[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.7624-1]

[Page 602-604]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
             Discovery of Liability and Enforcement of Title
 
Sec. 301.7624-1  Reimbursement to State and local law enforcement agencies.

    (a) In general. The Internal Revenue Service may reimburse a State 
or local law enforcement agency for expenses, such as salaries, overtime 
pay, per diem, and similar reasonable expenses, incurred in an 
investigation in which information is furnished to the Service that 
substantially contributes to the recovery of Federal taxes imposed with 
respect to illegal drug or related money laundering activities. The 
amount of reimbursement that may be paid shall not exceed the limits 
specified in paragraphs (e)(2) and (e)(3) of this section.
    (b) Information that substantially contributes to recovery of 
taxes--(1) Definition. The Service generally will consider that 
information furnished by a State or local law enforcement agency 
substantially contributed to the recovery of taxes with respect to 
illegal drug or related money laundering activities provided the 
information was not already in the possession of the Service at the time 
the information is furnished by the State or local law enforcement 
agency, and
    (i) Concerns a taxpayer who is not under examination or 
investigation by the Service at the time the information is furnished or 
has not already been selected by the Service for examination or 
investigation in the near future, or
    (ii) Concerns a taxpayer who is under examination or has been 
selected for examination at the time the information is furnished but 
the information furnished would not normally have been discovered in the 
course of an ordinary investigation or examination by the Service. Also, 
information will generally be considered as substantially contributing 
to the recovery of taxes if it leads to the discovery of hidden assets 
owned by the taxpayer which are used to satisfy the taxpayer's assessed 
but otherwise uncollectable Federal tax liability with respect to 
illegal drug or related money laundering activities.

For purposes of this paragraph (b), information includes, but is not 
limited to, tax years of violations, aliases, addresses, social security 
numbers and/or employer identification numbers, financial data (bank 
accounts, assets, etc.) and their location, and any documentation that 
substantiates allegations concerning tax liability (books and records) 
and its location.
    (2) Examples:

    Example 1. A local police department's narcotics division has been 
gathering information on a suspected local drug dealer for approximately 
six months. Because this person is very cautious when handling 
narcotics, the local police have been unsuccessful in catching this 
person in possession of drugs. Rather than drop the case, the narcotics 
detective turns over to the local IRS Criminal Investigation Division 
(CID) office information concerning this person. At the time the 
information is furnished, the Service is unaware of this person's 
suspected involvement in drugs and has no reason to suspect that this 
person's Federal income tax returns are incorrect. Upon examination of 
this person's returns for three open years, the Service determines that 
additional Federal income taxes and civil penalties of approximately 
$20,000 per year are due because of unreported income from drug dealing. 
Because the taxpayer was not under examination and was not reasonably 
anticipated to have been examined prior to receipt of the information, 
the Service will consider that the information furnished by the local 
police department substantially contributed to the recovery of 
approximately $60,000 in taxes with respect to illegal drug activities.
    Example 2. Assume the same facts as example 1 except that at the 
time the information is turned over to the Service, the Service was 
already aware of the extent of this person's involvement in drug 
dealing, either through information developed in the course of 
examinations of other taxpayers or through information received from 
other sources, and had already selected this person's returns for 
examination although the person had not yet been contacted by the 
Service. In this case, the information provided by the local police 
department did not substantially contribute to the recovery of taxes 
from this person because the information was already known to the 
Service.
    Example 3. A state or local police officer is conducting ordinary 
traffic patrol. The officer stops a vehicle for speeding and reckless 
driving. The officer recognizes the driver as

[[Page 603]]

a known narcotics dealer. In the vehicle is a brief case containing 
$75,000 in cash, but no trace of narcotics is found. The driver claims 
the cash was won in a high stakes poker game. The officer arrests the 
driver for traffic violations and takes the briefcase into custody for 
safe keeping. The local police department cannot seize the money because 
they cannot tie it to a narcotics transaction. Instead, they immediately 
inform the local CID office of their find. At the time this information 
is furnished to the Service, there is an unpaid assessed liability of 
$300,000 in Federal taxes and penalties owed by the dealer with respect 
to illegal drug activities that the Service has been unable to collect. 
Therefore, the Service immediately seizes the $75,000 in cash in partial 
payment of the tax liability. The Service will consider that the 
information furnished by the police department substantially contributed 
to the recovery of $75,000 in taxes with respect to drug related 
activities.
    Example 4. Through information furnished by a reliable informant, a 
local police department learns that a known racketeer and suspected drug 
dealer maintains a second set of books and records in a safe at home. 
The local police obtain a search warrant and find a set of books 
revealing that this person has been using a legitimate business 
operation to launder money derived from both prostitution and drug 
dealing. At the time these records are turned over to the local CID 
office, the taxpayer is already under examination for tax evasion. 
However, based on the information contained in this second set of books, 
the Service is able to collect additional taxes and civil penalties in 
the amount of $1 million in connection with these illegal activities. 
The Service will consider that this information substantially 
contributed to the recovery of $1 million in taxes with respect to money 
laundering in connection with illegal drug activities because, even 
though the taxpayer was already under examination, the information 
provided by the local police would normally not have been discovered by 
the Service in the course of an ordinary investigation.

    (c) Application for reimbursement. An agency that intends to apply 
for reimbursement under the provisions of this section must indicate 
this intent to the Service at the time the information is first provided 
to the Service. A final application for reimbursement of expenses must 
be submitted on Form 211A, State or Local Law Enforcement Application 
for Reimbursement, to the Chief, Criminal Investigation Division of the 
Internal Revenue Service district in which the taxpayer is located. 
Copies of Forms 9061, DAG-71, or other claim for an equitable share of 
asset forfeitures in the case must also be furnished with Form 211A.
    (d) Time for filing application for reimbursement. An application 
for reimbursement may be filed by an agency at the time the information 
is first provided or as soon as practicable after submitting information 
to the Service. However, it must be filed not later than 30 days after 
the Service notifies the agency pursuant to section 7624(b) of the 
amount of taxes collected as a result of the information provided. If an 
application for reimbursement is filed by more than one agency with 
respect to taxes recovered from a taxpayer, the Service will use 
discretion in determining an equitable amount of reimbursement allocated 
to each agency based on all relevant factors. In no event, however, 
shall the aggregate of the amounts paid by the Service to two or more 
agencies exceed the amount specified in paragraph (e)(3) of this 
section.
    (e) Amount and payment of reimbursement--(1) De minimis rule. No 
reimbursement shall be paid under section 7624 or this section to a 
State or local law enforcement agency in any case where the taxes 
recovered total less than $50,000.
    (2) Taxes recovered. For purposes of section 7624 and this section, 
the terms ``taxes'' recovered and ``sum'' recovered mean additional 
Federal taxes, civil penalties, and additions to tax collected (less any 
subsequent refund to the taxpayer) with respect to illegal drug or 
related money laundering activities, but not additional interest or 
criminal fines that may be collected.
    (3) Limitation on reimbursement. The amount of reimbursement payable 
under section 7624 and this section shall not exceed 10 percent of any 
taxes recovered.
    (4) No duplicate reimbursement. A State or local law emforcement 
agency shall not receive reimbursement under section 7624 or this 
section for any expenses incurred in the investigation of a taxpayer 
which have been or will be reimbursed under any other program or 
arrangement including, but not limited to, Federal or State forfeiture 
programs, State revenue laws, or Federal

[[Page 604]]

and State equitable sharing arrangements.
    (5) Time of payment. No payment of any reimbursement under this 
section will be made to a State or local law enforcement agency before 
the later of final expiration of the applicable period of limitations 
for filing a claim for refund by the taxpayer of the taxes recovered as 
provided in subchapter B of chapter 66 of the Code or the determination 
of the taxpayer's tax liability, as defined in section 1313(a). However, 
reimbursement may be made earlier but only if the agency provides 
adequate indemnification against loss by the Service due to a refund to 
the taxpayer of Federal taxes recovered.
    (6) Applicability. The provisions of section 7624 apply only to 
State and local law enforcement agencies within the United States and 
the District of Columbia.
    (f) Effective date. This section applies with respect to information 
first provided to the Service by a State or local law enforcement agency 
after February 16, 1989.

[T.D. 8255, 54 FR 21054, May 16, 1989, as amended by 57 FR 2840, Jan. 
24, 1992. Redesignated by T.D. 8415, 57 FR 15017, Apr. 24, 1992]

           Supervision of Operations of Certain Manufacturers