CHANGE IN POLICY ON ENFORCEMENT OF STRUCTURING LAW
Update on Abusive IRS and DOJ Practices
June July 2016 Pilla Talks Taxes
Regular readers of PTT will recall that in the June and July, 2015 issues of this newsletter, Scott MacPherson reported on both IRS and Department of Justice (DOJ) abuses of the so-called currency structuring laws. See Scott’s articles: “Beware of Currency Structuring Laws,” Parts I and II. “Structuring” is the practice of depositing to or withdrawing from your own bank account sums of cash just under $10,000, specifically to avoid the federal information reporting requirements imposed upon banks under 31 U.S.C. §§5311-5325.
As Scott explained in the two-part article mentioned above, it is a crime to structure a transaction in such a manner as to avoid the reporting requirements of the law. Thus, if you wish to move, say $11,000, but don’t wish to generate a currency transaction report, you might be tempted to move $5,000 in one transaction and $6,000 in another, or in other such increments. However, if you did so, you would be guilty of a federal crime.
But the structuring laws are pointed at and are intended to catch drug dealers and other criminals engaged in money laundering and other criminal activity. The laws were never pointed at people carrying on their innocent ordinary daily business and personal financial affairs. In practice, though, the IRS has enforced the structuring laws against Americans who are not engaged in any criminal activity whatsoever, and who had no idea that the mere act of withdrawing, say $9,000 cash from their account one day, followed by $2,000 the next day, could possibly get them into trouble with the U.S. Government.
To make matters worse, as reported in Scott’s two-part PTT series last year, the IRS generally preferred to take the shortcut of civil forfeiture action rather than the administrative cost and higher burden of proof associated with pursuing an actual criminal prosecution. That is to say, rather than try to prove to a jury that an otherwise perfectly honest citizen is a criminal merely because of how he does his banking with his own money, the IRS would simply seize the money.
To obtain a civil forfeiture of cash, the government only has to prove by a preponderance of the evidence that either the money was derived from a crime or it was used to commit a crime. And the problem is that structuring a transaction to avoid the reporting requirement is itself a crime. Between 2007 and 2013 alone, the IRS reportedly seized $43 million from more than 700 citizens using the civil forfeiture tools. In every one of those cases, the only “criminal” activity was failing to report cash transactions. In other words, the government simply stole the money belonging to perfectly honest citizens merely because of paperwork “violations” of a law that was never intended to apply to them in the first place.
Because of the outcry over this theft, for the last two years Congress has been pressuring the IRS to change its tactics. A congressional Oversight Subcommittee led by Chairman Peter Roskam (R-Ill) publicly highlighted stories of innocent business owners who had their bank accounts seized by the IRS solely because of their pattern of cash deposits or withdrawals.
Characteristic of the IRS under the Obama administration, the IRS downplayed the true scope of the problem. During a hearing in May 2015, the IRS said it had identified only seventy-five cases involving property owners whose money was wrongfully seized. However, in a May 2016 letter to Rep. Roskam and Rep. John Lewis (D-Ga), IRS Commissioner John Koskinen wrote that the agency began notifying by mail some 700 taxpayers who had their assets seized between October 2009 and October 2014. The notice informed them that they might be able to recover their property by filing “petitions for remission or mitigation of forfeiture.” Thus, the scope of the problem was in fact nearly ten times greater than what the IRS initially reported to Congress.
As to the petitions, the IRS will review each of them and determine whether the petitioner qualifies to get all or some of his money back.
The Commissioner’s announcement follows a formal written policy change in February 2015. Under the change, the IRS promises to no longer seize funds if there is no evidence of any illegal activity beyond the mere structuring. According to Koskinen, “we changed our policy in this area to make it clear that even though structuring still remains on the books, if you have structured your deposits in a way that avoids the reporting requirements, but it’s not with illegal source funding, there will be no seizure. As of a year ago there are no more seizures by the IRS and I think that’s important to know that we’ve reached out to do that.” He added, “We apologize to anybody who innocently got themselves in the middle of this and are committed to do whatever we could to work this forward.”
Talk is cheap. The question is whether the IRS is fulfilling Koskinen’s promises. The fact is the agency (not surprisingly) has been quite slow to return the $43 million they seized from honest businesses and individuals across the nation. Koskinen said the IRS has reviewed seventy-six cases where assets were seized prior to the policy change. In only seventeen of those cases did the IRS return the assets. In sixteen other cases the IRS “recommended” to the Justice Department that assets be returned. So, while the newly-announced policy change is good news for the future, it might do little for the $43 million taken from victims in the past. Apparently, Koskinen’s public apology is supposed to be adequate compensation for the theft they suffered.
The website also quotes Koskinen as saying, “We understand we have a duty not only to uphold the law, but to protect the rights of individuals as well. We look forward to working with property owners who come forward, and we will continue working to ensure that we handle all cases with fairness and respect for taxpayer rights in every instance.”
As I said, talk is cheap. The real test of the level of contrition is not Koskinen’s words but the actions of the IRS to cure their outrageous behavior. I’m not holding my breath.
In the meantime, Rep. Roskam and other lawmakers on the Oversight Subcommittee sent letters to the government urging them to return money “inappropriately” seized (more accurately read: stolen) by the IRS under civil forfeiture. Roskam stated it more directly, saying “I’m glad to see the IRS finally recognize the need to return the money they stole from innocent Americans. It took two years, two hearings, and letters from every Republican and Democratic member of the oversight subcommittee, but we can now see justice on the horizon.”
And, to further prevent innocent Americans from having money seized, Roskam and Rep. Joe Crowley, D-N.Y., who also serves on the Oversight Subcommittee, introduced a bill in May 2016 that would prohibit the IRS from seizing money from people who commit structuring violations unless the agency proves the money itself was derived from illegal activity (drug-dealing, for example), and that the structuring was done to conceal the otherwise illegal activity. In addition, the bill would require a written notice to the owner of the property and the opportunity for a post-seizure hearing to put the government to its burden of proof.
The proposed legislation is H.R. 5523, entitled The Clyde-Hirsch-Sowers Respect Act. It is named after small business owners from whom the IRS improperly seized money. On June 16, 2016, the bill was referred to the House Committee and Ways and Means and the Committee on Financial Services for consideration and debate.
I urge you to write your Congressman and implore him to support this legislation.
Article found in June-July 2016 Issue of Dan Pilla's electronic newsletter, Pilla Talks Taxes
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