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law enforcement agents to obtain access to information supplied pursuant to Section 60501 by filing a written request with the Internal Revenue Service. Some law enforcement agencies have found this procedure cumbersome, and the statute totally denies state, local, and foreign law enforcement authorities routine access to this information. unimpeded disclosure would obviously assist law enforcement. The Department is currently considering the advisability of seeking broader and less cumbersome disclosure of Section 60501 information, consistent with legal restrictions on the enforcement of Internal Revenue Service administrative summonses and other provisions of the Code, and consistent with maintaining appropriate restrictions on the dissemination of confidential information.

Since I have mentioned legislation, I should note that there are a number of very significant and important changes to the money laundering and related forfeiture statutes now pending in the House of Representatives in a Senate-passed bill, S.1970. One of these removes an ambiguity in the penalty provision applicable to §60501, making it clear that violations of that statute are felonies. Also, there are now pending in H.R.5269, provisions that would extend for two years both the dissemination exemption for Forms 8300, and the authority for IRS to "churn" assets in undercover operations. Without the latter authority, all money received in an undercover sting operation would have to be deposited to the Treasury General Fund and could not be reinvested in the operation, making the undercover operation cost


We urge members of this committee to support all of these provisions so that they may become law before Congress adjourns

this fall.

Mr. Chairman, this concludes my remarks. I thank the Subcommittee for its interest in the views of the Department of Justice. I would be happy to answer any questions you may have.

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Dear Mr. Ross:


September 7, 1990

American Bar Association Proposed Guidelines for Enforcement of Section 60501

This letter responds to your March 16, 1990, letter transmitting the American Bar Association Grand Jury Committee's proposal for guidelines to be used by the Department of Justice in enforcing the information reporting requirement of Section 60501 of the Internal Revenue Code of 1986. We appreciate having the benefit of the thoughts and hard work of your Committee.

As you know, when we received your Committee's proposal, only two cases had been commenced in the Southern District of New York to enforce summonses against law firms for refusing to comply with the reporting requirements of Section 60501. We have recently begun receiving a number of similar summons enforcement referrals from the Internal Revenue Service and are carefully evaluating them to determine whether summons enforcement proceedings should be initiated against lawyers for refusing to comply with summonses calling for information required to be supplied by Section 60501.

Your Committee's proposal has brought sharply into focus the questions whether and, if so, to what extent the Department of Justice has authority to create formal exceptions to the statute's universal reporting requirement through the implementation of litigation guidelines. Although we certainly agree that the Department of Justice has discretion to decide which cases to pursue in court, we believe your proposal misses the mark by suggesting that the Department has broad authority, in effect, to exempt classes of individuals from the reporting requirement of Section 60501.

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Section 60501 calls for reports of cash receipts in excess of $10,000 by "[a]ny person who is engaged in a trade or business." The statute provides only two exceptions: (1) cash receipts of certain financial institutions required to file similar reports under 31 U.S.C. Section 5312(a)(2) and (2) transactions occurring entirely outside the United States. Other than the exception created to avoid dual reporting by financial institutions, the statute does not exempt any trade or business from disclosure of large cash receipts. The statute also requires disclosure of the name, address, and Taxpayer Identification Number of the payor; the amount of cash received; and the date and nature of the transaction. The Secretary of the Treasury is delegated specific statutory authority to prescribe in regulations the date for reporting the transaction, the breadth of the two statutory exemptions, and any "other information" that may be required to be supplied.

In May of 1985, the Treasury Department published in the Federal Register Temporary Regulations intended for immediate guidance in applying Section 60501 after its effective date of January 1, 1985. The Temporary Regulations applied the reporting requirements to attorneys as well as all other trades and businesses, but the Preamble to the Temporary Regulations stated that "the Service will entertain comments from the legal community concerning the possibility of developing an exception to the reporting requirement for information on transactions which might fall within the scope of the attorney-client privilege."

After hearing extensive comment from practitioner groups requesting an exemption for legal fees or modification of the statutory disclosure requirements for lawyers, the Treasury Department promulgated final regulations on September 3, 1986. Those regulations make no exception for cash payments of legal fees. To the contrary, Treasury Regulation, Section 1.605011(c)(3)(iii) Example (2) specifically refers to "[a]n attorney [who] agrees to represent a client in a criminal case" and receives an aggregate hourly fee of $12,000 in cash. Far from creating an exception, the regulation directs that in such circumstances "the receipt of cash must be reported under this section." It is our understanding that many of the concerns raised by your proposed guidelines were considered and rejected by the Treasury Department in formulating the regulation.

Because Congress expressly delegated authority to the Treasury Department to promulgate regulations delineating the statute's reporting requirements and the statutory exceptions, these regulations are not simply one agency's interpretation of what Congress intended the statute to mean. They are legislative regulations entitled to considerable weight in the courts, and,

Michael S. Ross, Esquire

September 7, 1990

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unless inconsistent with the statute, have the "force and effect of law." Maryland Casualty Co. v. United States, 251 U.S. 342, 349 See also United States v. Vogel Fertilizer Co., 455 U.S. 16, 24 (1982); Allstate Insurance Co. v. United States, 329 F.2d 346, 349 (7th Cir. 1964).


The Justice Department, on the other hand, is not mentioned in Section 60501 as having authority to create exceptions to the statute's reporting requirements. Nevertheless, your Committee's guideline proposal calls upon the Department to delineate cases in which the reporting requirements would effectively be abrogated through a lack of enforcement. But we agree with the conclusions reached by the Treasury Department in the final regulations and are not persuaded that formulating cash reporting exemptions for certain classes of lawyers would be a good policy or fair to others covered by the statue. We do not, therefore, believe it appropriate to attempt to create reporting exceptions by doing indirectly what the statute and the regulations so plainly decline to do.

Your Committee's proposal urges us to adopt guidelines similar to the existing Department of Justice "Policy With Regard to the Issuance of Grand Jury or Trial Subpoenas to Attorneys for Information Relating to the Representation of Clients" set forth in United States Attorneys' Manual 9-2.161(a) that would govern - Section 60501 summons enforcement actions proposed against lawyers, where the cash-paying client is known to be "under investigation." But the issuance of subpoenas to lawyers is entirely discretionary, whereas the enforcement actions here are not. In essence, your proposal would relieve some lawyers of the obligation to disclose their own records of cash receipts by compelling the Internal Revenue Service, as a precondition to enforcement, to make "all reasonable attempts" to perform the almost impossible task of obtaining "information [lawyers are required to report on the Form 8300] from alternative sources. Moreover, it would improperly involve this Department in making a fact-based determination about the need for information that Congress has, by enacting Section 60501, already categorically made. In short, the attorney subpoena guidelines simply do not fit these Section 60501 summons cases.

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Although we decline to adopt guidelines along the lines your Committee has suggested, we nevertheless intend carefully to evaluate and exercise sound judgement in determining which cases should be selected for summons enforcement actions. In each case, we will, therefore, consider pertinent legal, factual, and evidentiary questions in determining the appropriateness of initiating a summons enforcement action.

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