IRS Has Been Seizing Bank Accounts of Law-Abiding Small Business Owners
The Internal Revenue Service has seized the bank accounts of hundreds of innocent business owners.
Using the powers granted under the Civil Asset Forfeiture Reform Act of 2000, which was designed to help federal agencies catch drug dealers, terrorists and other criminals, the IRS has been legally seizing the bank accounts of law-abiding business owners who have consistently made cash bank deposits less than the federal bank reporting minimum of $10,000.
The New York Times reported that hundreds of these cash-only business had their entire bank accounts seized by the IRS in the past few years because the agency is permitted, through the process of civil asset forfeiture, to seize assets out of suspicion when a pattern of sub-$10,000 cash deposits are made.
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The law grants the IRS ability to claim that when a person makes frequent small deposits into their own bank account that they are, with criminal intent, trying to avoid the federal requirement that forces banks to report cash transactions of $10,000 or more. This is a process the IRS calls structuring. Thus, the IRS is allowed to seize bank accounts of people accused of structuring without them being charged or convicted of any particular crime.
Many small, cash-only businesses often make small deposits, however, to avoid keeping large amounts of cash.
Structuring data from the IRS analyzed by The Institute for Justice, a public interest law firm representing business owners who have had their assets seized by the IRS, shows that only one in five IRS seizures are actually prosecuted as criminal structuring cases. The Institute for Justice also found that in 2012 the IRS made 639 seizures, which is up from 114 seizures in 2005. The data also shows that the median amount of the IRS's seizures was $34,000.
Institute for Justice attorney Larry Salzman said in a recent Institute for Justice web video on civil asset forfeiture that even though people may have done nothing wrong and had their bank accounts seized by the IRS, the process of civil asset forfeiture "turns the principle of 'innocent until proven guilty' on it's head."
Salzman said that that in order for people to get their assets returned from the IRS, they need to prove their innocence through a court process that can take over a year on average, and sometimes longer.
Salzman added that many victims cannot afford lawyers, as the legal process can cost up to $20,000, and they give up on getting their property back, while others are "coerced" into settlements with the IRS and don't get all of the money back that was seized.
"Once your property is taken, it is up to you to prove your own innocence to get it back in expensive litigation against the federal government," Salzman said.
Salzman represents Carole Hinder, an owner of a cash-only restaurant in Iowa called Mrs. Lady's Mexican Food, which she has run for over 38 years. Hinder often made cash deposits because she did not like having too much cash in her restaurant. But in August of 2013, the IRS seized her entire bank account, which totaled nearly $33,000.
In the Institute for Justice video Hinder claims that she had made deposits at her bank for over 30 years and was never alerted that she would get in trouble if she placed deposits of less than $10,000. But one day, Hinder said, two IRS agents arrived at her door to inform her that her bank account had been seized because of structuring. Although she had to resort to borrowing from friends and family, and using a credit line, she said she will fight the IRS to get her money back.
"It's been a year from hell," Hinder said. "I've decided to fight this fight because I didn't do anything wrong. They took my money and I don't think they should have the right to do that. At least, they should have to prove that I did something wrong before they take my money. I want to stand up for it because I don't want it to keep going on."
Salzman also represents the Hirsch brothers of Long Island, New York. They are three brothers who run a small snack food distributing company called Bi-County Distributors, Inc. The IRS seized the company's bank account which totalled upwards of $446,000 because the brothers, who handle many cash transactions, made frequent cash deposits less than $10,000.
The seizure put the company in a tailspin until the brothers were able to secure lines of credit, with one credit vendor lending them over $300,000. The brothers say they are going to fight the IRS all the way to the end of their case and have already turned down one IRS settlement offer.
The Times also reported that the IRS seized $66,000 from Army Sgt. Jeff Cortazzo of Virginia. Cortazzo avoided his prolonged legal battle by forking over $21,000 of his own seized money in a settlement with the IRS.
In a statement the New York Times, the IRS says that it will "curtail" this practice and will seize money only in cases where the agency fully believes the money was acquired illegally or when it is deemed justified by "exceptional circumstances."
In July, Rep. Tim Walberg, R-Mich., introduced the Civil Asset Forfeiture Reform Act of 2014, which would require government agencies to provide proof of criminal wrongdoing before they can seize property. As The Blaze pointed out, the legislation may have trouble passing both the Senate and the House.
"This has a tremendous negative impact on our freedoms and the ability to carry on our government the way it's been established according to the Constitution," Walberg said. "That's not what government should be, in the place of being a fearmonger, a producer of fear in the peoples' lives and ultimately, using their power to extract resources for their own benefit."
Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Judiciary Committee, issued a statement Monday saying that the IRS needs to treat businesses fairly and not like criminals.
"The IRS plays a role in fighting money laundering and other criminal activity, but it has to treat business owners fairly," Grassley said. "If the pendulum has swung too far in favor of the government and against fairness for innocent people, then it's time to reform civil asset forfeiture laws and procedures. I plan to look into the government's use of civil forfeiture laws, including the IRS' use, and develop potential reforms where necessary."
