learn of their financial transactions that may indicate tax evasion. This information exchange will reduce the wasteful duplication of investigative effort and will increase the quality (and potential tax and penalties) of the cases that are worked. IRS will continue to use its well-defined case selection standards in selecting cases for investigation. The proposed amendment to the forfeiture statute to permit a direct forfeiture of cash should be of great assistance in getting cash off the streets. New IRS guidelines are being issued in the wake of the Supreme Court decisions on terminations. On June 16 we learned that the Office of Management and Budget had rejected our budget amendment for fiscal year 1977. This would have allowed the Service to conduct approximately three hundred additional criminal tax investigations of high-level narcotics traffickers and large corporations involved in illegal payments from corporate slush funds without further deterioration of our regular compliance programs. We will, of course, support the President's programs against drug abuse and questionable corporate payments abroad. But the denial of our request for an additional twenty million dollars in support of programs specifically directed by the President will have a deleterious impact on the regular compliance programs of the Service and estimated program accomplishments in the President's budget for fiscal year 1977. Attachment. To: Deputy Secretary Gardner. JUNE 9, 1975. From: Donald C. Alexander, Commissioner of Internal Revenue. The attached report discusses what the IRS should not be doing. What the IRS should do is to find a way to solve the problem properly. The IRS has found this way and has proposed a change in the laws to broaden the statutory forfeiture provision so as to cover cash. Enforcement of the tax laws cannot be used to effect forfeiture, and therefore the forfeiture provision should itself be amended to produce the result thought necessary by those in charge of the war against narcotics traffickers. We submitted the attached legislative proposal to Treasury Tax Policy last May, and this proposal found its way into the Ways and Means Committee Print of the Tax Reform Act of 1974 (in May 1974). It was subsequently deleted by the Commitee on the grounds that it lacked jurisdiction. We recommend strongly that this proposal be submitted again to Congress as part of the current program to control drug abuse. Attachments. To: Frederic W. Hickman. From: Donald C. Alexander. Subject: Proposal No. 6: Amendment of 21 U.S.C. § 881 (a) to include forfeiture of cash and other property in possession of narcotics trafficker. LEGISLATIVE PROPOSAL REGARDING TERMINATIONS OF TAXABLE YEARS IN CERTAIN CASES AND JEOPARDY ASSESSMENT OF DEFICIENCY Chapter 13 of Title 21 of the United States Code deals with drug abuse prevention and control, and 21 U.S.C. § 881(a) provides for the forfeiture of certain property used or intended to be used in an illegal narcotics operation. These forfeiture provisions do not apply to cash found in the possession of the narcotics violator unless, as we understand it, it can be demonstrated that the cash resulted from the narcotics traffic itself. Under present practice, when a narcotics trafficker is arrested and property described in 21 U.S.C. § 881 (a) is seized, the Internal Revenue Service is notified. The trafficker's taxable year is immediately terminated under section 6851, a Jeopardy assessment is made under section 6861, and cash in his possession is collected in satisfaction of his tax liability. Because of the time limitations involved, the income tax deficiency which is the basis for the jeopardy assessment must be hastily computed and may be an unrealistic reflection of the taxpayer's actual tax liability. Furthermore, it is possible that this jeopardy assessment practice can be used in some cases to primarily supplement the penalty provisions of 21 U.S.C. § 881 (a) rather than serve to collect income tax lawfully due and owing. While the Internal Revenue Service certainly supports the objectives of Chapter 13 of Title 21, it seems clear that the Service should appropriately concentrate on administration of the tax laws. At the same time the Service should not hesitate to apply sections 6851 and 6861 to a narcotics trafficker where protection of the revenue is a genuine issue. Consistent with the foregoing principles, we would suggest amendment of 21 U.S.C. § 881 (a) to specifically provide for forfeiture of cash or other property found in the possession of the narcotics trafficker. During the time lapse between seizure of the money and the trafficker's proof, if possible, that the money was not connected to narcotics and, therefore, is not subject to forfeiture, the Service would have the necessary time to make a realistic determination of actual tax liability and assess a deficiency based upon that determination. Attached is a draft of an amendment to 21 U.S.C. § 881 (a) which we believe would accomplish these results. TITLE 21-FOOD AND DRUGS Subsection (a) of section 881 of Chapter 13 of title 21 (relating to drug abuse prevention and control) is amended by adding thereto the following new paragraph (6): "(6) All cash and other personal property received, acquired, used, or intended for use, in connection with any activity described in paragraph (1), (2) or (4) of this subsection with respect to property described in paragraph (1) or (2)." (4) The judge or magistrate who has issued a warrant under this section shall attach to the warrant a copy of the return and all papers filed in connection therewith and shall file them with the clerk of the district court of the United States for the judicial district in which the inspection was made. Pub. L. 91-513, Title II, § 510, Oct. 27, 1970, 84 Stat. 1274. Historical Note Effective date. Section effective Oct. 27, 1970, see section 704 of Pub. L. 91-513, set out as a note under section 801 of this title. Legislative History. For legislative history and purpose of Pub. L. 91-513, see 1970 U.S. Code Cong. and Adm. News, p. 4566. West's Federal Forms Administrative subpoenas, enforcement of, see § 6004 et seq. 1. Valid public interest Notes of Decisions Affidavit of narcotics agent that defendant had been purchasing extraordinary quantities of certain controlled substances was sufficient to meet suspicious conduct requirement for establishing a "valid public interest" within provision of this section authorizing an agent of Bureau of Narcotics to obtain an administrative inspection warrant on showing a valid public interest for inspecting a particular registrant's premises; therefore, any matters revealed by inspection were not subject to suppression. U.S. v. Greenberg, D.C.P., 1971, 334 F. Supp. 364. In enacting this section, Congress did not mean that agent must show that there is probable cause to believe that a crime has been committed and that fruits, etc., of that crime are on premises in question, but meant only that there is a public interest in insuring compliance with statutory record-keeping requirements of Act. Id. A "valid public interest" in enforcement of provision of this section governing issuance of administrative inspection warrants may be made out by suspicious conduct on part of registrant, providing that suspicions are not patently groundless. Id. §881. Forfeitures-Property subject (a) The following shall be subject to forfeiture to the United States and no property right shall exist in them: (1) All controlled substances which have been manufactured, distributed, dispensed, or acquired in violation of this subchapter. 80-481-77-8 (2) All raw materials, products, and equipment of any kind which are used, or intended for use, in manufacturing, compounding, processing, delivering, importing, or exporting any controlled substance in violation of this subchapter. (3) All property which is used, or intended for use, as a container for property described in paragraph (1) or (2). (4) All conveyances, including aircraft, vehicles, or vessels, which are used, or are intended for use, to transport, or in any manner to facilitate the transportation, sale, receipt, possession, or concealment of property described in paragraph (1) or (2), except that (A) no conveyance used by any person as a common carrier in the transaction of business as a common carrier shall be forfeited under the provisions of this section unless it shall appear that the owner or other person in charge of such conveyance was a consenting party or privy to a violation of this subchapter or subchapter II of this chapter; and (B) no conveyance shall be forfeited under the provisions of this section by reason of any act or omission established by the owner thereof to have been omitted or omitted by any person other than such owner while such conveyance was unlawfully in the possession of a person other than the owner in violation of the criminal laws of the United States, or of any State. (5) All books, records, and research, including formulas, microfilm, tapes, and data which are used, or intended for use, in violation of this subchapter. SEIZURE PURSUANT TO SUPPLEMENTAL RULES FOR CERTAIN ADMIRALTY AND MARITIME CLAIMS (b) Any property subject to forfeiture to the United States under this subchapter may be seized by the Attorney General upon process issued pursuant to the Supplemental Rules for Certain Admiralty and Maritime Claims by any district court of the United States having jurisdiction over the property, except that seizure without such process may be made when (1) the seizure is incident to an arrest or a search under a search warrant or an inspection under an administrative inspection warrant; (2) the property subject to seizure has been the subject of a prior judgment in favor of the United States in a criminal injunction or forfeiture proceeding under this subchapter; (3) the Attorney General has probable cause to believe that the property is directly or indirectly dangerous to health or safety; or (4) the Attorney General has probable cause to believe that the property has been used or is intended to be used in violation of this subchapter. In the event of seizure pursuant to paragraph (3) or (4) of this subsection, proceedings under subsection (d) of this section shall be instituted promptly. CUSTODY OF ATTORNEY GENERAL (c) Property taken or detained under this section shall not be repleviable, but shall be deemed to be in the custody of the Attorney General, subject only to the orders and decrees of the court or the official having jurisdiction thereof. Whenever property is seized under the provisions of this subchapter, the Attorney General may (1) place the property under seal; (2) remove the property to a place designated by him: or (3) require that the General Services Administration take custody of the property and remove it to an appropriate location for disposition in accordance with law. OTHER LAWS AND PROCEEDINGS APPLICABLE (d) All provisions of law relating to the seizure, summary and judicial forfeiture, and condemnation of property for violation of the customs laws; the disposition of such property or the proceeds from the sale thereof; the remission or mitigation of such forfeitures; and the compromise of claims and the award of compensation to informers in respect to such forfeitures shall apply to seizures and forfeitures incurred, or alleged to have been incurred, under the provisions of this subchapter, insofar as applicable and not inconsistent with the provisions hereof; except that such duties as are imposed upon the customs officer or any other person with respect to the seizure and forfeiture of property under the customs laws shall be performed with respect to seizures and forfeitures of property under this subchapter by such officers, agents, or other persons as may be authorized or designated for that purpose by the Attorney General, except to the extent that such duties arise from seizures and forfeitures effected by any customs officer. DISPOSITION OF FORFEITED PROPERTY (e) Whenever property is forfeited under this subchapter the Attorney General may— (1) retain the property for official use; (2) sell any forfeited property which is not required to be destroyed by law and which is not harmful to the public, but the proceeds from any such sale shall be used to pay all proper expenses of the proceedings for forfeiture and sale including expenses of seizure, maintenance of custody, advertising and court costs; (3) require that the General Services Administration take custody of the property and remove it for disposition in accordance with law; or (4) forward it to the Bureau of Narcotics and Dangerous Drugs for disposition (including delivery for medical or scientific use to any Federal or State agency under regulations of the Attorney General). FORFEITURE OF SCHEDULE I SUBSTANCES (f) All controlled substances in schedule I that are possessed, transferred, sold, or offered for sale in violation of the provisions of this subchapter shall be deemed contraband and seized and summarily forfeited to the United States. Similarly, all substances in schedule I, which are seized or come into the possession of the United States, the owners of which are unknown, shall be deemed contraband and summarily forfeited to the United States. PLANTS (g) (1) All species of plants from which controlled substances in schedules I and II may be derived which have been planted or cultivated in violation of this subchapter, or of which the owners or cultivators are unknown, or which are wild growths, may be seized and summarily forfeited to the United States. (2) The failure, upon demand by the Attorney General or his duly authorized agent, of the person in occupancy or in control of land or premises upon which such species of plants are growing or being stored, to produce an appropriate registration, or proof that he is the holder thereof, shall constitute authority for the seizure and forfeiture. (3) The Attorney General, or his duly authorized agent, shall have authority to enter upon any lands, or into any dwelling pursuant to a search warrant, to cut, harvest, carry off, or destroy such plants. Pub. L. 91-513, Title II, § 511, Oct. 27, 1970, 84 Stat. 1276. Historical Note Effective Date. Section effective Oct. 27, 1970, see section 704 of Pub. L. 91-513, set out as a note under section 801 of this title. Legislative History. For legislative history and purpose of Pub. L. 91-513, see 1970 U.S. Code, Cong. and Adm. News, p. 4566. West's Federal Forms Complaint for forfeiture of vehicle used for transportation of narcotics, see § 5801. Forfeiture proceedings, see § 5801 et seq. Judgment of condemnation, forfeiture and destruction, see § 4543. Process in admiralty, see § 11271 et seq. Cross References Contraband articles. Including narcotic drugs, seizure and forfeiture of vessels carrying, see section 781 et seq. of Title 49, Transportation. Narcotic drug defined, see section 787 of Title 49. [Memorandum] OCTOBER 2, 1970. To: Assistant Commissioner (Compliance). This is in reference to your inquiry regarding the attached letter of September 16 from Mr. Martin R. Pollner, Director, Office of Law Enforcement, Treasury. Manhattan District has had considerable difficulty in locating any information in this case. They now report that no Service representative was present at the opening of the safety deposit boxes. The local law enforcement people reported the information after-the-fact by telephone to the Intelligence Division, who treated it as informant's information and routinely referred it to Audit Division. There it was not recognized as a jeopardy situation and no action has been taken to date. The case is now being assigned to a Revenue Agent to see if anything can be salvaged. The District believes this was an isolated instance of mishandling as they have made jeopardy or termination-of-tax-year assessments in numerous similar situations. They have no knowledge of any request from the District Attorney's office concerning our criteria for jeopardies. For your information, both IRM 5(12)33.4 and IRM 4585 presently contain guidance for terminating the taxable year, such as probably would have been applicable in this case. To the best of our knowledge, the field is adhering to those instructions and making assessments wherever the criteria are met. Proposed Policy Statement P-4580-3, which should be issued shortly, formalizes the criteria. A copy of this Policy Statement, and of a Manual Supplement to Part IV IRM which is also in process, are attached. In essence, these proposed issuances do not change the rules but merely define them more clearly. Attachments. Director. Mr. DONALD W. BACON, OFFICE OF THE SECRETARY OF THE TREASURY, Assistant Commissioner (Compliance), Internal Revenue Service, Washington, D.C. DEAR DON: The enclosed material transmitted to me by A. L. Piazza is self-explanatory. Could we discuss this at your convenience with a view toward determining (a) whether there is any criteria used by the Service to issue jeopardy assessments and (b) if so, whether it is appropriate to transmit criteria or guidelines to other Treasury, Federal, state, and local enforcement agencies. Please advise at your earliest convenience. Sincerely yours, Enclosure. MARTIN R. POLLNER, Director, Office of Law Enforcement. OFFICE OF THE SECRETARY OF THE TREASURY, To: Mr. Leon C. Green, Deputy Assistant Commissioner (Compliance), Internal From: Martin R. Pollner, Director, Office of Law Enforcement. Subject: (1) IRS/State narcotic program; (2) IRS/Post Office pornography program. (1) Concerning the narcotic program, I would appreciate being advised of the status of the investigations in coordination with the Bronx District Attorney's Office. I also wish to advise that we have received interest by Eugene Gold, King's County District Attorney; New Jersey Attorney General George Kugler; and Rocky Pomerance, Chief of Police of Miami Beach. As we have agreed, on a selective basis, this is a vital program. I will contact you further concerning Brooklyn, New Jersey, and Florida, after further preliminary discussions are held. |