not learned some of these facts when he recommended that an assessment be made against Loretto. See note 4 supra.
Although the question is a close one, I conclude that the Secretary has carried his burden of proof as to the reasonableness of this assessment. The inference is not a compelling one, but it is reasonable to conclude from the facts of this case that Loretto was earning income through illegal activities, such as the sale of marijuana and cocaine, and not reporting this income to IRS.
This conclusion is supported by the substantial quantities of marijuana and "suspected" cocaine found in the Loretto home, taken in conjunction with the $14,050 also found there and with Loretto's failure to report any appreciable income for either 1975 or 1976. To this conclusion must be added Agent Lamb's inability to locate any assets in Loretto's name that might be used by the IRS to satisfy the tax liability on such unreported income. Thus, the Secretary had sufficient reason to find that Loretto was "designing quickly to place [his] property beyond the reach of the Government by either concealing it or dissipating it." Exhibit A to Plaintiff's Brief, at 1. See generally 26 U.S.C.A. § 6851(a)(1) (Supp. 1977), set out in note 1 supra. Section 6851(a)(1) plainly authorizes a termination assessment based on such a finding, and thus I am constrained to hold that this assessment was "reasonable under the circumstances."
Loretto advances several arguments for abatement of the assessment. First, he contends that the Secretary had no basis in fact for the conclusion that Loretto might conceal or dissipate the $16,468 seized during the search of his home, because that money was in the custody of the Pennsylvania State Police when the assessment was made. Nothing has occurred since then, the argument continues, to provide that factual basis; indeed, Loretto "has made no formal demand on the Pennsylvania State Police for the return of the seized currency." Stipulation para. 11. I will assume, without deciding, that if Loretto can prevail on this point, the entire assessment would then be vitiated, inasmuch as the total taxable income attributed to Loretto for the terminated year was only $16,655.07. Brief of the United States at 3.
Loretto's argument, in essence, is that a termination assessment is invalid unless the taxpayer involved has the present ability to conceal or dissipate the assets on which the assessment is based. I cannot accept this contention. Under the circumstances of this case, it is reasonable to conclude that the $16,468 seized in Loretto's home may ultimately be claimed by Loretto or someone acting on his behalf, and that it may then be concealed or dissipated. Loretto points to nothing in the statute or the legislative history that would justify requiring the IRS to stay its hand until the money is actually claimed by Loretto or an agent of his. Common sense suggests, moreover, that such a delay might enable Loretto to conceal or dissipate the money before a new assessment could be made. The IRS might then end up with an assessment against Loretto, but without any assets of his through which the tax liability could be satisfied. I conclude that a precautionary termination assessment is reasonable where, as in this case, the record discloses no assets, other than the funds being held in custodia legis, that the IRS could use to satisfy the taxpayer's tax liability.
Loretto's second argument focuses on the $14,050 found under the mattress in his home. The Secretary has no basis, he contends, for treating that money as income taxable only to Loretto, since it was found in a bedroom that Mr. and Mrs. Loretto share in a house where their son also resides. The short answer to this contention is that Loretto may in fact ultimately establish that, for one reason or another, the $14,050 cannot be attributed to him as taxable income. At this stage, however, the only issue to be decided is the reasonableness of the termination assessment against Loretto. The legislative history of § 7429 makes it abundantly clear that the reviewing court is not to determine the taxpayer's actual tax liability. See note 11 supra. It would contravene the clear intent of Congress if I were to abate this assessment simply because the Secretary has not proven that the $14,050 represents income taxable to Loretto. It is sufficient that the Secretary acted reasonably in treating the money as income taxable to Loretto, and I hold that he did so.
Finally, Loretto argues that the Secretary failed to comply with the notice requirement contained in § 7429(a)(1) of the Code, 26 U.S.C.A. § 7429(a)(1) (Supp. 1977). That section provides as follows: "Within 5 days after the day on which an assessment is made under section 6851(a), . . . the Secretary shall provide the taxpayer with a written statement of the information upon which the Secretary relies in making such assessment." In this case, Loretto was notified on July 27, 1977, and the assessment was made the following day. Since the required notice serves primarily to alert the taxpayer to any basis for contesting the assessment, and since the time limit for requesting administrative review thereof runs from the day the notice is actually provided, I conclude that Loretto was not prejudiced by receiving prior, rather than subsequent, notice of the assessment, and that such prior notice complies with § 7429(a)(1).
In summary, I conclude that the Secretary has established that the instant assessment is "reasonable under the circumstances." Treating Loretto's arguments based on the money seized in his home as arguments directed to the inappropriateness of the amount of the assessment, I conclude that he has failed to carry his burden of proof on that issue. See 26 U.S.C.A. § 7429(g)(2) (Supp. 1977).
ALFRED L. LUONGO / J.
This 22nd day of November, 1977, it is
ORDERED that plaintiff's complaint seeking abatement of termination assessment is DENIED.
ALFRED L. LUONGO / J.