Asset Forfeiture

IRS Seized $17 Million From Innocent Business Owners Using Asset Forfeiture

The IRS used obscure money laundering rules to seize money from business owners. A watchdog report finds $17 million of that money was legally obtained.

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Kris Tripplaar/Sipa USA/Newscom

The IRS seized more than $17 million from innocent business owners over a two-year period using obscure anti-money laundering rules and civil asset forfeiture, compromising the rights of individuals and their businesses, a government watchdog has found.

The Treasury Inspector General for Tax Administration (TIGTA) released a report Tuesday detailing how, between 2012 and 2014, IRS investigators seized hundreds of bank accounts from business owners based on nothing but a suspicious pattern of deposits. In more than 90 percent of those cases, the money was completely legal. The report also found that investigators violated internal policies when conducting interviews, failed to notify individuals of their rights, and improperly bargained to resolve civil cases.

The investigation was launched in 2014, when media investigations and several lawsuits by the Institute for Justice, a libertarian-leaning public interest law firm, highlighted the cases business owners who had their life savings seized by the IRS for violating anti-"structuring" rules.

The rules are intended to stop money launderers from evading federal banking regulations by making small cash deposits under $10,000, but IRS agents ruthlessly pursued cases against small business owners when there was no other evidence or indication of criminal activity. For example, The New York Times profiled the case of Carol Hinders, an Iowa woman runs a small, cash-only Mexican restaurant. In 2013, two IRS agents showed up at Hinder's door and told her the agency was seizing $33,000 from her bank account for structuring violations. She was never accused of a crime.

In response to public outrage, the IRS announced in 2014 it was changing its asset forfeiture policies to only pursue cases where there is other evidence of criminal activity. However, the full scope of the cash seizures—and the overwhelming amount of cases involving innocent people—have not been revealed until now.

The inspector general found money seized and forfeited by the IRS was legally obtained in 91 percent of a sample of 278 structuring investigations it reviewed occurring between fiscal years 2012 and 2014. Altogether, those funds totalled $17.1 million and involved 231 cases.

"That is just a shocking, shocking statistic," says Robert Johnson, an attorney at the Institute for Justice. "It shows the cases we've been bringing are not isolated incidents by any stretch of the imagination. This is the bread and butter of what the IRS has been doing for years."

The inspector general also found that, in 54 cases, property owners gave reasonable explanations for why their deposits did not exceed $10,000, but in most of those cases there was no evidence that IRS investigated their explanations.

In addition, the inspector general found evidence "that in at least 37 cases the Government bargained nonprosecution in order to resolve the civil forfeiture." In other words, the IRS leveraged its civil forfeiture cases by threatening to file criminal charges.

In another 2014 Institute for Justice case, state and federal officers showed up at Lyndon McLellan's convenience store to announce the IRS had seized the $107,000 in his bank account based solely on the appearance of structuring violations. He was not charged with a crime.

"It took me 13 years to save that much money, and 13 seconds for the government to take it away," McLellan told The Washington Post.

After McLellan testified before the House Ways and Means Committee about his case, a U.S. attorney sent his lawyers a letter that read: "Whoever made [the case documents] public may serve their own interest but will not help this particular case. Your client needs to resolve this or litigate it. But publicity about it doesn't help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. The offer is good until March 30th COB."

Treasury Inspector General for Tax Administration J. Russell George said in a statement that the IRS "has now made important improvements to this program; however, the IRS should ensure that protections are in place so that people have rights and that innocent people do not feel compelled to settle a civil forfeiture matter under the pressure of possible criminal prosecution."

Republican Illinois Rep. Peter Roskam reintroduced a bill in Congress this year that would codify the IRS new policy. It would only allow the IRS to pursue structuring cases where it had reason to believe the money was used to commit a crime or was the proceeds of a crime. Roskam introduced the bill last year, and it passed the House unanimously, but it died after failing to make it to the Senate floor for a vote.

Roskam and House Ways and Means Committee chairman Kevin Brady (R-TX) said in a statement Tuesday that the report "reaffirms our Committee's findings that the IRS has repeatedly and knowingly abused its authority to wrongly target and seize money from hardworking Americans."

"We commend TIGTA for issuing this report and building off of our work to bring IRS's abusive practices to light," the legislators continued. "These investigations are a critical part of holding the IRS accountable to the American people, as well as delivering justice to the innocent victims of the IRS."

Johnson says Roskam's bill is important because the IRS policy changes are not binding on the agency. "If you had a case where IRS didn't follow the policy, there's nothing a property owner or judge could do about that," he said.

In 2016, the IRS announced it was sending notifications to approximately 1,800 property owners who were potentially affected by civil asset forfeitures, but, unless challenged, it has kept the money from all those cases. According to a 2015 Institute for Justice report, the IRS seized $242 million in more than 2,500 structuring cases from 2005 to 2012.

"When you read this kind of thing, it's troubling and disturbing," Johnson says, "but it shouldn't be surprising given the profit incentives that civil forfeiture creates."

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  1. “without based on nothing” – anybody actual edit this stuff first?

    1. One more.

      “In response public outrage,”

      1. Lucy’s sacrifice only saved us for original typos. New ones can still happen.

  2. “These investigations are a critical part of holding the IRS accountable to the American people, as well as delivering justice to the innocent victims of the IRS.”

    Oh, I’m sure the IRS is going to take full responsibility for their actions. By which I mean, they’ll issue a public statement saying they’re taking full responsibility for their actions and then nothing else whatsoever will happen. What is this “accountability” that if the IRS “repeatedly and knowingly abused its authority to wrongly target and seize money from hardworking Americans” there’s no consequences beyond getting a severe finger-wagging lecture about how they’re not supposed to be doing that?

  3. I’ll tell you what, if I were president, this would be the shit I’d put a stop to, on day one. And I would put the mother-fucking fear of god into the agency employees. I may never successfully de-regulate anything, or accomplish much else in terms of policy, but on day muthufuckin’ one, bitches would be on notice. And I would fire agency directors until the behavior stopped.

    1. Fire them? How about throw them in jail? We could call it civil freedom forfeiture.

      1. “We’re not actually punishing you, we’re just punishing your freedom”.

  4. “That is just a shocking, shocking statistic,” says Robert Johnson, an attorney at the Institute for Justice.

    I guess he’s a new guy.

    1. To be honest, I was a little surprised it was only $17m. My first thought was they were showing remarkable restraint. On the other hand, they only pick on the little guys by policy, so it takes a while to get $17 mil out of $10,000 here and $20,000 there.

      1. I believe that the $17 million was from an audit of a limited number of cases not a complete audit.

  5. Thieving bastards caught thieving on flimsier than usual pretexts! Public is outraged!

    -jcr

  6. The whole pretext of the structuring law is bogus — obviously the IRS still knows about the smaller than 10,000 dollar deposits, since they used that knowledge to take the money. No one is dodging anything.

    1. What’s bogus about it? Every amount over $10K has to be reported, and everything under $10K is subject to confiscation. It’s pretty simple.

    2. What do you want to bet if you call the IRS and ask them how to report a necessary series of $9,000 deposits so you don’t get them confiscated, the answer will be, “There’s no form for that.”

      1. The proper procedure is to withdraw $1000, then add it to your deposit so that you can fill out the $10k form.

    3. It’s basically ‘pieces of flair’ codified into law. Ten thousand is the minimum, except it’s really not if someone at IRS thinks your heart isn’t in it.

    4. And let’s never forget that when that POS became law, $10,000 was the equivalent of almost $70,000 today.

  7. Thanks, Obama.

    Oh wait, this is Drumpf’s IRS

    1. The IRS cases investigated occurred between 2012 and 2014. Has “Drumpf” been in charge of the IRS since before Obama’s second term started? Just how powerful are the Russians if they can make responsibility that retroactive?

      1. Better be careful progs are prone to believe what you just posited.

  8. IRS Seized $17 Million From Innocent Business Owners Using Asset Forfeiture

    I just don’t believe these are innocent business owners. I just can’t. This is a nation of laws – of laws, I tell you! – and I am sure the IRS is merely enforcing the laws that are currently on the books in order to keep us safe!

    Trumpistas keep reminding me of that.

    1. OM, I understand your dislike of the Donald, but:

      “The IRS seized more than $17 million from innocent business owners over a two-year period”

      Note that “two year period”. I don’t think Trump has held office for two years yet.

      1. And I see the fucking comment function is still a disaster.
        Nick, Matt? Forget one penny this year.

        1. It’s almost a bit of old world charm, like going to McSorely’s NYC. Expecting to see comments show up in a timely manner, with markup, would be like asking for a fruity microbrew.

        2. I never mentioned Trump. I saif “Trumpistas keep reminding me.”

          Only because I don’t want to defame Fascists.

  9. Soooo the IRS are straight up mobsters, eh?

    1. Mobsters at least tone it down a bit if they’re feeling the heat. IRS actually upped their shakedown game after their victim’s House W&M testimony.

      1. “…tone it down a bit…” unless of course you have co-conspirators in the US Senate.

        “Roskam introduced the bill last year, and it passed the House unanimously, but it died after failing to make it to the Senate floor for a vote.”

        Died?!! I did not know it was sick. Was not one of those compassionate and well meaning senators willing to provide aid to an ill bill. Calling Dr. Price. No wonder health care is fucked.

  10. Slow your roll Reason, the IRS is just “recapturing lost funds”.

  11. Slow your roll Reason, the IRS agents are just “recapturing lost funds”.

  12. Over $10,000…under $10,000…

    Heads you’re fucked…tails you’re fucked.

    America’s fascist government can’t lose.

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