Congress Moves To Curb IRS Asset Seizures

September 28, 2016 by

The U.S. House unanimously passed H.R. 5523 – The RESPECT Act, which will limit the ability of the IRS to victimize small businesses and their owners by seizing assets – without just cause – under civil asset forfeiture laws.

Formally titled the Clyde-Hirsch-Sowers Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act, the bill prohibits the IRS from seizing assets related to the practice of structuring, unless the assets being seized came from an illegal source or the deposits were structured for the purpose of concealing another criminal act.

Structuring is the practice of making routine financial transactions under $10,000, often done to avoid additional records and reports required by the federal Bank Secrecy Act and IRS Code. Many individuals attempting to conceal criminal activity structure deposits below that amount to avoid triggering reporting, but because of the hassle, many law-abiding business owners also use this practice.

The bill also adds a requirement for a notice, “no later than 30 days after property is seized by the Internal Revenue Service,” notifying every person, with ownership interests, of their right to appeal. The IRS can apply for an additional one-time 30-day extension of the notice only if they can prove probable cause of an imminent threat to national security or personal safety.

So, in other words, along with preventing small businesses from having their assets seized without probable cause, the bill ensures a quick hearing for appeal when seizure does happen.

The RESPECT Act – authored by Rep. Peter Roskam (R-IL) – is named after Andrew Clyde of Clyde Armory in Atlanta; Randy Sowers of South Mountain Creamery in Maryland; and bros. Jeffrey, Richard, and Mitch Hirsch of Bi-County Distributors in Long Island.  All three business owners’ assets were seized by the IRS under civil asset forfeiture.

In Clyde’s case the IRS seized $950,000 from him for allegedly structuring deposits. To avoid additional legal fees and trouble, Clyde surrendered $50,000 of the seized money and still ended up paying $100,000 in legal fees.

Sowers got on the bad side of the DOJ by selling eggs and milk from his dairy farm at Farmers Markets. His bank teller told him that depositing over $10,000 would require him to fill out a form – so he simply deposited a little less to avoid the trouble – which led to the DOJ seizing $29,500 from him.

Finally, the Hirsch brothers were also accused of illegally structuring their business deposits. Since most of their customers paid in cash, they routinely made small deposits. Because of this, the government seized $446,000 and didn’t file a forfeiture action in court for two years, they just kept the money without alleging any criminal behavior.

In a statement, Roskam said, “Today we took a big step toward delivering justice for victims of IRS abuse. It’s clear to everyone involved that the IRS and DOJ abused their authority and took money from people who did nothing wrong.”

The bill’s cosponsor, Rep. Joseph Crowley (D-N.Y.) said, “Civil asset forfeiture may have started out as a way to combat criminal activity, but it has morphed into a complicated process that unfairly entangles innocent people.”

Senators Tim Scott (R-SC) and Sherrod Brown (D-OH) have introduced companion legislation that they expect to move quickly through the Senate.


About the Author

Charles operates the Houston office for Empower Texans/Texans for Fiscal Responsibility.