Last October, after The New York Times started asking questions about the Internal Revenue Service's practice of taking legally earned money from innocent people based on allegations that they tried to evade bank reporting requirements, the IRS said it "will no longer pursue the seizure and forfeiture of funds associated solely with 'legal source' structuring cases unless there are exceptional circumstances." A case highlighted by ABC News, involving money snatched from an Iowa widow, suggests how big that "exceptional circumstances" loophole might be.
In 2011 an IRS agent named Jeff McGuire paid a visit to Ronald Malone, an Iowa publishing executive who at the time was dying from cancer. McGuire told Malone that bank deposits he had made looked fishy: They totaled $35,000, but each was less than $10,000, the threshold for transactions that banks must report to the Treasury Department. Deliberate evasion of that requirement is a federal crime, even when the money comes from legitimate sources, as Malone's did. McGuire explained that to Malone, who signed a form acknowledging the explanation. The IRS did not seize the money, and no charges were filed.
After Malone died, his widow, Janet, deposited another $19,000 of his savings in amounts below $10,000. This time the IRS seized the money and referred the case to the Justice Department for prosecution. The agency's attitude: We warned you once.
According to an affidavit quoted by ABC News, Malone conceded that she was home during McGuire's visit but noted that she did not sign the form and said she did not remember the details of the meeting because "she was in a state of despair over her husband's health." She predicted that "you won't prosecute a widow." They showed her.
Under an agreement with the government, Malone will give up the money and plead guilty to a misdemeanor that is punishable by up to a year in jail and a fine of up to $250,000. "This is shocking," Institute for Justice attorney Larry Salzman told ABC News, "because it demonstrates that prosecutors are not taking seriously the IRS's alleged policy change not to prosecute legal source structuring." I.J. has represented several business owners whose money the government seized based on suspicion of structuring but returned after I.J. challenged the forfeitures.
According to an I.J. report published last week, the IRS seized $242 million based on suspected structuring in more than 2,500 cases from 2005 to 2012. In at least a third of those cases, there were no allegations of criminal conduct aside from the purported structuring itself.
Update: As a reader noted in the comment thread, the individual deposit numbers provided by ABC News (with $5,800 the smallest, $9,000 the biggest, and some other amount in between) do not add up to the reported total of about $19,000. I have excised the smaller numbers to avoid confusion.