The IRS and Civil Forfeitures

It has been a rough few years for the IRS. For the fifth consecutive year, Congress cut the IRS’ budget bringing the total budget cuts imposed so far to $1.2 billion. As a result, the IRS cut 11% of their total employees resulting in noticeably longer wait times for taxpayers with questions and 46,000 fewer audits being completed. All of this coming after the scandal surrounding allegations the IRS applied more scrutiny to certain political organizations when they applied for tax exempt status. The investigation into these allegations revealed that thousands of emails to the IRS official at the center of the allegations, Lois Lerner, had suddenly gone missing. Lerner was placed on leave in May of 2013 and retired 4 months later. Despite the recent hardships faced by the agency, the IRS is still doggedly investigating the criminal practicing of structuring that allows the IRS to seize a person or business’ assets before a single charge is brought against the owner.

In Iowa, Carole Hinders owned a popular Mexican restaurant for nearly four decades. As a small business that did not accept credit cards, Ms. Hinders frequently made cash deposits of less than $10,000. Ms. Hinders was shocked when seemingly out of the blue the government seized $33,000 from her bank accounts under a law designed to catch terrorists, money launderers, and drug dealers. She was never charged with a crime. On the east coast, Tom and Marla Bednar were operating a precious metal wholesaling business when they learned the government seized over $115,000 from their bank account after an investigation into a string of local robberies that may have been linked to businesses in the area. An affidavit alleged that in the course of their investigation probable cause was found to believe the couple had structured more than two dozen transactions over a five month period with deposits ranging from $3,000 to $9,000. No connection between the Bednars and the robberies were uncovered, but the Bednars were charged with operating a business without the proper license. Those charges were later dismissed.

The practice of civil forfeiture allows law enforcement agencies to seize property suspected of having ties to criminal activity. As one DEA agent described the practice ” we don’t have to prove that the person is guilty. It’s that the money is presumed to be guilty.” But, how does money become guilty when the person is not? A practice called structuring is often the culprit in these investigations. Structuring is the practice of depositing money under the $10,000 limit to avoid having to report the transaction to the IRS. The IRS requires banks to report any cash deposit or series of related transactions whose total sum is $10,000 or more by filling out and filing a Currency Transaction Report (CTR). The requirement was designed to flag people who may be laundering money through the banks to avoid paying taxes or who may be engaged in criminal activity. It is perfectly legal to make bank deposits of $10,000 or less so long as the intent is not to avoid filling out the CTR.  However, property may be seized during an investigation even if charges are never actually filed. The property owners must then begin forfeiture proceedings where the burden of proof is on the owners seeking the return of their property.

Before leaving office in March, former Attorney General Eric Holder placed new restrictions on the use of civil asset forfeiture against individuals suspected of engaging in illegal bank transactions. The new restrictions came after mounting concern from civil liberties groups that the practice lacked any type of safeguards to protect individuals who are innocent, like small business owners who frequently find themselves ensnared by asset forfeiture. Mr. Holder stated that the new restrictions are designed to ensure civil forfeiture is used in only the most serious offenses. Under the new policy, when no crime is charged, the IRS cannot seize any assets unless they have probable cause to believe that the suspect engaged in structuring, but now, they must also have probable cause to believe the illegal transactions were connected to some other criminal activity. The forfeiture must then be approved by a supervisor.

Despite budget cuts, the IRS continues to pursue honest and hard working taxpayers for often innocent behavior with sanctions like forfeitures and levies directed at monies earned legally. But the IRS, has strict rules that it must follow and when “pushed back” usually backs down allowing for a settlement beneficial for the taxpayer. However, the biggest mistake that a taxpayer can make is to ignore contacts from the IRS, especially those that arrive by certified mail.

Whether the investigation is criminal or civil and involves criminal tax fraud or a civil payment issue, a person should retain experienced counsel when responding to a contact from the IRS.

 

 

 

If you need a lawyer for a criminal or Federal case, call Attorney W. Joseph Edwards (614-309-0243) who has over 25 years experience representing clients in these legal matters.

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