Tag Archives: Internal Revenue Service

Long-ignored government practice lets IRS skirt fourth and fifth amendments

WASHINGTON — When Jeffrey Hirsch went to deposit money at his bank one morning in May 2012, his whole life changed. The teller told him the entire contents of his account—nearly half a million dollars—had been seized by the Internal Revenue Service.

Hirsch, a small business owner from Long Island, was never accused of a crime. Yet he would not see his $446,651.11 again for nearly three years due to the IRS’s civil asset forfeiture program, which allows the agency to seize money without filing criminal charges and keep it, in many cases, indefinitely.

Under federal law, banks are required to report cash deposits exceeding $10,000 to the Treasury Department, and account holders are forbidden from “structuring” deposits smaller than the $10,000 threshold to avoid the reporting requirement. If the IRS suspects someone is “structuring” their deposits, it can take their money without filing a criminal complaint.

The program was designed to help the federal government intercept the drug trade during the 1980s “war on drugs.” But the IRS has increasingly gone after small business owners and others who make frequent, small deposits.

“These laws were intended to target drug dealers and other hardened criminals engaged in money laundering or other criminal activity,” said Robert Johnson, Hirsch’s attorney. “In practice, however, the IRS enforces the structuring laws against innocent Americans who have no idea that depositing less than $10,000 in the bank could possibly get them in trouble with the law.”

Hirsch owns and operates Bi-County Distributors, a small business that distributes products to convenience stores on Long Island. The company had multiple accounts closed due its frequent cash deposits, which—when more than $10,000—require burdensome paperwork from the bank. Hirsch’s accountant recommended staying below the limit, so Hirsch often made cash deposits under $10,000.

On the basis of civil asset forfeiture, the IRS seized Hirsch’s money in May 2012 and held it for more than two years without issuing any charges against him. Twice, Hirsch said, the government offered settlements that would require him to surrender “a substantial portion” of the money.

“I rejected these offers as I felt that I had done nothing wrong and should not be forced to give up my hard-earned money for no reason,” Hirsch said. “I lived with that stress for over two-and-a-half years.”

Hirsch said the seizure drove his business “to the edge of insolvency,” forcing him to take extended lines of credit. In an attempt to demonstrate his innocence, he paid an accounting firm $25,000 to audit his own business.

“Government officials did not question the results of the audit and did not suggest that they were in possession of any evidence of wrongdoing by anyone associated with the business,” Hirsch said. “Nonetheless, the government still refused to return the money.”

To get seized funds back, property owners have to go to court against the Department of Justice—often a lengthy and expensive process.

In January, after a front-page story on civil asset forfeiture was published in The New York Times, the government agreed to return Hirsch’s money.

“In this country, people are supposed to be innocent until proven guilty. But, in the eyes of the IRS, I was guilty until proven innocent—forced to prove my own innocence to get my property back,” Hirsch said. “No other American should be put through the nightmare I experienced.”

But Hirsch’s case is not unique.

Documents obtained by the Institute for Justice, a national law firm that litigates property rights, show that the IRS conducted more than 2,500 of these seizures from 2005 to 2012.

In that seven-year period, the agency collected more than $242 million in suspected structuring violations. At least a third of those seizures “arose from nothing more than a series of cash transactions under $10,000, with no other criminal activity alleged,” according to the report.

And under federal law, the IRS gets to keep this money. Funds seized through civil forfeiture are deposited in the Treasury Forfeiture Fund, which is available for use by the IRS without any appropriation by Congress.

“Shockingly, the government uses the money that it takes through civil forfeiture to pad the budgets of the very agencies that seize the money,” said Johnson, who also works for the Institute for Justice. “The result is a legal system in which the deck is stacked against ordinary Americans.”

While the issue went largely unnoticed until late last year, lawmakers on Capitol Hill—both Republican and Democrat—are now looking for change from the long-embattled agency.

The House Oversight Subcommittee’s first hearing of the new Congress called on IRS Commissioner John Koskinen to testify. He was met with harsh criticism.

Rep. Mike Kelly, R-Pa., went so far as to compare civil asset forfeiture to torture. “You talk about waterboarding, this is waterboarding at its worst,” he said.

The IRS has promised to change. Koskinen apologized to the small business owners at the hearing and said the agency would no longer pursue civil seizure on structuring grounds “unless there are exceptional circumstances.”

“We’ve changed the policy from our standpoint,” Koskinen said.

But Johnson isn’t satisfied with the IRS’ promise.

“The only surefire reform of civil forfeiture is to eliminate the practice entirely, and to require all forfeiture to proceed under the criminal laws,” Johnson said. “Short of that, the IRS policy change—limiting application of the structuring laws to funds derived from illegal sources—should be codified in statute, and without any open-ended loophole for ‘exceptional’ cases.”

Many lawmakers also aren’t satisfied with the IRS’s “exceptional circumstances” standard.

In January, Sen. Rand Paul, R-Ky., and Rep. Tim Walberg, R-Mich., introduced a bill that would curb IRS forfeiture abuses by stopping the IRS from seizing funds without criminal charges and make it simpler and faster for innocent property owners to get their money back.

The bill is only in the primary stages of the legislative process, but some sort of remedial legislation is likely to receive support.

“It is wrong without any criminal evidence to seize anyone’s property,” Kelly said. “This flies in the face of everything we are as a country.”