Partnership accounting

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When two or more individuals engage in an enterprise as co-owners, the organization is known as a partnership. This form of organization is popular among personal service enterprises, as well as in the legal and public accounting professions. The important features of and accounting procedures for partnerships are discussed and illustrated below.

Contents   [hide]  1 Accounting for Initial Investments 2 Capital Interest 3 Capital account 4 Compensation for Services and Capital 5 Guaranteed Payments 6 Allocation of Net Income 7 Closing Process 8 Statements for Partnerships 9 Admitting a new partner 10 Allocation of ownership interest 11 Partnership bonus 12 Withdrawal of Partner 13 Purchasing of Partner's Interest 14 Death of a Partner 15 Liquidation of a Partnership 16 Schedule M-1 17 Schedule K-1 18 References

[edit]Accounting for Initial Investments

Because ownership rights in a partnership are divided among two or more partners, separate capital and drawing accounts are maintained for each partner.

Investment of cash

If a partner invested cash in a partnership, the Cash account of the partnership is debited, and the partner's capital account is credited for the invested amount.

Investment of assets other than cash

If a partner invested an asset other than cash, an asset account is debited, and the partner's capital account is credited for the market value of the asset. If a certain amount of money is owed for the asset, the partnership may assume liability. In that case an asset account is debited, and the partner's capital account is credited for the difference between the market value of the asset invested and liabilities assumed.

[edit]Capital Interest

A capital interest is an interest that would give the holder a share of the proceeds in either of the following situations:

• The owner withdraws from the partnership.
• The partnership liquidates.

The mere right to share in earnings and profits is not a capital interest in the partnership. This determination generally is made at the time of receipt of the partnership interest.

[edit]Capital account

Capital account of each partner represents his equity in the partnership.

Capital account of a partner is increased in the following situations:

• The owner made additional investments during the year.
• The owner received guaranteed payments from the partnership.
• Partnership earned profits, and a share of profits was allocated to the partner.
• The increase in the capital will record in credit side of the capital account.

Salary and interest allowances are guaranteed payments, discussed later.

Capital account of a partner is decreased when the owner makes withdrawals of cash or property

[edit]Compensation for Services and Capital

The partnership agreement may specify that partners should be compensated for services they provide to the partnership and for capital invested by partners.

For example, one partner contributed more of the assets, and works full time in the partnership, while the other partner contributed a smaller amount of assets and does not provide as much services to the partnership.

Compensation for services is provided in the form of salary allowance. Compensation for capital is provided in the form of interest allowance. Amount of compensation is added to the capital account of the partner.

To illustrate, assume that a partner received $500 as an interest allowance. The amount is included in the net income/loss distribution entry when the books are closed to the capital accounts at year end:

	Debit	Credit
Partner A, Capital		$500
Income Summary	$500

As a result, the above entry Income Summary, which is a temporary equity closing account used for year-end, is reduced by $500, and the capital account is increased by the same amount.

When the partner makes a cash withdrawal of moneys he received as an allowance, it is treated as a withdrawal, or drawing.

	Debit	Credit
Partner A, Drawing	$500
Cash		$500

As a result, Drawing account increased by $500, and the Cash account of the partnership is reduced by the same account.

At the end of the accounting period the drawing account is closed to the capital account of the partner. The capital account will be reduced by the amount of drawing made by the partner during the accounting period.

[edit]Guaranteed Payments

Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. Compensation for services and capital are guaranteed payments.

A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. This treatment is for purposes of determining gross income and deductible business expenses only.

For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Guaranteed payments are not subject to income tax withholding.

The partnership generally deducts guaranteed payments on line 10 of Form 1065 as business expenses. They are also listed on Schedules K and K-1 of the partnership return.

The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his distributive share of the partnership's other ordinary income.

[edit]Allocation of Net Income

Revenues - Expenses = Net income

If total revenues exceed total expenses of the period, the excess is the net income of the partnership for the period. If expenses exceed revenues of the period, the excess is a net loss of the partnership for the period.

Management fees, Salary and interest allowances are guaranteed payments. The partnership generally deducts guaranteed payments on line 10 of Form 1065 as business expenses.

If partners pay themselves high salaries, net income will be low, but it does not matter for tax purposes. Partner compensation and allocated net income are considered ordinary income for tax purposes and as such are reported on the form 1040. It does not matter whether or not a partner withdrew any amount of money from his capital account. It's the net income, allocated to the partner, and his compensation from the partnership that are taxed, not the amount withdrawn.

Net income or loss is allocated to the partners in accordance with the partnership agreement. In the absence of any agreement between partners, profits and losses must be shared equally regardless of the ratio of the partners' investments. If the partnership agreement specifies how profitsare to be shared, losses must be shared on the same basis as profits. Net income does not includes gains or losses from the partnership investment.

[edit]Closing Process

DRTFGGG Closing process at the end of the accounting period includes closing of all temporary accounts by making the following entries.

• Close all revenues accounts to Income Summary.
• Close all expenses accounts to Income Summary.
• Close Income Summary by allocating each partner's share of net income or loss to the individual capital account.
• Close each partner's drawing account to the individual capital accounts.

To illustrate, assume that there are two equal partners, Partner A and Partner B. The partnership agreement specifies that after providing for salary and interest allowances the remaining income is divided equally. Assume also that net income of the partnership was $100,000 and the two partners received allowances as indicated in the table below.

The allocation of net income would be reported on the income statement as shown.

Net Income $100,000

	Partner A	Partner B	Total
Allocation of net income	60,000	40,000	100,000
Salary allowances	30,000	20,000	50,000
Interest allowances	20,000	10,000	30,000
Remaining income	10,000	10,000	20,000

Net Income of the partnership is calculated by subtracting total expenses from total revenues. After that salary and interest allowances are subtracted from Net Income, and the result is Remaining Income, which is divided equally in accordance with the partnership agreement.

At the end of the accounting period each partner's allocated share is closed to his capital account. Based on the net income allocation shown above, the closing entry is:

	Debit	Credit
Income Summary	$100,000
Partner A, Capital		$60,000
Partner B, Capital		$40,000

[edit]Statements for Partnerships

The allocation of net income and its impact on the partners' capital balances must be disclosed in the financial statements. All three financial statements are affected: the income statement, statement of owners (partners') equity, and balance sheet. In addition, the statement of partners' equity reflects the equity of each partner and summarizes the allocation of net income for the year.

Statement of Partners' Equity

Statement of partners' equity starts with capital balances at the beginning of the accounting period, and reflects additional investments, made by the partners during the year, net income for the period, and withdrawals.

Additional investments and allocated net income increase capital accounts of the partners. All kind of allowances, like salary allowances and capital allowances, are treated as withdrawals. Withdrawals reduce capital accounts. The end result is capital balances of the partners at the end of the accounting period.

A sample statement of partners' equity is shown below.

	Partner A	Partner B	Total
Capital, Jan. 1, 2008	$40,000	$30,000	$70,000
Additional Investments	$10,000	$20,000	$30,000
Capital plus investments	$50,000	$50,000	$100,000
Net Income for the year	$60,000	$40,000	$100,000
Balance	$110,000	$90,000	$200,000
Withdrawals	$30,000	$20,000	$50,000
Capital, Dec. 31, 2008	$80,000	$70,000	$150,000

Equity section of the balance sheet

The partners' equity section of the balance sheet reports the equity of each partner, as illustrated below.

Partner A, Capital	$80,000
Partner B, Capital	$70,000
Total partners' equity		$150,000

[edit]Admitting a new partner

A new partner may be admitted by agreement among the existing partners. When this happens, the old partnership is dissolved and a new partnership is created, with a new partnership agreement.

A new partner may buy into the business in three ways:

• by purchasing an interest directly from existing partners
• by making an investment in the business, or
• by contributing assets from an existing business.

Assume that Partner A and Partner B admit Partner C as a new partner, when Partner A and Partner B have capital interests $30,000 and $20,000, respectively.

Partner C pays, say, $15,000 to Partner A for one-third of his interest, and $15,000 to Partner B for one-half of his interest. These payments go to the partners directly, not to the business. The following entry is made by the partnership.

	Debit	Credit
Partner A, Capital	10,000
Partner B, Capital	10,000
Partner C, Capital		20,000

The extra $5,000 Partner C paid to each of the partners, represents profit to them, but it has no effect on the partnership's financial statements.

Now, assume instead that Partner C invested $30,000 cash in the new partnership. In this case, the following entry would be made to admit Partner C.

	Debit	Credit
Cash	30,000
Partner C, Capital		30,000

Finally, let's assume that Partner C had been operating his own business, which was then taken over by the new partnership. In this case the balance sheet for the new partner's business would serve as a basis for preparing the opening entry. The assets listed in the balance sheet are taken over, the liabilities are assumed, and the new partner's capital account is credited for the difference.

[edit]Allocation of ownership interest

Equal partners.

Example 1. Assume that a sole proprietor agreed to admit a single equal partner for a certain amount of money. The sole proprietor, Partner A, will give the new partner, Partner B, an equal share in the partnership. 100% interest of the sole proprietor will be divided in half, so that each of the two partners will have 50% interest in the partnership. In effect, Partner A sold 50% of his equity to Partner B.

Example 2. Assume that Partner A and Partner B have 50% interest each, and they agreed to admit Partner C and give him an equal share of ownership. Each of the three partners will have 33.3% interest in the partnership. Interests of Partner A and Partner B will be reduced from 50% each to 33.3% each. In effect, each of the two partners sold 16.7% of his equity to Partner C.

Example 3. Assume there are three equal partners, who have 33.3% interest each, and they agreed to admit a fourth equal partner. Each of the four partners will have 25% interest in the partnership. Interests of the three partners will be reduced from 33.3% each to 25% each. In effect, each of the three partners sold 8.3% of his equity to the new partner.

In either case, all partners must agree to the specific way to realign their partnership interests as a result of admitting a new partner.

Unequal partners.

Example 1. Assume there are two unequal partners in the partnership. Partner A owns 60% equity, Partner B owns 40% equity, and they agreed to admit a third partner. Partner C has several options to join the partnership.

• He can buy equity from Partner A.
• He can buy equity from Partner B.
• He can buy equity from Partner A and Partner B.

Partner A and Partner B may both agree to sell 50% of their equity to Partner C. In that case, Partner A will have 30% interest, Partner B will have 20%, and Partner C will own (30% + 20%) 50% interest in the partnership.

Partner A and Partner B may both agree to sell 25% of their equity to Partner C. In that case, Partner 3 will own (15% + 10%) 25% interest in the partnership.

Partner A may decide to sell 25% of his equity to partner C. Partner B may decide to sell 50% of his equity to partner C. Partner C will own (15% + 20%) 35% of the partnership equity.

Example 2. Assume now that there are three partners. Partner A owns 50% interest, Partner B owns 30% interest, and Partner C owns 20% interest. Collectively, they own 100% interest in the partnership.

They agreed to admit a fourth partner, Partner D. As in the previous case, Partner D has a number of options. He can buy shares of interest from one of the partners, or from more than one partner.

Assume that the three partners agreed to sell 20% of interest in the partnership to the new partner. There are more than one way to realign partnership interests.

Equal percentage reduction. The three partners may agree to reduce their equity by equal percentage. In order to sell 20% equity to new partner, each of the partners has to sell (20% : 3) 6.7% of his equity to the new partner.

Equal proportion reduction. The three partners may chose equal proportion reduction instead of equal percentage reduction.

Had there been only one partner, who owned 100% interest, selling 20% interest would reduce ownership interest of the original owner by 20%. The same approach can be used to buy equity from each of the partners.

Each of the existing partners may agree to sell 20% of his equity to the new partner. The result for the new partner will be the same as if a single owner sold him 20% interest.

This table illustrates realignment of ownership interests before and after admitting the new partner.

	Before	After
Partner A	50%	(50% * 80%) 40%
Partner B	30%	(30% * 80%) 24%
Partner C	20%	(20% * 80%) 16%
Partner D	0%	20%

To summarize, there does not exist any standard way to admit a new partner. A new partner can be admitted only by agreement among the existing partners. When this happens, the old partnership is dissolved and a new partnership is created, with a new partnership agreement.

[edit]Partnership bonus

Bonus paid to the partnership .

A new partner may pay a bonus in order to join the partnership. Bonus is the difference between the amount contributed to the partnership and equity received in return.

Assume that Partner A and Partner B have balances $10,000 each on their capital accounts. The partners agree to admit Partner C to the partnership for $16,000. In return, Partner C will receive one-third equity in the partnership. The following table illustrates calculation of the bonus.

Equity of Partner A	$10,000
Equity of Partner B	$10,000
Contribution of Partner C	$16,000
Total equity after admitting Partner C	$36,000
Equity percentage of Partner C	33.3%
Equity of Partner C	$12,000
Contribution of Partner C	$16,000
Minus equity of Partner C	$12,000
Bonus paid to "A & B Partnership"	$4,000

In this case, Partner C paid $4,000 bonus to join the partnership. The amount of any bonus paid to the partnership is distributed among the partners. The following table illustrates the distribution of the bonus.

	Debit	Credit
Cash	$16,000
Partner C, Capital		$12,000
Partner A, Capital		$2,000
Partner B, Capital		$2,000

Bonus paid to a partner.

Assume now that Partner A and Partner B have balances $10,000 each on their capital accounts. The partners agree to admit Partner C to the partnership for $7,000. In return, Partner C will receive one-third equity in the partnership.

Why would the existing partners allow a new partner to buy an equal share of equity with smaller contribution? It might be because the new partner brings something very valuable to the partnership. It might be special skills.

The following table illustrates calculation of the bonus.

Equity of Partner A	$10,000
Equity of Partner B	$10,000
Contribution of Partner C	$7,000
Total equity after admitting Partner C	$27,000
Equity percentage of Partner C	33.3%
Equity of Partner C	$9,000
Contribution of Partner C	$7,000
Minus equity of Partner C	$9,000
Bonus paid to Partner C	$2,000

In this case, Partner C received $2,000 bonus to join the partnership. The amount of the bonus paid by the partnership is distributed among the partners according to the partnership agreement.

The following table illustrates the distribution of the bonus. Debit to Cash increases the account, while debit to a capital account of a partner decreases the account.

	Debit	Credit
Cash	$7,000
Partner C, Capital		$9,000
Partner A, Capital	$1,000
Partner B, Capital	$1,000

In an equal partnership bonus paid to a new partner is distributed equally among the partners. In an unequal partnership bonus is distributed according to the partnership agreement.

Assume that Partner A is a 75% partner, and Partner B is a 25% partner. Partner C was admitted to the partnership. He paid $5,000 cash. In return, he received $9,000 equity in the partnership. A $4,000 ($9,000 - $5,000) bonus paid to Partner C would be distributed as follows:

Partner A will pay ($4,000 * 75%) $3,000. His capital account will be debited $3,000.

Partner B will pay ($4,000 * 25%) $1,000. His capital account will be debited $1,000.

	Debit	Credit
Cash	$5,000
Partner C, Capital		$9,000
Partner A, Capital	$3,000 ($4,000 * 75%)
Partner B, Capital	$1,000 ($4,000 * 25%)

[edit]Withdrawal of Partner

By agreement, a partner may retire and be permitted to withdraw assets equal to, less than, or greater than the amount of his interest in the partnership. The book value of a partner's interest is shown by the credit balance of the partner's capital account.

The balance is computed after all profits or losses have been allocated in accordance with the partnership agreement, and the books closed.

If a retiring partner withdraws cash or other assets equal to the credit balance of his capital account, the transaction will have no effect on the capital of the remaining partners.

To illustrate, assume that several years after the formation of "A,B, & C" partnership Partner C decided to retire. The partners agreed to the withdrawal of cash equal to the amount of Partner C's equity in the assets of the partnership. Assume that the partners' capital accounts had credit balances as follows:

• Partner A $60,000
• Partner B $40,000
• Partner C $30,000

If Partner C withdraws $30,000 in cash, the entry on the books is as follows:

	Debit	Credit
Partner C, Capital	30,000
Cash		30,000

If a retiring partner agrees to withdraw less than the amount in his capital account, the transaction will increase the capital accounts of the remaining partners.

For example, if Partner C withdraws only $20,000 in settlement of the interest, the difference between Partner C's equity in the assets of the partnership and the amount of cash withdrawn is $10,000 ($30,000 - $20,000).

This difference is divided between the remaining partners on the basis stated in the partnership agreement.

Assume that the partnership agreement specifies that in such a case the difference is divided according to the ratio of their capital interests after allocating net income and closing their drawing accounts. On this basis, Partner A's capital account is credited for $6,000 and Partner B's is credited for $4,000.

The entry in the books of the partnership is as follows:

	Debit	Credit
Partner C, Capital	30,000
Cash		20,000
Partner A, Capital		6,000
Partner B, Capital		4,000

If a retiring partner withdraws more than the amount in his capital account, the transaction will decrease the capital accounts of the remaining partners. The excess of the amount withdrawn over retiring partner's equity in the partnership is divided between the remaining partners on the basis stated in the partnership agreement.

[edit]Purchasing of Partner's Interest

When a partner retires from the business, the partner's interest may be purchased directly by one or more of the remaining partners or by an outside party. If the retiring partner's interest is sold to one of the remaining partners, the retiring partner's equity is merely transferred to the other partner.

For example, assume that Partner C's equity is sold to Partner B. The entry for the transaction on the books of the partnership is as follows:

	Debit	Credit
Partner C, Capital	30,000
Partner B, Capital		30,000

The amount paid to Partner C by Partner B is a personal transaction and has no effect on the above entry. Any gain or loss resulting from the transaction is a personal gain or loss of the withdrawing partner and not of the business.

If the retiring partner's interest is purchased by an outside party, the retiring partner's equity is transferred to the capital account of the new partner, Partner D.

	Debit	Credit
Partner C, Capital	30,000
Partner D, Capital		30,000

The amount paid to Partner C by Partner D is also a personal transaction and has no effect on the above entry.

[edit]Death of a Partner

The death of a partner dissolves the partnership. On the date of death, the accounts are closed and the net income for the year to date is allocated to the partners' capital accounts. Most agreements call for an audit and revaluation of the assets at this time. The balance of the deceased partner's capital account is then transferred to a liability account with the deceased's estate.

The surviving partners may continue the business or liquidate. If the business continues, the procedures for settling with the estate are the same as those described earlier for the withdrawal of a partner.

[edit]Liquidation of a Partnership

Liquidation of a partnership generally means that the assets are sold, liabilities are paid, and the remaining cash or other assets are distributed to the partners.

When normal operations are discontinued, adjusting and closing entries are made. Thus, only the assets, liabilities and partners' equity accounts remain open.

If noncash assets are sold for more than their book value, a gain on the sale is recognized. The gain is allocated to the partners' capital accounts according to the partnership agreement.

If noncash assets are sold for less than their book value, a loss on the sale is recognized. The loss is allocated to the partners' capital accounts according to the partnership agreement.

As the assets are sold, the cash is applied first to the claims of creditors. Once all liabilities are paid, the remaining cash and other assets are distributed to the partners according to their ownership interests as indicated by their capital accounts.

[edit]Schedule M-1

Purpose of Schedule M-1

U.S. Return of Partnership Income (IRS Form 1065) [1] contains, among others, Schedule M-1.

The purpose of Schedule M-1 is reconciliation of income (loss) per accounting books with income (loss) per Return of the partnership. In other words, it means reconciliation of accounting income with taxable income, because not all accounting income is taxable.

Schedule M-1 starts with Net income (loss) per books. Adjustments are made for guaranteed payments, as well as for depreciation and other expenses. As a result, accounting income of a partnership is adjusted, or reconciled, to taxable income.

[edit]Schedule K-1

Purpose of Schedule K-1

The partnership uses Schedule K-1 to report a partner's share of the partnership’s income, deductions, credits, etc. The partner must only keep Schedule K-1 for his records, but not file it with his tax return. The partnership must file a copy of Schedule K-1 for each partner with the IRS.

Although the partnership generally is not subject to income tax, every partner is liable for tax on his share of the partnership income, whether or not distributed.

[edit]References

Justicejee, J.A., & Parry, R.W. (2001) College Accounting 16/E, chapter 20

IRS Publication 541, Partnerships http://www.irs.gov/publications/p541/ar02.html#d0e1119

Categories: 

RULE G. FORFEITURE ACTIONS IN REM

(1) Scope. This rule governs a forfeiture action in rem arising from a federal statute. To the extent that this rule does not address an issue, Supplemental Rules C and E and theFederal Rules of Civil Procedure also apply.

(2) Complaint. The complaint must:

(a) be verified;

(b) state the grounds for subject-matter jurisdiction, in rem jurisdiction over the defendant property, and venue;

(c) describe the property with reasonable particularity;

(d) if the property is tangible, state its location when any seizure occurred and—if different—its location when the action is filed;

(e) identify the statute under which the forfeiture action is brought; and

(f) state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial.

(3) Judicial Authorization and Process.

(a) Real Property. If the defendant is real property, the government must proceed under 18 U.S.C. §985.

(b) Other Property; Arrest Warrant. If the defendant is not real property:

(i) the clerk must issue a warrant to arrest the property if it is in the government's possession, custody, or control;

(ii) the court—on finding probable cause—must issue a warrant to arrest the property if it is not in the government's possession, custody, or control and is not subject to a judicial restraining order; and

(iii) a warrant is not necessary if the property is subject to a judicial restraining order.

(c) Execution of Process.

(i) The warrant and any supplemental process must be delivered to a person or organization authorized to execute it, who may be: (A) a marshal or any other United States officer or employee; (B) someone under contract with the United States; or (C) someone specially appointed by the court for that purpose.

(ii) The authorized person or organization must execute the warrant and any supplemental process on property in the United States as soon as practicable unless:

(A) the property is in the government's possession, custody, or control; or

(B) the court orders a different time when the complaint is under seal, the action is stayed before the warrant and supplemental process are executed, or the court finds other good cause.

(iii) The warrant and any supplemental process may be executed within the district or, when authorized by statute, outside the district.

(iv) If executing a warrant on property outside the United States is required, the warrant may be transmitted to an appropriate authority for serving process where the property is located.

(4) Notice.

(a) Notice by Publication.

(i) When Publication Is Required. A judgment of forfeiture may be entered only if the government has published notice of the action within a reasonable time after filing the complaint or at a time the court orders. But notice need not be published if:

(A) the defendant property is worth less than $1,000 and direct notice is sent under Rule G(4)(b) to every person the government can reasonably identify as a potential claimant; or

(B) the court finds that the cost of publication exceeds the property's value and that other means of notice would satisfy due process.

(ii) Content of the Notice. Unless the court orders otherwise, the notice must:

(A) describe the property with reasonable particularity;

(B) state the times under Rule G(5) to file a claim and to answer; and

(C) name the government attorney to be served with the claim and answer.

(iii) Frequency of Publication. Published notice must appear:

(A) once a week for three consecutive weeks; or

(B) only once if, before the action was filed, notice of nonjudicial forfeiture of the same property was published on an official internet government forfeiture site for at least 30 consecutive days, or in a newspaper of general circulation for three consecutive weeks in a district where publication is authorized under Rule G(4)(a)(iv).

(iv) Means of Publication. The government should select from the following options a means of publication reasonably calculated to notify potential claimants of the action:

(A) if the property is in the United States, publication in a newspaper generally circulated in the district where the action is filed, where the property was seized, or where property that was not seized is located;

(B) if the property is outside the United States, publication in a newspaper generally circulated in a district where the action is filed, in a newspaper generally circulated in the country where the property is located, or in legal notices published and generally circulated in the country where the property is located; or

(C) instead of (A) or (B), posting a notice on an official internet government forfeiture site for at least 30 consecutive days.

(b) Notice to Known Potential Claimants.

(i) Direct Notice Required. The government must send notice of the action and a copy of the complaint to any person who reasonably appears to be a potential claimant on the facts known to the government before the end of the time for filing a claim under Rule G(5)(a)(ii)(B).

(ii) Content of the Notice. The notice must state:

(A) the date when the notice is sent;

(B) a deadline for filing a claim, at least 35 days after the notice is sent;

(C) that an answer or a motion under Rule 12 must be filed no later than 21 days after filing the claim; and

(D) the name of the government attorney to be served with the claim and answer.

(iii) Sending Notice.

(A) The notice must be sent by means reasonably calculated to reach the potential claimant.

(B) Notice may be sent to the potential claimant or to the attorney representing the potential claimant with respect to the seizure of the property or in a related investigation, administrative forfeiture proceeding, or criminal case.

(C) Notice sent to a potential claimant who is incarcerated must be sent to the place of incarceration.

(D) Notice to a person arrested in connection with an offense giving rise to the forfeiture who is not incarcerated when notice is sent may be sent to the address that person last gave to the agency that arrested or released the person.

(E) Notice to a person from whom the property was seized who is not incarcerated when notice is sent may be sent to the last address that person gave to the agency that seized the property.

(iv) When Notice Is Sent. Notice by the following means is sent on the date when it is placed in the mail, delivered to a commercial carrier, or sent by electronic mail.

(v) Actual Notice. A potential claimant who had actual notice of a forfeiture action may not oppose or seek relief from forfeiture because of the government's failure to send the required notice.

(5) Responsive Pleadings.

(a) Filing a Claim.

(i) A person who asserts an interest in the defendant property may contest the forfeiture by filing a claim in the court where the action is pending. The claim must:

(A) identify the specific property claimed;

(B) identify the claimant and state the claimant's interest in the property;

(C) be signed by the claimant under penalty of perjury; and

(D) be served on the government attorney designated under Rule G(4)(a)(ii)(C) or (b)(ii)(D).

(ii) Unless the court for good cause sets a different time, the claim must be filed:

(A) by the time stated in a direct notice sent under Rule G(4)(b);

(B) if notice was published but direct notice was not sent to the claimant or the claimant's attorney, no later than 30 days after final publication of newspaper notice or legal notice under Rule G(4)(a) or no later than 60 days after the first day of publication on an official internet government forfeiture site; or

(C) if notice was not published and direct notice was not sent to the claimant or the claimant's attorney:

(1) if the property was in the government's possession, custody, or control when the complaint was filed, no later than 60 days after the filing, not counting any time when the complaint was under seal or when the action was stayed before execution of a warrant issued under Rule G(3)(b); or

(2) if the property was not in the government's possession, custody, or control when the complaint was filed, no later than 60 days after the government complied with 18 U.S.C. §985(c) as to real property, or 60 days after process was executed on the property under Rule G(3).

(iii) A claim filed by a person asserting an interest as a bailee must identify the bailor, and if filed on the bailor's behalf must state the authority to do so.

(b) Answer. A claimant must serve and file an answer to the complaint or a motion under Rule 12 within 21 days after filing the claim. A claimant waives an objection to in rem jurisdiction or to venue if the objection is not made by motion or stated in the answer.

(6) Special Interrogatories.

(a) Time and Scope. The government may serve special interrogatories limited to the claimant's identity and relationship to the defendant property without the court's leave at any time after the claim is filed and before discovery is closed. But if the claimant serves a motion to dismiss the action, the government must serve the interrogatories within 21 days after the motion is served.

(b) Answers or Objections. Answers or objections to these interrogatories must be served within 21 days after the interrogatories are served.

(c) Government's Response Deferred. The government need not respond to a claimant's motion to dismiss the action under Rule G(8)(b) until 21 days after the claimant has answered these interrogatories.

(7) Preserving, Preventing Criminal Use, and Disposing of Property; Sales.

(a) Preserving and Preventing Criminal Use of Property. When the government does not have actual possession of the defendant property the court, on motion or on its own, may enter any order necessary to preserve the property, to prevent its removal or encumbrance, or to prevent its use in a criminal offense.

(b) Interlocutory Sale or Delivery.

(i) Order to Sell. On motion by a party or a person having custody of the property, the court may order all or part of the property sold if:

(A) the property is perishable or at risk of deterioration, decay, or injury by being detained in custody pending the action;

(B) the expense of keeping the property is excessive or is disproportionate to its fair market value;

(C) the property is subject to a mortgage or to taxes on which the owner is in default; or

(D) the court finds other good cause.

(ii) Who Makes the Sale. A sale must be made by a United States agency that has authority to sell the property, by the agency's contractor, or by any person the court designates.

(iii) Sale Procedures. The sale is governed by 28 U.S.C. §§2001, 2002, and 2004, unless all parties, with the court's approval, agree to the sale, aspects of the sale, or different procedures.

(iv) Sale Proceeds. Sale proceeds are a substitute res subject to forfeiture in place of the property that was sold. The proceeds must be held in an interest-bearing account maintained by the United States pending the conclusion of the forfeiture action.

(v) Delivery on a Claimant's Motion. The court may order that the property be delivered to the claimant pending the conclusion of the action if the claimant shows circumstances that would permit sale under Rule G(7)(b)(i) and gives security under these rules.

(c) Disposing of Forfeited Property. Upon entry of a forfeiture judgment, the property or proceeds from selling the property must be disposed of as provided by law.

(8) Motions.

(a) Motion To Suppress Use of the Property as Evidence. If the defendant property was seized, a party with standing to contest the lawfulness of the seizure may move to suppress use of the property as evidence. Suppression does not affect forfeiture of the property based on independently derived evidence.

(b) Motion To Dismiss the Action.

(i) A claimant who establishes standing to contest forfeiture may move to dismiss the action under Rule 12(b).

(ii) In an action governed by 18 U.S.C. §983(a)(3)(D) the complaint may not be dismissed on the ground that the government did not have adequate evidence at the time the complaint was filed to establish the forfeitability of the property. The sufficiency of the complaint is governed by Rule G(2).

(c) Motion To Strike a Claim or Answer.

(i) At any time before trial, the government may move to strike a claim or answer:

(A) for failing to comply with Rule G(5) or (6), or

(B) because the claimant lacks standing.

(ii) The motion:

(A) must be decided before any motion by the claimant to dismiss the action; and

(B) may be presented as a motion for judgment on the pleadings or as a motion to determine after a hearing or by summary judgment whether the claimant can carry the burden of establishing standing by a preponderance of the evidence.

(d) Petition To Release Property.

(i) If a United States agency or an agency's contractor holds property for judicial or nonjudicial forfeiture under a statute governed by 18 U.S.C. §983(f), a person who has filed a claim to the property may petition for its release under §983(f).

(ii) If a petition for release is filed before a judicial forfeiture action is filed against the property, the petition may be filed either in the district where the property was seized or in the district where a warrant to seize the property issued. If a judicial forfeiture action against the property is later filed in another district—or if the government shows that the action will be filed in another district—the petition may be transferred to that district under 28 U.S.C. §1404.

(e) Excessive Fines. A claimant may seek to mitigate a forfeiture under the Excessive Fines Clause of the Eighth Amendment by motion for summary judgment or by motion made after entry of a forfeiture judgment if:

(i) the claimant has pleaded the defense under Rule 8; and

(ii) the parties have had the opportunity to conduct civil discovery on the defense.

(9) Trial. Trial is to the court unless any party demands trial by jury under Rule 38.

Notes

(As added Apr. 12, 2006, eff. Dec. 1, 2006; amended Mar. 26, 2009, eff. Dec. 1, 2009.)

Committee Notes on Rules—2006

Rule G is added to bring together the central procedures that govern civil forfeiture actions. Civil forfeiture actions are in rem proceedings, as are many admiralty proceedings. As the number of civil forfeiture actions has increased, however, reasons have appeared to create sharper distinctions within the framework of the Supplemental Rules. Civil forfeiture practice will benefit from distinctive provisions that express and focus developments in statutory, constitutional, and decisional law. Admiralty practice will be freed from the pressures that arise when the needs of civil forfeiture proceedings counsel interpretations of common rules that may not be suitable for admiralty proceedings.

Rule G generally applies to actions governed by the Civil Asset Forfeiture Reform Act of 2000 (CAFRA) and also to actions excluded from it. The rule refers to some specific CAFRA provisions; if these statutes are amended, the rule should be adapted to the new provisions during the period required to amend the rule.

Rule G is not completely self-contained. Subdivision (1) recognizes the need to rely at times on other Supplemental Rules and the place of the Supplemental Rules within the basic framework of the Civil Rules.

Supplemental Rules A, C, and E are amended to reflect the adoption of Rule G.

Subdivision (1)

Rule G is designed to include the distinctive procedures that govern a civil forfeiture action. Some details, however, are better supplied by relying on Rules C and E. Subdivision (1) incorporates those rules for issues not addressed by Rule G. This general incorporation is at times made explicit—subdivision (7)(b)(v), for example, invokes the security provisions of Rule E. But Rules C and E are not to be invoked to create conflicts with Rule G. They are to be used only when Rule G, fairly construed, does not address the issue.

The Civil Rules continue to provide the procedural framework within which Rule G and the other Supplemental Rules operate. Both Rule G(1) and Rule A state this basic proposition. Rule G, for example, does not address pleadings amendments. Civil Rule 15 applies, in light of the circumstances of a forfeiture action.

Subdivision (2)

Rule E(2)(a) requires that the complaint in an admiralty action “state the circumstances from which the claim arises with such particularity that the defendant or claimant will be able, without moving for a more definite statement, to commence an investigation of the facts and to frame a responsive pleading.” Application of this standard to civil forfeiture actions has evolved to the standard stated in subdivision (2)(f). The complaint must state sufficiently detailed facts to support a reasonable belief that the government will be able to meet its burden of proof at trial. See U.S. v. Mondragon, 313 F.3d 862 (4th Cir. 2002). Subdivision (2)(f) carries this forfeiture case law forward without change.

Subdivision (3)

Subdivision (3) governs in rem process in a civil forfeiture action.

Paragraph (a). Paragraph (a) reflects the provisions of 18 U.S.C. §985.

Paragraph (b). Paragraph (b) addresses arrest warrants when the defendant is not real property. Subparagraph (i) directs the clerk to issue a warrant if the property is in the government's possession, custody, or control. If the property is not in the government's possession, custody, or control and is not subject to a restraining order, subparagraph (ii) provides that a warrant issues only if the court finds probable cause to arrest the property. This provision departs from former Rule C(3)(a)(i), which authorized issuance of summons and warrant by the clerk without a probable-cause finding. The probable-cause finding better protects the interests of persons interested in the property. Subparagraph (iii) recognizes that a warrant is not necessary if the property is subject to a judicial restraining order. The government remains free, however, to seek a warrant if it anticipates that the restraining order may be modified or vacated.

Paragraph (c). Subparagraph (ii) requires that the warrant and any supplemental process be served as soon as practicable unless the property is already in the government's possession, custody, or control. But it authorizes the court to order a different time. The authority to order a different time recognizes that the government may have secured orders sealing the complaint in a civil forfeiture action or have won a stay after filing. The seal or stay may be ordered for reasons, such as protection of an ongoing criminal investigation, that would be defeated by prompt service of the warrant. Subparagraph (ii) does not reflect any independent ground for ordering a seal or stay, but merely reflects the consequences for execution when sealing or a stay is ordered. A court also may order a different time for service if good cause is shown for reasons unrelated to a seal or stay. Subparagraph (iv) reflects the uncertainty surrounding service of an arrest warrant on property not in the United States. It is not possible to identify in the rule the appropriate authority for serving process in all other countries. Transmission of the warrant to an appropriate authority, moreover, does not ensure that the warrant will be executed. The rule requires only that the warrant be transmitted to an appropriate authority.

Subdivision (4)

Paragraph (a). Paragraph (a) reflects the traditional practice of publishing notice of an in rem action.

Subparagraph (i) recognizes two exceptions to the general publication requirement. Publication is not required if the defendant property is worth less than $1,000 and direct notice is sent to all reasonably identifiable potential claimants as required by subdivision (4)(b). Publication also is not required if the cost would exceed the property's value and the court finds that other means of notice would satisfy due process. Publication on a government-established internet forfeiture site, as contemplated by subparagraph (iv), would be at a low marginal publication cost, which would likely be the cost to compare to the property value.

Subparagraph (iv) states the basic criterion for selecting the means and method of publication. The purpose is to adopt a means reasonably calculated to reach potential claimants. The government should choose from among these means a method that is reasonably likely to reach potential claimants at a cost reasonable in the circumstances.

If the property is in the United States and newspaper notice is chosen, publication may be where the action is filed, where the property was seized, or—if the property was not seized—where the property is located. Choice among these places is influenced by the probable location of potential claimants.

If the property is not in the United States, account must be taken of the sensitivities that surround publication of legal notices in other countries. A foreign country may forbid local publication. If potential claimants are likely to be in the United States, publication in the district where the action is filed may be the best choice. If potential claimants are likely to be located abroad, the better choice may be publication by means generally circulated in the country where the property is located.

Newspaper publication is not a particularly effective means of notice for most potential claimants. Its traditional use is best defended by want of affordable alternatives. Paragraph (iv)(C) contemplates a government-created internet forfeiture site that would provide a single easily identified means of notice. Such a site could allow much more direct access to notice as to any specific property than publication provides.

Paragraph (b). Paragraph (b) is entirely new. For the first time, Rule G expressly recognizes the due process obligation to send notice to any person who reasonably appears to be a potential claimant.

Subparagraph (i) states the obligation to send notice. Many potential claimants will be known to the government because they have filed claims during the administrative forfeiture stage. Notice must be sent, however, no matter what source of information makes it reasonably appear that a person is a potential claimant. The duty to send notice terminates when the time for filing a claim expires.

Notice of the action does not require formal service of summons in the manner required by Rule 4 to initiate a personal action. The process that begins an in rem forfeiture action is addressed by subdivision (3). This process commonly gives notice to potential claimants. Publication of notice is required in addition to this process. Due process requirements have moved beyond these traditional means of notice, but are satisfied by practical means that are reasonably calculated to accomplish actual notice.

Subparagraph (ii)(B) directs that the notice state a deadline for filing a claim that is at least 35 days after the notice is sent. This provision applies both in actions that fall within 18 U.S.C. §983(a)(4)(A) and in other actions. Section 983(a)(4)(A) states that a claim should be filed no later than 30 days after service of the complaint. The variation introduced by subparagraph (ii)(B) reflects the procedure of §983(a)(2)(B) for nonjudicial forfeiture proceedings. The nonjudicial procedure requires that a claim be filed “not later than the deadline set forth in a personal notice letter (which may be not earlier than 35 days after the date the letter is sent) * * *.” This procedure is as suitable in a civil forfeiture action as in a nonjudicial forfeiture proceeding. Thirty-five days after notice is sent ordinarily will extend the claim time by no more than a brief period; a claimant anxious to expedite proceedings can file the claim before the deadline; and the government has flexibility to set a still longer period when circumstances make that desirable.

Subparagraph (iii) begins by stating the basic requirement that notice must be sent by means reasonably calculated to reach the potential claimant. No attempt is made to list the various means that may be reasonable in different circumstances. It may be reasonable, for example, to rely on means that have already been established for communication with a particular potential claimant. The government's interest in choosing a means likely to accomplish actual notice is bolstered by its desire to avoid post-forfeiture challenges based on arguments that a different method would have been more likely to accomplish actual notice. Flexible rule language accommodates the rapid evolution of communications technology.

Notice may be directed to a potential claimant through counsel, but only to counsel already representing the claimant with respect to the seizure of the property, or in a related investigation, administrative forfeiture proceeding, or criminal case.

Subparagraph (iii)(C) reflects the basic proposition that notice to a potential claimant who is incarcerated must be sent to the place of incarceration. Notice directed to some other place, such as a pre-incarceration residence, is less likely to reach the potential claimant. This provision does not address due process questions that may arise if a particular prison has deficient procedures for delivering notice to prisoners. See Dusenbery v. U.S., 534 U.S. 161 (2002).

Items (D) and (E) of subparagraph (iii) authorize the government to rely on an address given by a person who is not incarcerated. The address may have been given to the agency that arrested or released the person, or to the agency that seized the property. The government is not obliged to undertake an independent investigation to verify the address.

Subparagraph (iv) identifies the date on which notice is considered to be sent for some common means, without addressing the circumstances for choosing among the identified means or other means. The date of sending should be determined by analogy for means not listed. Facsimile transmission, for example, is sent upon transmission. Notice by personal delivery is sent on delivery.

Subparagraph (v), finally, reflects the purpose to effect actual notice by providing that a potential claimant who had actual notice of a forfeiture proceeding cannot oppose or seek relief from forfeiture because the government failed to comply with subdivision (4)(b).

Subdivision (5)

Paragraph (a). Paragraph (a) establishes that the first step of contesting a civil forfeiture action is to file a claim. A claim is required by 18 U.S.C. §983(a)(4)(A) for actions covered by §983. Paragraph (a) applies this procedure as well to actions not covered by §983. “Claim” is used to describe this first pleading because of the statutory references to claim and claimant. It functions in the same way as the statement of interest prescribed for an admiralty proceeding by Rule C(6), and is not related to the distinctive meaning of “claim” in admiralty practice.

If the claimant states its interest in the property to be as bailee, the bailor must be identified. A bailee who files a claim on behalf of a bailor must state the bailee's authority to do so.

The claim must be signed under penalty of perjury by the person making it. An artificial body that can act only through an agent may authorize an agent to sign for it. Excusable inability of counsel to obtain an appropriate signature may be grounds for an extension of time to file the claim.

Paragraph (a)(ii) sets the time for filing a claim. Item (C) applies in the relatively rare circumstance in which notice is not published and the government did not send direct notice to the claimant because it did not know of the claimant or did not have an address for the claimant.

Paragraph (b). Under 18 U.S.C. §983(a)(4)(B), which governs many forfeiture proceedings, a person who asserts an interest by filing a claim “shall file an answer to the Government's complaint for forfeiture not later than 20 days after the date of the filing of the claim.” Paragraph (b) recognizes that this statute works within the general procedures established by Civil Rule 12. Rule 12(a)(4) suspends the time to answer when a Rule 12 motion is served within the time allowed to answer. Continued application of this rule to proceedings governed by §983(a)(4)(B) serves all of the purposes advanced by Rule 12(a)(4), see U.S. v. $8,221,877.16, 330 F.3d 141 (3d Cir. 2003); permits a uniform procedure for all civil forfeiture actions; and recognizes that a motion under Rule 12 can be made only after a claim is filed that provides background for the motion.

Failure to present an objection to in rem jurisdiction or to venue by timely motion or answer waives the objection. Waiver of such objections is familiar. An answer may be amended to assert an objection initially omitted. But Civil Rule 15 should be applied to an amendment that for the first time raises an objection to in rem jurisdiction by analogy to the personal jurisdiction objection provision in Civil Rule 12(h)(1)(B). The amendment should be permitted only if it is permitted as a matter of course under Rule 15(a).

A claimant's motion to dismiss the action is further governed by subdivisions (6)(c), (8)(b), and (8)(c).

Subdivision (6)

Subdivision (6) illustrates the adaptation of an admiralty procedure to the different needs of civil forfeiture. Rule C(6) permits interrogatories to be served with the complaint in an in rem action without limiting the subjects of inquiry. Civil forfeiture practice does not require such an extensive departure from ordinary civil practice. It remains useful, however, to permit the government to file limited interrogatories at any time after a claim is filed to gather information that bears on the claimant's standing. Subdivisions (8)(b) and (c) allow a claimant to move to dismiss only if the claimant has standing, and recognize the government's right to move to dismiss a claim for lack of standing. Subdivision (6) interrogatories are integrated with these provisions in that the interrogatories are limited to the claimant's identity and relationship to the defendant property. If the claimant asserts a relationship to the property as bailee, the interrogatories can inquire into the bailor's interest in the property and the bailee's relationship to the bailor. The claimant can accelerate the time to serve subdivision (6) interrogatories by serving a motion to dismiss—the interrogatories must be served within 20 days after the motion is served. Integration is further accomplished by deferring the government's obligation to respond to a motion to dismiss until 20 days after the claimant moving to dismiss has answered the interrogatories.

Special interrogatories served under Rule G(6) do not count against the presumptive 25-interrogatory limit established by Rule 33(a). Rule 33 procedure otherwise applies to these interrogatories.

Subdivision (6) supersedes the discovery “moratorium” of Rule 26(d) and the broader interrogatories permitted for admiralty proceedings by Rule C(6).

Subdivision (7)

Paragraph (a). Paragraph (a) is adapted from Rule E(9)(b). It provides for preservation orders when the government does not have actual possession of the defendant property. It also goes beyond Rule E(9) by recognizing the need to prevent use of the defendant property in ongoing criminal offenses.

Paragraph (b). Paragraph (b)(i)(C) recognizes the authority, already exercised in some cases, to order sale of property subject to a defaulted mortgage or to defaulted taxes. The authority is narrowly confined to mortgages and tax liens; other lien interests may be addressed, if at all, only through the general good-cause provision. The court must carefully weigh the competing interests in each case.

Paragraph (b)(i)(D) establishes authority to order sale for good cause. Good cause may be shown when the property is subject to diminution in value. Care should be taken before ordering sale to avoid diminished value.

Paragraph (b)(iii) recognizes that if the court approves, the interests of all parties may be served by their agreement to sale, aspects of the sale, or sale procedures that depart from governing statutory procedures.

Paragraph (c) draws from Rule E(9)(a), (b), and (c). Disposition of the proceeds as provided by law may require resolution of disputed issues. A mortgagee's claim to the property or sale proceeds, for example, may be disputed on the ground that the mortgage is not genuine. An undisputed lien claim, on the other hand, may be recognized by payment after an interlocutory sale.

Subdivision (8)

Subdivision (8) addresses a number of issues that are unique to civil forfeiture actions.

Paragraph (a). Standing to suppress use of seized property as evidence is governed by principles distinct from the principles that govern claim standing. A claimant with standing to contest forfeiture may not have standing to seek suppression. Rule G does not of itself create a basis of suppression standing that does not otherwise exist.

Paragraph (b). Paragraph (b)(i) is one element of the system that integrates the procedures for determining a claimant's standing to claim and for deciding a claimant's motion to dismiss the action. Under paragraph (c)(ii), a motion to dismiss the action cannot be addressed until the court has decided any government motion to strike the claim or answer. This procedure is reflected in the (b)(i) reminder that a motion to dismiss the forfeiture action may be made only by a claimant who establishes claim standing. The government, moreover, need not respond to a claimant's motion to dismiss until 20 days after the claimant has answered any subdivision (6) interrogatories.

Paragraph (b)(ii) mirrors 18 U.S.C. §983(a)(3)(D). It applies only to an action independently governed by §983(a)(3)(D), implying nothing as to actions outside §983(a)(3)(D). The adequacy of the complaint is measured against the pleading requirements of subdivision (2), not against the quality of the evidence available to the government when the complaint was filed.

Paragraph (c). As noted with paragraph (b), paragraph (c) governs the procedure for determining whether a claimant has standing. It does not address the principles that govern claim standing.

Paragraph (c)(i)(A) provides that the government may move to strike a claim or answer for failure to comply with the pleading requirements of subdivision (5) or to answer subdivision (6) interrogatories. As with other pleadings, the court should strike a claim or answer only if satisfied that an opportunity should not be afforded to cure the defects under Rule 15. Not every failure to respond to subdivision (6) interrogatories warrants an order striking the claim. But the special role that subdivision (6) plays in the scheme for determining claim standing may justify a somewhat more demanding approach than the general approach to discovery sanctions under Rule 37.

Paragraph (c)(ii) directs that a motion to strike a claim or answer be decided before any motion by the claimant to dismiss the action. A claimant who lacks standing is not entitled to challenge the forfeiture on the merits.

Paragraph (c)(ii) further identifies three procedures for addressing claim standing. If a claim fails on its face to show facts that support claim standing, the claim can be dismissed by judgment on the pleadings. If the claim shows facts that would support claim standing, those facts can be tested by a motion for summary judgment. If material facts are disputed, precluding a grant of summary judgment, the court may hold an evidentiary hearing. The evidentiary hearing is held by the court without a jury. The claimant has the burden to establish claim standing at a hearing; procedure on a government summary judgment motion reflects this allocation of the burden.

Paragraph (d). The hardship release provisions of 18 U.S.C. §983(f) do not apply to a civil forfeiture action exempted from §983 by §983(i).

Paragraph (d)(ii) reflects the venue provisions of 18 U.S.C. §983(f)(3)(A) as a guide to practitioners. In addition, it makes clear the status of a civil forfeiture action as a “civil action” eligible for transfer under 28 U.S.C. §1404. A transfer decision must be made on the circumstances of the particular proceeding. The district where the forfeiture action is filed has the advantage of bringing all related proceedings together, avoiding the waste that flows from consideration of different parts of the same forfeiture proceeding in the court where the warrant issued or the court where the property was seized. Transfer to that court would serve consolidation, the purpose that underlies nationwide enforcement of a seizure warrant. But there may be offsetting advantages in retaining the petition where it was filed. The claimant may not be able to litigate, effectively or at all, in a distant court. Issues relevant to the petition may be better litigated where the property was seized or where the warrant issued. One element, for example, is whether the claimant has sufficient ties to the community to provide assurance that the property will be available at the time of trial. Another is whether continued government possession would prevent the claimant from working. Determining whether seizure of the claimant's automobile prevents work may turn on assessing the realities of local public transit facilities.

Paragraph (e). The Excessive Fines Clause of the Eighth Amendment forbids an excessive forfeiture. U.S. v. Bajakajian, 524 U.S. 321 (1998). 18 U.S.C. §983(g) provides a “petition” “to determine whether the forfeiture was constitutionally excessive” based on finding “that the forfeiture is grossly disproportional to the offense.” Paragraph (e) describes the procedure for §983(g) mitigation petitions and adopts the same procedure for forfeiture actions that fall outside §983(g). The procedure is by motion, either for summary judgment or for mitigation after a forfeiture judgment is entered. The claimant must give notice of this defense by pleading, but failure to raise the defense in the initial answer may be cured by amendment under Rule 15. The issues that bear on mitigation often are separate from the issues that determine forfeiture. For that reason it may be convenient to resolve the issue by summary judgment before trial on the forfeiture issues. Often, however, it will be more convenient to determine first whether the property is to be forfeited. Whichever time is chosen to address mitigation, the parties must have had the opportunity to conduct civil discovery on the defense. The extent and timing of discovery are governed by the ordinary rules.

Subdivision (9)

Subdivision (9) serves as a reminder of the need to demand jury trial under Rule 38. It does not expand the right to jury trial. See U.S. v. One Parcel of Property Located at 32 Medley Lane, 2005 WL 465241 (D.Conn. 2005), ruling that the court, not the jury, determines whether a forfeiture is constitutionally excessive.

Changes Made After Publication and Comment. Rule G(6)(a) was amended to delete the provision that special interrogatories addressed to a claimant's standing are “under Rule 33.” The government was concerned that some forfeitures raise factually complex standing issues that require many interrogatories, severely depleting the presumptive 25-interrogatory limit in Rule 33. The Committee Note is amended to state that the interrogatories do not count against the limit, but that Rule 33 governs the procedure.

Rule G(7)(a) was amended to recognize the court's authority to enter an order necessary to prevent use of the defendant property in a criminal offense.

Rule G(8)(c) was revised to clarify the use of three procedures to challenge a claimant's standing—judgment on the pleadings, summary judgment, or an evidentiary hearing.

Several other rule text changes were made to add clarity on small points or to conform to Style conventions.

Changes were made in the Committee Note to explain some of the rule text revisions, to add clarity on a few points, and to delete statements about complex matters that seemed better left to case-law development.

Committee Notes on Rules—2009 Amendment

The times set in the former rule at 20 days have been revised to 21 days. See the Note to Rule 6.

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