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RESPECT Act to protect against IRS asset seizures awaiting final Congressional action

With the 2016 election over, a lame duck Congress will return to Washington, D.C., next week to begin the job of wrapping up some pending legislation. One tax measure that passed the House earlier this year, but is still awaiting Senate action, is the RESPECT Act, which tax attorney Darrin Mish discusses in this guest post.

Bank-customer-bank-teller
A bank customer working with a teller to complete a transaction. If some large withdrawals seem suspicious to bank officials, a person could end up having assets seized by the Internal Revenue Service. 

In a rare show of bipartisanship, the Clyde-Hirsch-Sowers RESPECT Act was passed unanimously this fall by the House of Representatives.

The intent of the Act is to protect U.S. citizens from having their assets seized at the mere whim of the Internal Revenue Service. 

As the law now stands, the government DOES NOT have to charge you with a crime to be able to seize money from innocent citizens.

How's that for an ugly little fact?

Nasty, right? But it's true nonetheless.

Here's an even uglier fact:

Victims of these seizures must first prove they are innocent before they can get their money back.

Try doing that with a wiped-out bank account.

The IRS can get away with it because:

They don't have to charge you with a crime to take your money. Instead, they charge your money with the crime.

You, as a U.S. citizen have certain unalienable rights that cannot be violated. Unfortunately, those rights do not extend to your money.

So, the IRS charges your money with the crime instead of you.

Make sense?

It doesn't have to as far as the IRS is concerned.

There are real abuses taking place in this country. Abuses where children of innocent people get hurt every day. Under the current law, if the IRS wants your money, they can take it with no questions asked.

What Is the Current Law Though?

Under federal law, all cash transactions over $10,000 must be reported to the U.S. government by bank officials.

That counts for deposits as well as withdrawals. Anyone evading this reporting rule could be subject to having their bank account seized.

The name of this law is the Bank Secrecy Act. It's also known as the Currency and Foreign Transactions Reporting Act.

The problem with it is that it's often used to seize money from innocent people who are never charged with a crime.

It's been on the books since 1970, and requires all U.S. financial institutions to cooperate with the U.S. government to help combat cases of money laundering and fraud. 

On the surface the law is a good one. It has stopped a lot of bad guys.

Remember former U.S. House Speaker Dennis Hastert?

From 2010-2012, he withdrew $50,000 or more from his bank account 15 times, allegedly to pay off sexual abuse victims. 

Hastert was eventually questioned by bank officials on the purpose of the withdrawals as per the law. Afterwards he changed his withdrawal patterns to several withdrawals of under $10,000 a piece to fly under their radar. In April, Hastert was sentenced to 15 months in federal prison in connection to the bank fraud case linked to the abuse allegations.

Which is a textbook example of structuring. He got busted. So, the law does work in most instances.

The Government Also Requires Banks to Report Suspicious Withdrawals of Under $10,000

Oh, oh. Did you catch that?

If your bank teller thinks your transaction looks fishy she can report it to the feds.

Which gives you even more reason to treat tellers like gold.

All the government needs to receive is just one of these snitch reports from a disgruntled bank teller to be able to seize your money.

Keeping in the good graces of your teller won't protect you completely from having your money seized though.

The government is always scanning through bank statements hoping to catch unreported suspicious withdrawals. If they see something they think looks weird they can seize every nickel you have in your bank account.

Which is where a lot of good people get hurt by the law.

Sometimes the Government Gets It Wrong.

Let's say you own a small business and you make deposits of $9,000 one day; the next day $4,000; the next day $8,000 and so on.

The government sees that pattern and asserts that it's a false one. They claim that your deposits were all an attempt to keep from declaring the cash in one lump sum.

If your deposit pattern looks fishy to the IRS, then you're guilty of structuring in their sight...

...and since you're guilty, they have every right to seize your money.

In reality, it could be that you own a convenience store doing daily cash deposits. Some days are great, others not so much.

So, looking at your deposits over time it could look as if you are criminal structuring the deposits.

You're innocent. But you lose anyways.

How the Clyde-Hirsch-Sowers RESPECT Act Will End IRS Forfeiture Abuse

Once the bill is signed into law, the IRS will need to prove criminal wrongdoing before they can seize funds from a bank account they believe is involved in structuring.

They will also be required to notify taxpayers of seizures as well as provide them with a post-seizure hearing within 30 days of taking your money.

While these steps may seem like small ones, they will do absolute wonders in protecting the assets and rights of all U.S. citizens.

So, let's hope Congress can keep up this new spirit of bipartisanship well into the future. Good things will happen for our country if they do.

Darrin Mish is a tax attorney who has taught dozens of attorneys, CPAs and Enrolled Agents how to help their clients with tax problems. Grab one of best selling tax help books by searching "Darrin T. Mish" on Amazon.com. If you have an IRS problem of your own he invites you to visit his site at https://getirshelp.com/.

Legislative follow-up: H.R. 5523, the  Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act, cleared the house by a 415-0 vote on Sept. 26. Its Senate companion bill, S. 3353, is pending in the Senate Finance Committee. If the RESPECT Act doesn't make it through Congress and to the president's desk this session, it must be reintroduced in the coming 115th Congress that will convene in January 2017.

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