1 Both DEA and Customs have applied for a supplemental appropriation in fiscal year 1976. DEA asked for $2,200,000, primarily for salary and insurance increases. Customs asked for $4,000,000, $2,000,000 of which would be carried over into fiscal year 1977. These funds are for the Customs' drug interdiction program.

Source: OMB, Federal Drug Management Division.

Mr. BAYH. There is little doubt that the drug law enforcement task at hand is substantial. Thus, it is even more essential than ever to focus resources at our borders where high purity narcotics are traded in volume. It is with this focus that we can most effectively disrupt key distribution networks.

Another unfortunate aspect of Reorganization Plan No. 2 is that though the Government Operations Committee cited the benefit of a single focal point for coordinating Federal drug enforcement with that of State and local authorities, the plan as approved did not contain stipulations to prevent Federal interference with State and local drug law enforcement activities.

[Testimony continued from p. 4.]

Senator BAYH. Now Commissioner Alexander, I will delay your testimony no longer. You may wish to introduce your assistants for the record.

Mr. Alexander.

STATEMENT OF DONALD C. ALEXANDER, COMMISSIONER OF INTERNAL REVENUE, U.S. DEPARTMENT OF THE TREASURY, ACCOMPANIED BY THOMAS CLANCY, DIRECTOR, INTELLIGENCE DIVISION; SINGLETON WOLFE, ASSISTANT COMMISSIONER (COMPLIANCE); THOMAS GLYNN, ASSISTANT TO THE COMMISSIONER; ANITA F. ALPERN, ASSISTANT COMMISSIONER (PLANNING AND RESEARCH); AND MEADE WHITAKER, CHIEF COUNSEL

Mr. ALEXANDER. Thank you, Mr. Chairman.

First I would like to introduce those at the table with me.

On my immediate left is Mr. Meade Whitaker, the Chief Counsel of the Internal Revenue Service.

On Mr. Whitaker's left is Ms. Anita Alpern, our Assistant Commissioner for Planning and Research.

On Ms. Alpern's left is Mr. Thomas Glynn, Assistant to the Commissioner.

On my immediate right is Mr. Thomas Clancy, the Director of our Intelligence Division.

And on Mr. Clancy's right is Mr. Singleton Wolfe, our Assistant Commissioner for Compliance.

With your permission, Mr. Chairman, I would like to submit my prepared statement for the record and summarize it, in view of the demands on your time.

Senator BAYH. Please do so. Your entire statement will be put in the record. Also, we will follow it, as an exhibit, the Treasury Department organizational chart and information on the IRS from the U.S. Government manual.

Mr. ALEXANDER. Thank you, sir.

[The prepared statement follows, testimony continued on p. 37.]

PREPARED STATEMENT OF DONALD C. ALEXANDER

Mr. Chairman and members of the subcommittee, I appreciate the opportunity to appear before you this morning and join with those urging favorable action on S. 3411, the Narcotic Sentencing and Seizure Act of 1976. I wish to direct my comments to those provisions of the bill which have some impact on the activities of the Internal Revenue Service-Title III dealing with the forfeiture of the proceeds of illegal drug transactions and cash used in the illegal drug business, and Title IV dealing with the illegal export of cash.

One of the principal efforts against narcotic traffickers has been the attempt to confiscate the financial resources that are necessary to bankroll these criminal operations. One of the most inviting targets has been the cash found in the course of arrests for narcotic violations.

Section 881 of Title 21 now provides for the forfeiture of controlled substances, raw materials, containers, conveyances such as aircraft, vehicles or vessels, and all books, records, and research used or intended to be used in violation of the control and enforcement provisions of Title 21. However, present section 881 does not provide for the forfeiture of cash, even though that cash may have been used directly in the illegal drug business. Title III of the bill under consideration would amend section 881 to provide for the forfeiture of cash in these circumstances.

It is obvious that those engaged in the illegal narcotics business reap huge profits. We believe that it is an important part of our job to see to it that those who are engaged in this occupation and who are evading their lawful tax responsibilities are called to account. We are convinced that we can discharge this obligation in a responsible manner and that if we do it in accordance with our established controls and procedures, we can do it without having an adverse impact on our ability to carry out the balance of our responsibilities to administer and enforce the tax system.

Section 6851 of the Internal Revenue Code provides for the immediate termination of a taxpayer's taxable period if the taxpayer intends to commit any act which would prejudice the collection of his or her income tax, and section 6331 provides for the seizure of a delinquent taxpayer's property to satisfy an assessment. Although these provisions permit the seizure of cash in the hands of a narcotics trafficker, under the law they are available only if a tax liability can be established with a reasonable degree of accuracy.

On some past occasions there have been applications of these provisions in the pursuit of narcotic traffickers without adequate evidence of tax liability, probably due in part to the belief that these provisions were the only available tools to "get the cash off the streets." This use of our termination powers has met with strong judicial and public criticism in some cases and has resulted in legislative proposals to curtail the use of our powers. We are now developing administrative procedures to ensure that these powers are used in accordance with law, as contrued by the courts.

The judicial criticism culminated in the recent Supreme Court decision in Laing v. United States [44 LW 4065 (1976)]. That decision further reinforced the conclusion that the procedures for enforcing collection of civil tax liabilities are not an appropriate substitute for a cash forfeiture provision in dealing with narcotics traffickers. In that opinion, the Court held that a taxpayer, suspected of being a narcotics trafficker and who was subject to a jeopardy termination, is entitled to certain procedural safeguards which include the right to petition the Tax Court for a redetermination of his tax liability. Thus, although the termination procedures may not be used as a tool to "get the cash off the streets", they can (and will) be properly used to complement a forfeiture pro

vision, such as S. 3411, in cases where the tax liability can be calculated with a reasonable degree of accuracy.

The principal legislative restriction, which is in H.R. 10612, the "Tax Reform Act of 1976", has passed the House, has been favorably reported by the Senate Finance Committee and has been agreed to by the Senate during its present consideration of the Bill. Section 1204 of that Bill, as reported to the Senate, would require the Internal Revenue Service to provide the taxpayer with a written statement of the information on which it relied in making a jeopardy or termination assessment, within five days after the assessment was made. That section of the Bill would provide the taxpayer with quick access to the District Court for a review of the issue whether the making of the assessment was reasonable, and the issue whether the amount of the assessment was appropriate under the circumstances. Under the Bill, if the Court holds against the Service on either issue, the Court would be empowered to order the assessment abated or redetermined. A similar provision is contained in H.R. 9599, Congressman Vanik's "Federal Taxpayer's Rights Act of 1975".

The Service has recognized that its termination and jeopardy assessment powers must be used in accordance with the law, and has taken steps to ensure that they are so used. However, we also recognize the need for the Federal Government to deal directly with the resources available to drug traffickers. For that reason, in 1974 the Service recommended that the forfeiture provisions of 21 U.S.C. section 881 (a) be amended to permit the forfeiture of cash. The Ways and Means Committee did include such a provision in its tentative proposals in May 1974, but later deleted the provision after deciding that it lacked jurisdiction over Title 21.

Within the framework of our mission to enforce and administer the Federal tax laws, the Internal Revenue Service is continuing to work toward the apprehension and conviction of narcotics traffickers for violations of these laws. As a part of the Executive action which the President outlined in his Special Message on Drug Abuse, the Service, in cooperation with the Drug Enforcement Administration, has developed a tax enforcement program directed at high-level drug traffickers who may have violated the tax laws.

DEA Administrator Bensinger and I met shortly after the President sent his drug message to Congress on April 27 and began discussions that culminated in a memorandum of understanding signed on July 27. While the terms of the memorandum were being worked out, the Service was developing guidelines and procedures that would be used to handle the information to be obtained from DEA and the investigations that would result from that information. DEA has already provided us with a selected list of approximately 200 Class 1 narcotics violators-high-level traffickers and financers. These names will be sent to our field officials, who will establish liaison with appropriate DEA field officials and obtain from DEA all available financial information concerning these individuals.

We are confident that the program and procedures that we are developing will enable us to conduct a responsible program that will promote effective enforcement of the tax law against high-level drug traffickers. However, we also believe that the Government does not have all the tools it needs to get the cash off the streets and that there should be an expanded forfeiture provision to permit the seizure of cash found in the possession of narcotics traffickers, without regard to their tax liability. Title III of the Bill under consideration would accomplish this objective by amending section 881 (a) of Title 21 of the Code to permit the forfeiture of the proceeds of illegal drug transactions and cash used in the illegal drug business.

We strongly urge the adoption of this provision.

Title IV of the Bill would amend the Currency and Foreign Transaction Reporting Act. Certain provisions of that Act have improved the Service's ability to reconstruct financial transactions, to establish audit trails, and to monitor major currency flows within the United States. Strengthening the provisions of this Act should further improve our ability to monitor international financial transactions.

Though the U.S. Customs Service is the agency responsible for enforcing the reporting requirements regarding the international transportation of currency, we expect that Customs will begin shortly to provide that data to the Service in computerized form as part of an interchange of information gathered under the provisions of this Act. Accordingly, the Service's compliance activities should benefit from any new enforcement authority conferred upon Customs by Title IV of this bill.

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I believe that it may be appropriate to raise one further point that is relevant to this area, although not contained in the bill under consideration. Frequently the proceeds of illegal narcotics traffic will be hidden in foreign tax haven countries. Our experience indicates that the principal barriers in the successful prosecution of tax evasion schemes involving overseas institutions and transactions are the limitations placed upon us by foreign secrecy laws. While there has been increasing cooperation on the part of certain foreign governments, the high standards of admissibility imposed upon us by the laws of evidence of the United States often makes prosecution impossible on the basis of information which is available to us. For example, a certification by a government official is adequate under Swiss laws. Therefore, the Swiss officials cannot understand why we need something which would be the equivalent of a deposition of the government official in order to admit the evidence in this country. I believe this problem could best be corrected by providing in the Federal Rules of Evidence for the presumptive admissibility of evidence officially furnished by a foreign government, thus placing the burden of refuting this presumption on the taxpayer, who is the only party who has full access to all the information.

Mr. Chairman, I appreciate your inviting me to appear before you today, and I would be pleased to respond to any questions that you or the other Senators may have.