One day in 2012, the IRS turned Randy Sowers’ life upside
down when agents seized his entire bank account—$63,000 in hard-earned money.
Now, Congress is advancing legislation that would end the
practice that made that travesty possible.
Sowers was not, after all, a tax evader, criminal
conspirator, or money launderer. He is a hard-working Maryland dairy farmer. But
the IRS decided to take his money anyway, citing “structuring” laws designed to
stop criminals from evading financial reporting requirements. Merely to end the
matter, Sowers eventually agreed to forfeit $29,500 to the IRS in a settlement
that bordered on extortion.
These so-called legal source structuring cases are permitted
because federal law requires
banks to report financial transactions that exceed $10,000 in value, and separately
makes it a crime to “structure” deposits
or withdrawals to avoid that threshold and the reporting requirements it
triggers.
If the agency believes that an individual has structured
payments—even if the funds themselves are not illegally earned—it can seize and
seek forfeiture of his entire bank account.
According to the Institute
for Justice, the agency used that power to pursue legal-source
structuring cases with alarming frequency. Between 2005 and 2012, the IRS
seized some $242 million in more than 2,500 cases. Fully one-third of these
civil cases involved only allegations of structuring—no other wrongdoing was
alleged.
That initial report was backed up in 2017 by a Treasury
Inspector General for Tax Administration audit
of a sampling of IRS structuring cases. The inspector general found no evidence
of underlying crimes in 91 percent of the sample structuring cases it reviewed,
and noted that IRS investigators often ignored business owners’ reasonable
explanations for their withdrawals and deposits.
What might those reasonable explanations be?
Insurance liability, for one.
Take the case of Terry Dehko, who owned a Michigan grocery
store and was only insured against cash losses up to $10,000. He unsurprisingly
made frequent cash deposits valued at near the reporting threshold. The feds
nevertheless nabbed $35,651 from Dehko.
Randy Sowers, too, had a perfectly reasonable explanation: His
bank had advised him to keep his deposits below $10,000 so the bank could avoid
having to deal with the reporting paperwork.
The inspector general attributed part of the blame for this “seize
first, question later” approach to a “quick hit” strategy favored by some U.S.
Attorney offices. The goal was to rapidly seize assets, often based solely on
patterns of deposits or withdrawals, and “reach[] a negotiated resolution”—in
other words, seize whole bank accounts regardless of evidence of criminal
intent, offer a portion back to the owner, and keep the remainder.
These quick hits, according to the inspector general,
“characterize[d] most of the cases in [the] audit.”
That certainly describes what happened to both Dehko and
Sowers. The IRS refused to settle with Dehko unless he agreed to forfeit 80
percent of his money. Thankfully, with legal representation from the Institute
for Justice, a public-interest law firm, Dehko fought the seizure and got it
all back.
The feds demanded even more from Sowers. After he went to
the media, the prosecutor handling his case demanded not only Sowers’ money,
but also that Sowers and his wife admit that the government had cause to seize that
money in the first place.
For the IRS, that turned out to be a Pyrrhic victory. The
agency’s treatment of Sowers prompted such a backlash in the public and in the
media that the agency eventually returned his money.
And it earned such ire on Capitol Hill that lawmakers named
the bill intended to end this detestable practice the Clyde-Hirsch-Sowers
RESPECT Act, in honor of him and two other victims. Jeffrey Hirsch spent three
years fighting to get back $446,000 seized from his family business, and Andrew
Clyde, a veteran and gun shop owner, was forced to forfeit $50,000
after spending twice that much in legal fees to contest a $950,000 seizure.
Last week, the House of Representatives once
again unanimously passed that bill. Neither the public nor
lawmakers, it seems, are keen on the IRS seizing people’s money merely because
it can.
The Clyde-Hirsch-Sowers RESPECT Act, sponsored by Reps. Doug Collins, R-Ga., and John Lewis, D-Ga., would permanently bar seizures of funds for structuring offenses unless they are “derived from an illegal source” or otherwise structured to conceal a crime. The IRS adopted this rule under public pressure in 2014. The bill would codify it, ensuring it cannot be undone by the agency in the future.
The bill also would give property owners the right to a
post-seizure hearing within 30 days, at which prosecutors must demonstrate
probable cause that the funds are illegal or that the structuring offense concealed
a crime. If that burden cannot be met, the owner would be entitled to a return
of the seized funds.
The RESPECT Act passed the House unanimously in the last
Congress, only to stall in the Senate. But its reforms are so commonsense and
broadly supported, it ought to be a no-brainer for lawmakers to advance. If they
do, Congress would ensure that individuals and small-business owners facing
unjust IRS seizures have the permanent legal protections they deserve.
That would be the first significant federal civil forfeiture
reform in years—and hopefully not the last.
Source material can be found at this site.
