in an email message that they might not otherwise say in writing, because they assume that electronic communications are ephemeral things that disappear without a trace. Just the opposite is true. For example, Hunter Biden’s financial and overseas exploits were uncovered in emails retrieved from Hunter Biden’s laptop. As the Hunter Biden matter demonstrates, emails are often a treasure trove for the IRS in any criminal investigation.
Most people do not realize that government agencies such as the IRS have broad powers to obtain electronic evidence such as information from social media sites or emails through a subpoena or search warrant. The Stored Communications Act specifies how the IRS may access stored electronic communications. This article discusses how the IRS must proceed in obtaining electronic evidence in the context of a criminal tax investigation under the Stored Communications Act. This article also discusses if the Stored Communications Act places any true limitations on the IRS’s ability to obtain electronic communications (through a subpoena or search warrant).
Stored Electronic Communications Act
Section 2701 of the U.S. Code specifies how government agencies such as the IRS may obtain access to stored electronic communications, transactional records, and subscriber records. Stored electronic communications (defined in 18 USC Section 2510) includes those electronic messages temporarily stored by an electronic communications service provider prior to the intended recipient or stored as a backup. The term includes display data stored in digital-display pagers and cell phones, stored electronic mail, stored computer-to-computer transmissions, stored telex transmissions, stored facsimile data, and private video transmission. The statute applies only to data stored with an electronic communications service provider.
Title 18 USC Section 2702 prohibits disclosure of electronic communications by providers of electronic communication service opr remote computing services unless one or more of the following conditions is met:
1. The information is given to its intended recipient or addressee;
2. The information is given to the government pursuant to a court order, search warrant, or subpoena;
3. The subscriber/customer gives consent;
4. The disclosure is to a facility used to forward the communication;
5. The disclosure is incident to testing equipment or quality of service;
6. The information was obtained inadvertently and specifically refers to a crime.
Judicial Process for Obtaining Stored Electronic Communications, Transaction Information, and Subscriber Information
Title 18 USC Section 2703 articulates the steps that the IRS must take to compel providers to disclose the contents of stored wire or electronic communications (including email and voicemail) and other information such as account records and basic subscriber information. Title 18 USC Section 2703 offers five mechanisms that a “government entity” can use to compel a provider to disclose certain kinds of information. The five mechanisms, in ascending order of required threshold showing, are as follows:
1. Subpoena;
2. Subpoena with prior notice to the subscriber or customer;
3. Court order;
4. Court order with prior notice to the subscriber or customer;
5. Search warrant.
One feature of the compelled disclosure provisions of Electronic Communications Privacy Act (or “ECPA”) is that greater process generally includes access to information that can be obtained with lesser process. Thus, a 18 USC Section 2703(d) court order can compel everything that a subpoena can compel (plus additional information), and a search warrant can compel the production of everything that a 18 USC Section 2703(d) order can compel (and then some).
Subpoena
IRS Criminal Investigators can subpoena basic subscriber information. The ECPA permits the IRS to compel two kinds of information using a subpoena. First, the IRS may compel the disclosure of the basic subscriber information which is:
1. Name;
2. Address;
3. Local and long distance telephone connection records, or records of session times and durations;
4. Length of service (including start date) and types of services utilized;
5. Telephone or instrument number or other subscriber number or identity, including ant temporarily assigned network address;
6. Means and source of payment for such services (including any credit card or bank account number).
Subpoena With Prior Notice
IRS investigators can subpoena opened email from a provider if they comply with the notice provisions of 18 USC Section 2702(b)(1)(B) and 18 USC Section 2705. IRS agents who obtain a subpoena, and either give notice to the subscriber or comply with the delayed notice provisions of 18 USC Section 2705(a), may obtain:
1) Everything that can be obtained using a subpoena without notice;
2) “the contents of any wire or electronic communication” held by a provider of remote computing service” on behalf of…a subscriber or customer of such remote computing service.” See 18 USC Section 2703(b)(1)(B)(i), 18 USC Section 2703(b)(2).
3) “the contents of a wire or electronic communication that has been in electronic storage in an electronic communications system for more than one hundred and eighty days.” See 18 USC Section 2703(a).
4) As a practical matter, this means that agents can obtain opened email (and other stored electronic or wire communications in “electronic storage” more than 180 days) using a subpoena, so long as they comply with the ECPA’s notice provisions.
5) The notice provisions can be satisfied by giving the customer or subscriber “prior notice” of the disclosure. However, 18 USC Section 2705(a)(1)(B) and 18 USC Section 2705(a)(4) permit notice to be delayed for 90 days “upon the execution of a written certification of a supervisory official that there is reason to believe that notification of the existence of the subpoena may have an adverse result.” See 18 USC Section 2705(a)(1)(B).
Title 18 USC Section 2703 Order
IRS Special Agents need a 18 USC Section 2703(d) court order to obtain most account logs and most transactional records.Special agents who obtain a court order under 18 USC Section 2703(d) may obtain:
1) Anything that can be obtained using a subpoena without notice.
2) All “record[s] or other information pertaining to a subscriber to or customer of such service (not including the contents of communications [held by providers of electronic communications service and remote computing service]).” See 18 USC Section 2703(c)(1).
3) A court order authorized by 18 USC Section 2703(d) may be issued by any federal magistrate, district court or equivalent state court judge. See 18 USC §2703(d), 2711(3).
4) The IRS must offer specific and articulable facts showing that there are reasonable grounds to believe that the contents of a wire or electronic communication, or the records or other information sought, are relevant and material to an ongoing criminal investigation.
5) This standard does not permit IRS agents merely to certify that it has specific and articulable facts that would satisfy such a showing. Rather, IRS agents must actually offer those facts to the court in the application for the order.
Title 18 USC Section 2703(d) Order with Prior Notice to Customer
IRS investigators can obtain everything in an account except for unopened e-mail or voice mail stored with a provider for 180 days or less using a 18 USC Section 2703(d) court order that complies with the notice provisions of 18 USC Section 2705. IRS agents who obtain a court order under 18 USC Section 2703(d), and either give prior notice to the subscriber or else comply with the delayed notice provisions of 18 USC Section 2705(a), may obtain:
1) Everything that can be obtained using a 18 USC Section 2703(d) court order without notice.
2) “The contents of any wire or electronic communication” held by a provider of remote computing service “on behalf of . . . a subscriber or customer of such remote computing service” – 18 USC Section 2703(b)(1)(B)(ii), 18 USC Section 2703(b)(2).
3) “The contents of a wire or electronic communication that has been in electronic storage in an electronic communications system for more than one hundred and eighty days.” – 18 USC Section 2703(a). As a practical matter, this means that the IRS can obtain the full contents of a subscriber’s account except unopened e-mail and voice mail (which has been in “electronic storage” 180 days or less) using a 18 USC Section 2703(d) order that complies with the prior notice provisions of 18 USC Section 2703(b)(1)(B).
As an alternative to giving prior notice, IRS agents can obtain an order delaying notice for up to 90 days when notice would seriously jeopardize the investigation. In such cases, agents generally will obtain this order by including an appropriate request in the agents’ 18 USC Section 2703(d) application and proposed order.
Search Warrant
IRS investigators can obtain the full contents of an account with a search warrant. The ECPA does not require the government to notify the customer or subscriber when it obtains information from a provider using a search warrant. IRS Special Agents who obtain a search warrant under Rule 41 of the Federal Rules of Criminal Procedure (Fed. R. Crim. P. R41) or an equivalent state warrant may obtain:
1) Everything that can be obtained using a 18 USC Section 2703(d) court order with notice
2) “the contents of a wire or electronic communication, that is in electronic storage in an electronic communications system for one hundred and eighty days or less.” – 18 USC §2703(a)
In other words, IRS agents can obtain every record and all of the contents of an account by obtaining a search warrant based on probable cause pursuant to Fed. R. Crim. P. R41. The search warrant can then be served on the service provider and compels the provider to divulge to law enforcement the information described in the search warrant. Notably, obtaining a search warrant obviates the need to give notice to the subscriber (see 18 USC Section 2703(b)(1)(A)). Title 18 USC Section 2703(f) imposes on the provider of wire or electronic communication services or a remote computing service the obligation, upon the written request of a governmental entity such as the IRS, to take all necessary steps to preserve records and other evidence in its possession pending the issuance of a court order or other process. Exhibit 9.4.9-1 is a sample of a 18 USC Section 2703(f) “Preservation Letter” .
1) The Preservation Letter requires providers of wire or electronic communication services or remote computing services to retain records for a period of 90-days. This initial 90-day period can be extended for an additional 90-day period upon a renewed request by the governmental entity.
2) The authority to direct providers to preserve records and other evidence is not prospective. That is, 18 USC Section 2703(f) letters can order a provider to preserve records that have already been created, but cannot order providers to preserve records not yet made. If agents want providers to record information about future electronic communications, they must comply with the electronic surveillance statutes discussed in Internal Revenue Manual or (“IRM”) 9.4.6, Surveillance and Non-Consensual Monitoring.
Conclusion
One of the primary barriers to obtaining electronic communications is the Stored Communications Act, which prevents disclosure of information or email stored by an Internet service provider. Unfortunately, the Stored Communications Act does not provide much protection in an IRS criminal investigation. If the IRS has subpoenaed or obtained a warrant to obtain information from electronic sources, the following such be considered:
1) First Amendment to the Constitution;
2) Fourth Amendment to the Constitution;
3) Wiretap Act, 18 USC Sections 2510-2521;
4) Electronic Communications Privacy Act of 1986, 18 USC Sections 2701-2711;
5) Privacy Protection Act, 42 USC Section 2000aa;
6) Fed. R. Crim. P. R41;
Anthony Diosdi is tax attorney at Diosdi Ching & Liu, LLP. He focuses his practice in civil and criminal tax controversies and the defense of white-collar criminal cases. His experience covers a broad range of engagements at all stages of the IRS administrative process, including assisting with audits and representing clients at Appeals, as well as litigation in the federal courts. He has also represented clients in all aspects of grand jury investigations, including the production of information, witness preparation, and pre-indictment presentations to the Department of Justice accused of white-collar crimes. Anthony is a member of the California and Florida bars. He can be reached at 415-318-3990 or adiosdi@sftaxcounsel.com.
This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.