IRS Seized $17 Million from Innocent Business Owners

April 10, 2017 by

On the heels of a damning report from the Department of Justice detailing how they administratively – without judicial involvement –  seized nearly $4 billion from Americans who were never charged with a crime, a new report is detailing the IRS’s share of abuses.

The Treasury Inspector General for Tax Administration (TIGTA) released a report this week showing that between 2012 and 2014 the IRS seized over $17 million from innocent business owners because of a procedure known as “structuring” – a common practice of strategic bank deposits that fall below the reporting threshold. What is essentially a common business practice, allowing business owners to avoid filling out unnecessary and burdensome paperwork detailing deposits, raised suspicions with the IRS.

Specifically, the Bank Secrecy Act requires banks and other financial institutions in the United States to report transactions exceeding $10,000. Structuring deposits to avoid this filing is technically a violation of the law; however, it is often done without malicious intent. The problem is the law doesn’t require the funds to be derived from an illegal source for the structured deposits to be found in violation, so as a result the IRS opened 231 cases, seizing a total of $17.1 million.

Titled “Criminal Investigation Enforced Structuring Laws Primarily Against Legal Source Funds and Compromised the Rights of Some Individuals and Businesses,” the report also found that out of the 231 cases, only five individuals were notified of their rights. In 202 of the cases owners were never notified of the reason for the investigation interview, and in 31 cases the IRS improperly bargained with the owners to avoid prosecution.

To remedy the IRS’s abuses, TIGTA recommends that structuring cases be selected that accurately reflect the goals and policies of the IRS, funds derived from legal sources be returned, and reasonable explanations be provided to property owners during interviews. The report also recommends improving the IRS’s grand jury process.

In response to the revelations, House Ways and Means Committee Chairman Kevin Brady (R-TX), Tax Policy Subcommittee Chairman Peter Roskam (R-IL), and Oversight Subcommittee Chairman Vern Buchanan (R-FL) issued a joint statement.  

“This report reaffirms our Committee’s finding that the IRS has repeatedly and knowingly abused its authority to wrongly target and seize money from hardworking Americans. We commend TIGTA for issuing this report and building off of our work to bring IRS’s abusive practices to light.”

The “work” that they are referring to is a two-year investigation by the House Ways and Means Committee into the IRS asset seizure program. Their findings were similar to this report and after the investigation was completed the committee urged the DOJ to review civil asset forfeiture policies and return seized funds.

Reports like this, while disturbing, are beneficial to the cause of reforming civil asset forfeiture. Documented and verifiable cases of the abuses both on the federal and local level send signals to lawmakers that action is needed to protect innocent Americans.


About the Author

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