[Federal Register Volume 60, Number 149 (Thursday, August 3, 1995)]
[Rules and Regulations]
[Pages 39652-39654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18888]



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DEPARTMENT OF THE TREASURY
26 CFR Part 301

[TD 8605]
RIN 1545-AE30


Presumptions Where Owner of Large Amount of Cash is not 
Identified

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final regulations regarding the 
presumptions that arise where the owner of a large amount of cash or 
its equivalent is not identified. The final regulations reflect changes 
to the law made by the Tax Equity and Fiscal Responsibility Act of 1982 
and the Technical and Miscellaneous Revenue Act of 1988, and 
incorporate the rules of current Sec. 301.6867-1T, relating to cash, 
cash equivalents, specific cash equivalents and the value of cash 
equivalents. In addition, several new items have been added to the list 
of specific cash equivalents. The final regulations affect individuals 
who are found in possession of a large amount of cash or its equivalent 
and the true owners of that cash or its equivalent.

EFFECTIVE DATE: August 3, 1995.

FOR FURTHER INFORMATION CONTACT: Jerome D. Sekula, (202) 622-3640 (not 
a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations amending the Procedure and 
Administration Regulations (26 CFR part 301) under section 6867 of the 
Internal Revenue Code of 1986 (Code). The regulations reflect the 
enactment of section 6867 by section 330(a) of the Tax Equity and 
Fiscal Responsibility Act of 1982 (Pub. L. 97-248), and the amendment 
made by section 1001(a)(1) of the Technical and Miscellaneous Revenue 
Act of 1988 (Pub. L. 100-647).
    The IRS published a notice of proposed rulemaking in the Federal 
Register on September 29, 1994, (59 FR 49613) providing proposed rules 
under section 6867 of the Code. No written comments were received. No 
public hearing was requested or held. In most respects, the final 
regulations are identical to the proposed regulations. The final 
regulations, however, do not contain those provisions of the proposed 
regulations that had permitted a possessor of cash, solely in that 
person's capacity as possessor of cash, to bring a suit for refund in 
the district court after the deficiency had been collected.

Explanation of Provisions

    Section 330(a) of the Tax Equity and Fiscal Responsibility Act of 
1982 amended the Code by adding section 6867, designed to be used in 
making jeopardy or termination assessments, as appropriate, when there 
is no known owner of large amounts of cash. Section 6867 provides that 
if an individual in physical possession of cash in excess of $10,000 
does not claim the cash as belonging to that individual or as belonging 
to another person whose identity is readily ascertainable and who 
acknowledges ownership of the cash to the IRS, it is presumed that the 
cash represents gross income of a single individual for the taxable 
year in which the possession occurs and that the collection of tax will 
be jeopardized by delay. Section 6867, as originally enacted, made the 
entire amount of the cash subject to a 50 percent tax rate. Section 
1001(a)(1) of the Technical and Miscellaneous Revenue Act of 1988 
amended section 6867, effective for taxable years beginning after 
December 31, 1986, to provide that the tax rate is to be the highest 
rate of tax for an individual specified in section 1.
    Under section 6867, the possessor of cash is treated (solely with 
respect to the cash) as the taxpayer for the purposes of chapters 63 
and 64 of the Code, relating to assessment and collection, and for the 
purposes of section 7429(a)(1), entitling that individual to a written 
statement of information concerning the assessment provided for by that 
section. Because section 6867 does not treat the possessor as the 
taxpayer for the purposes of sections 7429(a)(2) and 7429(b), relating 
to administrative and judicial review of termination and jeopardy 
assessments, the proposed regulations do not permit the possessor of 
cash to maintain an action under section 7429 for such review. In 
addition, because section 7422, relating to civil actions for refund, 
is in chapter 76B and other provisions dealing with refunds are 
contained in chapter 65 and not chapters 63 or 64 of the Code, a 
possessor of cash, solely in that person's capacity as possessor of 
cash, may not institute a suit for refund 

[[Page 39653]]
in district court after the deficiency has been collected. This in no 
way diminishes the right of the possessor of cash to petition the 
United States Tax Court to challenge the notice of deficiency issued to 
the possessor solely in that person's capacity as possessor of cash.
    The true owner of cash may maintain an action under section 7429 
for administrative and judicial review of the deficiency notice issued 
to the possessor. However, the true owner may only institute the 
section 7429 action concerning the notice of deficiency issued to the 
possessor by making a request for review within 30 days from the date 
the possessor is given the written statement of information required 
under section 7429(a)(1). After the deficiency asserted against the 
possessor of cash has been levied upon, the true owner of cash may 
bring an action in federal district court, within the time frame 
specified in section 6532(c), to recover the cash, as provided in 
section 7426, relating to civil actions by persons other than 
taxpayers. In addition, the true owner of cash, with the permission of 
the court, may appear before the United States Tax Court in any 
proceeding that may be filed by the possessor of the cash challenging 
the notice of deficiency issued to the possessor as possessor of the 
cash.
    Section 301.6867-1(f) of the final regulations incorporates the 
definitions contained in Sec. 301.6867-1T, relating to cash, cash 
equivalents, specific cash equivalents and the value of cash 
equivalents. In addition, several other items have been identified and 
added to the list of specific cash equivalents. Section 301.6867-1T 
will be removed on August 3, 1995.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to 
these regulations, and, therefore, a Regulatory Flexibility Analysis is 
not required. Pursuant to section 7805(f) of the Internal Revenue Code, 
the notice of proposed rulemaking preceding these regulations was 
submitted to the Small Business Administration for comment on its 
impact on small business.

Drafting Information

    The principal author of these regulations is Jerome D. Sekula, 
Office of Assistant Chief Counsel (General Litigation). However, other 
personnel from the IRS and Treasury Department participated in their 
development.

Lists of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 continues to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 301.6867-1 is added to read as follows:


Sec. 301.6867-1  Presumptions where owner of large amount of cash is 
not identified.

    (a) General rule. For purposes of section 6851 (relating to 
termination assessments) and section 6861 (relating to jeopardy 
assessments), if cash in excess of $10,000 is found in the physical 
possession of an individual who does not claim either ownership of that 
cash or ownership by some other person whose identity the Commissioner 
can readily ascertain and who acknowledges ownership of that cash as of 
the date the cash was found, then, it shall be presumed that--
    (1) The cash represents gross income of an unknown single 
individual; and
    (2) That the collection of tax on that income will be jeopardized 
by delay.
    (b) Rules for assessment. The Commissioner may make an assessment 
pursuant to section 6851 or section 6861, as appropriate, using the 
rules for assessment specified in this paragraph. In the case of any 
assessment resulting from the application of paragraph (a) of this 
section--
    (1) The entire amount of cash is treated as taxable income for the 
taxable year in which the cash is found;
    (2) The income is treated as taxable at the highest rate of tax 
specified in section 1 of the Internal Revenue Code; and
    (3) Except as provided in paragraph (c), the possessor of the cash 
is treated (solely with respect to that cash) as the taxpayer for 
purposes of chapters 63 and 64 and section 7429(a)(1) of the Internal 
Revenue Code.
    (c) Effect of later substitution of true owner--(1) In general. If 
an assessment resulting from the application of paragraph (a) of this 
section is later abated and replaced by an assessment against the true 
owner of the cash, the later assessment is treated for purposes of all 
laws relating to lien, levy, and collection as relating back to the 
date of the original assessment. Notwithstanding the preceding 
sentence, any notice and review provided for by section 7429 and the 
notice of deficiency issued to the true owner relative to the later 
assessment are to be made within the prescribed time limits, using the 
actual date of the later assessment against the true owner.
    (2) Example. The provisions of paragraph (c)(1) of this section may 
be illustrated by the following example:

    Example. On June 5, 1994, A is found in possession of a bag, 
containing $200,000, which A claims he was holding for a friend 
whose name A cannot remember. Because A does not claim ownership of 
the cash and does not provide the name of the true owner so that the 
Commissioner can identify the true owner and have that person 
acknowledge ownership of the cash, it is presumed that the cash 
represents gross income of an individual for calendar year 1994, and 
that the collection of tax on that gross income will be jeopardized 
by delay. Accordingly, on June 17, 1994, a termination assessment 
under section 6851 is made against A, in his capacity as possessor 
of the cash. On June 21, 1994, the written statement of information 
provided for by section 7429(a)(1) is given to A. No request for 
review under section 7429(a)(2) is made by the true owner within 30 
days after the day on which A was furnished the written statement 
provided for in section 7429(a)(1). Subsequently, individual B comes 
to the Service and states that he is the owner of the cash. On 
September 2, 1994, the Service determines that B was the true owner 
of the cash on June 5, 1994. On September 9, 1994, the Service 
abates the termination assessment made against A solely as possessor 
of cash and, after determining that jeopardy exists, replaces it 
with a termination assessment under section 6851 against B. The lien 
against B that arises under section 6321 is treated as arising on 
June 17, 1994. However, within 5 days after September 9, 1994, the 
Service must give B the written statement of information required by 
section 7429(a)(1) so that B can make a request for review under 
section 7429(a)(2). In addition, a notice of deficiency must be sent 
to B within 60 days after the later of the due date or the actual 
filing of B's tax return for 1994, as required by section 6851(b).

    (d) Rights of possessor of cash--(1) Action permitted. Section 6867 
provides that the possessor of cash is treated as the taxpayer for 
purposes of chapter 63 (relating to assessment) and chapter 64 
(relating to collection) of the Internal Revenue Code. Accordingly, the 
possessor of cash may file a petition with the United States Tax Court, 
within the applicable time limits, 

[[Page 39654]]
challenging the notice of deficiency issued to the possessor solely in 
that person's capacity as possessor of cash.
    (2) Actions not permitted. Section 6867 provides that the possessor 
of cash is treated as the taxpayer solely for purposes of section 
7429(a)(1), and is entitled to the written statement of information 
provided for by that section. The possessor of cash is not treated as 
the taxpayer for purposes of sections 7429(a)(2) and 7429(b), relating 
to administrative and judicial review of termination and jeopardy 
assessments, and may not maintain an action under section 7429 for such 
review. The possessor of cash is not treated as the taxpayer for 
purposes of section 7422, relating to civil actions for refund, or 
chapter 65 of the Internal Revenue Code, relating to abatements, 
credits, and refunds, and may not institute a suit for refund in 
district court after the deficiency has been collected.
    (e) Rights of true owner of cash--(1) Actions permitted. The true 
owner of cash may request administrative review under section 
7429(a)(2) and may maintain a civil action under section 7429(b) for 
judicial review of an assessment under section 6851 or section 6861 
made against the possessor solely in that person's capacity as 
possessor of cash. Such an action, however, must be preceded by a 
request for review under section 7429(a)(2) made by the true owner 
within 30 days after the day on which the possessor is furnished the 
written statement provided for in section 7429(a)(1). In addition, 
after the deficiency asserted against the possessor of cash has been 
levied upon, the true owner of cash may bring an action in federal 
district court to recover the cash, as provided in section 7426, 
relating to civil actions by persons other than taxpayers. See, 
however, section 6532(c), relating to the 9-month statute of 
limitations for suits under section 7426. In addition, the true owner 
of cash, with the permission of the court, may appear before the United 
States Tax Court in any proceeding that may be filed by the possessor 
of the cash challenging the notice of deficiency issued to the 
possessor solely in that person's capacity as possessor of the cash.
    (2) Actions not permitted. The true owner of cash may not file a 
petition with the United States Tax Court challenging the notice of 
deficiency issued to the possessor solely in that person's capacity as 
possessor of cash. Notwithstanding the preceding sentence, the true 
owner of cash may file a petition with the United States Tax Court 
challenging any notice of deficiency issued to the true owner following 
the abatement of the assessment made against the possessor of cash.
    (f) Definitions. For the purposes of this section and section 
6867--
    (1) Cash. The term cash includes any cash equivalents.
    (2) Cash equivalent--(i) In general. The term cash equivalent 
includes foreign currency, any bearer obligation, and any medium of 
exchange that is of a type that has been frequently used in illegal 
activities, as listed in paragraph (f)(2)(ii) of this section.
    (ii) Specific cash equivalents. For purposes of paragraph 
(f)(2)(i), the following are also cash equivalents--
    (A) Coins;
    (B) Precious metals;
    (C) Jewelry;
    (D) Precious stones;
    (E) Postage stamps;
    (F) Traveler's checks in any form;
    (G) Negotiable instruments (including personal checks, business 
checks, official bank checks, cashier's checks, notes, and money 
orders) that are either in bearer form, endorsed without restriction, 
made out to a fictitious payee, or otherwise in such form that title 
thereto passes upon delivery;
    (H) Incomplete instruments (including personal checks, business 
checks, official bank checks, cashier's checks, notes, and money 
orders) signed but with the payee's name omitted; and
    (I) Securities or stock in bearer form or otherwise in such form 
that title thereto passes upon delivery.
    (iii) Value of cash equivalents. A cash equivalent is taken into 
account at its fair market value except in the case of a bearer 
obligation, in which case it is taken into account at its face value.
    (3) Possessor of cash. An individual is considered to be the 
possessor of cash if the cash is found on that individual's person or 
in that individual's possession or is found in any object, container, 
vehicle, or area under that individual's custody or control.
    (4) True owner of the cash. The true owner of cash is the 
individual who beneficially owns the cash on the date such cash is 
found in the physical possession of the individual described in 
paragraph (f)(3) of this section. An agent, bailee, or other custodian 
of the cash is not the true owner of cash. A true owner of cash does 
not include an individual who, subsequent to the date on which the cash 
is found in the physical possession of the individual described in 
paragraph (f)(3) of this section, obtains ownership of the cash by 
purchase, subrogation, descent, or other means.
    (g) Effective date. This section is effective with respect to cash 
found in the physical possession of an individual on or after August 3, 
1995.


Sec. 301.6867-1T  [Removed]

    Par. 3. Section 301.6867-1T is removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved: June 29, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-18888 Filed 8-2-95; 8:45 am]
BILLING CODE 4830-01-U