Because of the complexity of Internal Revenue Service Code Section 6050I, this article is broken down into five parts: (1) Enactment of Section 6050I, (2) Operation of Section 6050I, (3) Use of Section 6050I in Law Enforcement, (4) Form 8300 Disclosures, and (5) Tax Policy. So hold onto your seats as we peel off the layers of Section 6050I to expose its true purpose.

E. Tax Policy

Does section 6050I represent good tax policy? The Internal Revenue Code has long been used for non-tax reasons. Economically and socially desirable conduct is encouraged through exclusions from tax and an allowance of deductions. For example, the Code encourages donations to charity by providing for charitable deductions. At the same time, the Code discourages certain consumption through disallowed deductions and excise taxes.

The government has long used the tax laws to pursue notorious criminals. Moreover, the underground economy and the problems resulting form drug trafficking and money laundering present major problems for the country. Perhaps what is different in the cases involving section 6050I and criminal tax statutes is that the latter are criminal statutes, per se, while section 6050I follows the pretext of being a taxing statute and not a criminal statute. It attacks criminal activity without affording those affected the rights and protections that usually attend criminal sanctions.

The government is quite likely spending far more resources enforcing compliance with section 6050I than the provision is generating revenue for the Treasury. This result is no different than Congress’ attempts to regulate corporate behavior and the securities markets through the Internal Revenue Code, which regulation has been roundly criticized. Just as the Code and the IRS are poor regulators of the securities markets and corporate laws, they are ill-equipped to curtail drug dealing and money laundering.

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Footnotes for full post

i – Gerald A. Feffer et al., Proposals to Deter and Detect the Underground Cash Economy, in Income Tax Compliance: A Report of the ABA Section of Taxation Invitational Conference on Income Tax Compliance 293 (1983); see also Michael C. Durst, American Bar Ass’n Sec. of Taxation & American Bar Found., Report of the Second Invitational Conference on Income Tax Compliance, 42 Tax Law. 705 (1988) (discussing problems of income tax compliance in the United States and policy recommendations).

ii – United States General Accounting Office, Report to the Joint Committee on Taxation, Reducing the Tax Gap: Results of a GAO Sponsored Symposium (GAO/GGD-95-157 1995).

iii – The Secretary of Treasury, and by delegation the Commissioner of Internal Revenue are given broad authority to administer the federal tax law: Except where such authority is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title, including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue. I.R.C. 7805(a) (1994). The Justice Department represents the Commissioner of the Internal Revenue Service in Article III Courts.

iv – I.R.C. 6050I(a) (1994). Businesses subject to the Bank Secrecy Act, e.g., banks and other financial institutions, are excepted from section 6050I’s reporting provisions. Id. 6050I(c)(1)(B).

v – FinCEN Form 8300: Report of Cash Payments Over $ 10,000 Received in a Trade or Business, http://www.irs.gov/pub/irs-pdf/f8300.pdf (last visited Nov. 13, 2009).

vi – Id.

vii – Id.

viii – Id.

ix – Id.

x – United States General Accounting Office, Report to the Chairman, Permanent Subcommittee on Investigations, Committee on Governmental Affairs, U.S. Senate, Money Laundering: State Efforts to Fight it are Increasing but More Federal Help is Needed (GAO/GGD-93-1 1992) [hereinafter GAO Report].

xi – Harrington, 24 Hofstra L. Rev. at 637 (1996).

xii – Id.

xiii – Treas. Reg. 1.6050I-1(b).

xiv – Treas. Reg. 1.6050I-1(c)(7)(ii).

xv – 31 U.S.C. § 5324(b).

xvi – I.R.C. 6050I(f)(2) provides for both criminal and civil penalties to be assessed against any person who “causes or attempts to cause a trade or business to fail to file a return.” I.R.C. 6050I(f)(1)(A) (1994). The provisions of 31 U.S.C. 5313 require financial institutions – which are otherwise exempt from the provisions of 26 U.S.C. 6050I – to file “currency transaction reports” whenever they receive cash deposits in excess of $ 10,000. 31 U.S.C. 5313(a) (1994).

xvii – See Peter Reuter & Edwin M. Truman, Chasing Dirty Money: The Fight Against Money Laundering 66 (2004); Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4181.

xviii – See I.R.C. § 6103(i)(8) (2006); see also Internal Revenue Manual §§9.5.5.4.8.4, 9.5.5.4.8.5 (2007) (setting forth the elaborate procedures an IRS agent must follow to disseminate a Form 8300 under Title 26 authority).

xix – Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, Pub. L. No. 107-56, tit. III, § 365(a), 115 Stat. 272 (codified as amended at 31 U.S.C. § 5331 (2006)).

xx – See Internal Revenue Manual § 9.5.5.4.8 (2007) (“The rules under Title 26 strictly limit [Form 8300] disclosures, whereas the rules under Title 31 are less restrictive.”).

xxi – I.R.C. 170 (1994) (charitable deductions).

xxii – I.R.C. 162(e) (denial of exclusion for lobbying expenses) and I.R.C. 5881 (excise tax on corporate “greenmailers”).

xxiii – Al Capone was finally convicted and sent to prison on income tax evasion. David Laro, The Evolution of the Tax Court As an Independent Tribunal, 1995 U. Ill. L. Rev. 17, 21.

xxiv – Harrington, 24 Hofstra L. Rev. at 670.

xxv – Id.

xxvi – See, e.g., Eric A. Lustig, The Emerging Role of the Federal Tax Law in Regulating Hostile Corporate Takeover Defenses: The New Section 5881 Excise Tax on Greenmail, 40 U. Fla. L. Rev. 789 (1988); Edward A. Zelinsky, Greenmail, Golden Parachutes and the Internal Revenue Code: A Tax Policy Critique of Sections 280G, 4999, and 5881, 35 Vill. L. Rev. 1 (1990).

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