IRS Reforms Civil Asset Forfeiture Policy

June 21, 2016 by

As the calls for reform to the civil asset forfeiture process continue to grow louder, the Internal Revenue Service (IRS) has announced it is changing its rules to make it easier for those who have had assets seized to get their belongings back.

Civil asset forfeiture is the process through which law enforcement can seize someone’s property for nothing more than the presumption of criminal activity.

Such a presumption is an inherent problem with civil asset forfeiture since it requires little more than the appearance of criminal behavior for law enforcement to seize one’s assets.

The IRS policy revision comes in response to pressure from Congress to return assets seized from small business owners. The Institute for Justice testified before the House Ways and Means Oversight subcommittee that between 2007 and 2014 the IRS seized $43 million from 618 people – primarily small business owners.

The reason small businesses got caught up in the asset forfeiture process is because of a practice – often used by those in the drug business – called structuring.

Because banks are required to report deposits of $10,000 or more, many individuals attempting to conceal criminal activity routinely make specific and calculated deposits to avoid triggering reporting requirements. But because of the tedious reporting requirements, many law-abiding business owners also use this practice to avoid unnecessary paperwork.

As a result innocent business owners are often under government suspicion for involvement in criminal behavior. Such a presumption is an inherent problem with civil asset forfeiture since it requires little more than the appearance of criminal behavior for law enforcement to seize one’s assets.

In 2014 the IRS stopped seizing banks accounts whose only suspected illegal activity was structuring. Even though they stopped, those whose assets had been seized before the change had a difficult time getting them returned.

To help people still struggling with the vestige of asset forfeiture past, IRS Commissioner John Koskinen wrote a letter to the subcommittee chairman Pete Roskam (R-IL) and Congressman John Lewis (D-Ga).

In part the letter read:

“[W]e intend to send notices to persons or entities that had property seized relating to structuring activity between October 1, 2009 and the date of our policy change. The notice will advise the persons or entities that they may be entitled to a return of their property through the petition for remission or mitigation process.” The letter goes on to say, “Any property owner who participates in this process to seek a return of their funds or property qualifies by establishing that the underlying funds came from a legal source.”

This may be a good faith effort on the Commissioner’s behalf to rectify past wrongs of the agency, but the underlying problem with asset forfeiture still exists even in his solution.

To qualify for a return of their funds, Koskinen is still requiring taxpayers to first petition and then prove their funds came from a legal source. No business owner, who hasn’t been accused or convicted of wrongdoing, should automatically shoulder the burden of proof for his or her own profits solely because of government regulations.

For real civil asset forfeiture reform, the burden needs to be placed on the government to prove that there is actual criminal activity before seizing assets.

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About the Author

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