RECOMMENDATION 27

Part: 
Three
Chapter: 
2

The Internal Revenue Service should aggressively investigate violations of the tax laws committed by producers and distributors of obscene material.

The Chief of the Internal Revenue Service Criminal Division has compared the production and distribution of obscene material to drug trafficking since both generate staggering profits on an international scale but with only minimal tax reporting.[285] Authorities also project that millions of dollars in profits from obscenity may be escaping taxation through use of international banking channe1s.[286]

Allen I. Goelman, a Los Angeles associate of Reuben Sturnman, pleaded guilty to tax evasion charges in November of 1985. Goelman concealed personal earnings of more than $270,000 over a four year period when he served as head of "retail operations" for obscenity distribution. The IRS has recently obtained confidential records from banks in Switzerland and Holland in an attempt to locate more hidden obscenity-derived profits.[287]

The frequent use of "cash only" transactions in the pornography industry provides other opportunities for tax evasion.[288] Adult bookstores often fail to report lucrative income earned from cash operated peep shows.[289]

In March of 1986, an IRS official said the current immoral investigation involving obscenity distributors are not an isolated incident and that more income tax prosecutions may be forthcoming.[290] The same official added, "With the unsettled nature of laws defining obscenity, often times the government is forced to deal with people of this type through the tax laws, and in a business this lucrative, if there's a viable tax interest we're going after them."[291] The Commission strongly encourages the IRS to aggressively investigate violations of the tax laws committed by producers and distributors of obscene materials.

Notes

  1. IRS Probing Alleged Money Laundering Abroad by Far Flung Pronography Ring, L.A. Times, Mar. 16, 1985, p. 33.
  2. Id.
  3. Id.; See, The discussion of Organized Crime for further information.
  4. New York Hearing, Vol. II, William Johnson, p. 73-74.
  5. Id.
  6. L.A. Times, supra note 285.
  7. Id.