The IRS Can Seize Your Business Bank Account With Zero Evidence Of A Crime

Imagine running your small business for 40 years. People who do often fall into a pattern of how they conduct business. Particularly for a food business. It’s remarkable that a business involving food that isn’t a franchise can survive 40 years but it does happen.

Now imagine that one day, some pencil neck at the IRS gets a hold of your deposits at the bank and doesn’t like the way you’ve been making those deposits. That pencil neck, without a warrant, without evidence of a crime, without a complaint can seize your account and all the cash in it and there’s nothing you can do about it.

It’s happening:

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

“How can this happen?” Ms. Hinders said in a recent interview. “Who takes your money before they prove that you’ve done anything wrong with it?”

The federal government does.

Using a law designed to catch drug traffickers, racketeers and terrorists by tracking their cash, the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent. Many give up.

Many give up. 

God bless America, right?

And this is growing:

The I.R.S. is one of several federal agencies that pursue such cases and then refer them to the Justice Department. The Justice Department does not track the total number of cases pursued, the amount of money seized or how many of the cases were related to other crimes, said Peter Carr, a spokesman.

But the Institute for Justice, a Washington-based public interest law firm that is seeking to reform civil forfeiture practices, analyzed structuring data from the I.R.S., which made 639 seizures in 2012, up from 114 in 2005. Only one in five was prosecuted as a criminal structuring case.

Emphasis is mine. The IRS claims as a result of questions from the NY Times that they are going to “curtail” the practice and focus solely “where the money is believed to have been acquired illegally or seizure is deemed justified by “exceptional circumstances.”

Sorry if that doesn’t give me the warm fuzzies. But I trust the people at the IRS about as much as I trust sticking my head inside the mouth of a lion and coming away unscathed.

It actually gets worse:

Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize. Under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. But since many criminals are aware of that requirement, banks also are supposed to report any suspicious transactions, including deposit patterns below $10,000. Last year, banks filed more than 700,000 suspicious activity reports. Owners who are caught up in structuring cases often cannot afford to fight. The median amount seized by the I.R.S. was $34,000, according to the Institute for Justice analysis, while legal costs can easily mount to $20,000 or more.

So essentially, the federal government has turned bank employees into a bunch of pseudo detectives and tattle-tales, making it easy for government agencies to harass innocent people.

Then there is this:

Army Sgt. Jeff Cortazzo of Arlington, Va., began saving for his daughters’ college costs during the financial crisis, when many banks were failing. He stored cash first in his basement and then in a safe-deposit box. All of the money came from paychecks, he said, but he worried that when he deposited it in a bank, he would be forced to pay taxes on the money again. So he asked the bank teller what to do.

“She said: ‘Oh, that’s easy. You just have to deposit less than $10,000.’”

The government seized $66,000; settling cost Sergeant Cortazzo $21,000. As a result, the eldest of his three daughters had to delay college by a year.

This is a perfect example of where officials should exercise some discretion. There was nothing close to anything illegal going on here and yet Sgt. Cortazzo had to settle with the IRS and lost $21,00o as a result. This is outrageous.

Shifting the politics, one has to wonder: Where is the GOP on this? I discussed this back in June. The GOP has a golden opportunity to use these cases of IRS abuse to lay out a bold agenda for serious tax reform.

Tinkering with the IRS, having hearings and bellowing at the press is not going to do it. If the GOP takes back the majority, they should craft tax reform, pass it and give to President Obama. If he vetoes it, they can take every IRS scandal that is out there and lay at his feet.