United States v. Rutherford

Jon Rutherford and Judith Bugaiski (defendants) were senior officers of a nonprofit tax-exempt organization. The Internal Revenue Service (IRS) discovered that the organization did not file certain tax-withholding forms with the IRS. This discovery, along with the IRS’s discovery that the organization did not pay taxes that the organization withheld from Rutherford’s pay, suggested the possibility of fraud, but these discoveries were not direct evidence of fraud due to possible nonfraudulent or at least noncriminal explanations. Between December 2003 and June 24, 2004, the IRS met with Rutherford and Bugaiski several times, including three meetings pursuant to IRS summonses, and obtained documents from Bugaiski. On July 20, the IRS referred Rutherford and Bugaiski to the Department of Justice for criminal prosecution. On April 21, 2006, Rutherford and Bugaiski were charged in a 22-count indictment with various tax offenses. Rutherford and Bugaiski moved to suppress evidence and dismiss the indictment, arguing that the IRS violated the Due Process Clause of the Fifth Amendment to the United States Constitution because the IRS continued civilly investigating them even after discovering firm indications of fraud, in violation of the IRS’s internal policy of suspending civil investigations and referring matters for criminal prosecution under such circumstances. Relying in part on the United States Court of Appeals for the Sixth Circuit’s decision in United States v. McKee, the district court ordered the suppression of certain evidence. The United States appealed.