A look at IRS seizure, civil forfeiture rules
Sunday, February 28, 2016
There are many reasons folks are leery of the Internal Revenue Service, but asset seizures have to be at the top of the list.
The IRS isn't the only tax collector to seize assets for nonpayment of taxes. State revenue officers use the process, too.
This extreme step generally is taken by Uncle Sam's tax collector when a taxpayer has failed to pay the legal tax due either because of neglect or willful refusal. In these cases, there are guidelines the IRS must follow, including giving the taxpayer notice of the tax assessment and conducting a hearing if requested by the taxpayer.
In civil forfeiture cases, however, the IRS had more latitude. Note the past tense; more on this in a minute.
Taking assets, no questions asked: Civil forfeiture is a process used by not just the IRS, but all levels of government, to take property from those suspected of criminal activity. In these cases, a person doesn't even have to be convicted of -- or even charged with -- an alleged crime. The government simply can take the property.
To get the seized property back, the person must prove his or her innocence. This typically is a time-consuming and costly process.
Several instances of IRS civil forfeitures got lots of attention a few years ago. The cases involved small business owners who had their assets seized because of their cash transactions.
As I noted last week at my other tax blog, cash transactions get added scrutiny thanks to the Bank Secrecy Act, or BSA. This law was enacted 46 years ago to help law enforcement clamp down on such criminal acts as illegal drug sales and money laundering.
Under the BSA, a cash transaction of more than $10,000 at a financial institution must be reported to the IRS.
Structural problems with structuring rules: But even when the money movement is less than 10 grand, when cash is moved in and/or out of an account, it raises legal eyebrows. Known as structuring, these actual dollar movements are seen as a way to skirt the BSA limit and, to some, as an indication of related illegal acts.
So the IRS aggressively went after apparently structuring, confiscating the money from several law-abiding businesses. The outcry -- and subsequent legal action by the affected businesses -- was loud and quick.
Congress even got involved. Sen. Chuck Grassley (R-Iowa), then ranking member of the Judiciary Committee and senior member of the Finance Committee, noted that the "IRS plays a role in fighting money laundering and other criminal activity, but it has to treat business owners fairly. 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."
Eventually, the IRS ended up clarifying its rules on structuring enforcement (this is where the earlier "had" reference comes into play).
On Oct. 25, 2014, the chief of the IRS' Criminal Investigation (CI) unit announced, in a statement to The New York Times, the agency's new policy on structuring seizures:
After a thorough review of our structuring cases over the last year and in order to provide consistency throughout the country (between our field offices and the U.S. attorney offices) regarding our policies, IRS-CI will no longer pursue the seizure and forfeiture of funds associated solely with “legal source” structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (DFO) level. While the act of structuring — whether the funds are from a legal or illegal source — is against the law, IRS-CI special agents will use this act as an indicator that further illegal activity may be occurring. This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.'s mission and key priorities. The policy involving seizure and forfeiture in “illegal source” structuring cases will remain the same.
Taken funds returned: That policy change was too late for some of the folks who saw their assets taken by the IRS. But one of the business owners recently got good news about the money, which he said was his life's savings, that the agency confiscated.
The IRS says it will return the almost $154,000 it seized from North Carolina convenience store owner Ken Quran that it took from him back in 2014.
Filing security questions: The return of Quran's money was good PR for the IRS. Unfortunately for the agency, it also took an offsetting public perception hit.
As I also noted at Bankrate Taxes Blog, an audit by an online security organization found that, by its criteria, almost half of the Free File tax preparation options have security issues.
You usually can find my additional tax thoughts posted at Bankrate on Tuesdays and Thursdays. Then the following weekend I provide highlights of and links to those items and related material here at the ol' tax blog.
Thanks for reading at both places!
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