The Internal Revenue Service has routinely seized bank accounts from individuals in recent years without proof of criminal wrongdoing — and only then asked the account owners about allegations of suspicious activity.
From 2005 to 2012, the IRS took almost a quarter-billion dollars in more than 2,500 cases, using authorities under federal asset forfeiture law. That’s the finding of a new study by the Institute for Justice, a libertarian-leaning civil liberties group. The group’s study, “Seize First, Question Later,” focuses on IRS enforcement of a law that prohibits “structuring,” a type of banking activity intended to launder ill-gotten money or hide the source of funds.
Civil asset forfeiture efforts by local, state and federal authorities have come under fire in recent months. Critics across the political spectrum say that civil seizures are often unfair and an abuse of police power.
Attorney General Eric H. Holder Jr. recently announced curbs on a Justice Department program called Equitable Sharing that allows federal and local authorities to share in the proceeds of seizures. Holder’s order prohibits federal agencies from accepting seizures from local and state police into the program unless a federal agent has been directly involved. The IRS has said it would follow suit. The change leaves the path open for civil seizures cases related to joint investigations involving local and state police working with federal authorities.
The Institute for Justice found that in one-third of the IRS cases it examined, there was no claim of any criminal activity besides the allegation that someone had made transactions of less than $10,000, with the aim of evading federal reporting requirements. It took owners who appealed the seizures a year on average to get their money back. Almost half of the money was later returned, according to the study.
“It’s no accident the IRS overwhelmingly prefers civil forfeiture to criminal forfeiture,” said one the report’s co-authors, IJ attorney Larry Salzman. “If they can seize the cash first with no real criminal investigation — let alone a conviction — why not?”
In a statement Tuesday evening, an IRS spokesman said that “structuring” bank deposits to avoid the federal Bank Secrecy Act is a felony. The IRS pursue seizures only when there is probable cause that the money is subject to forfeiture — and only after seizure affidavits have been reviewed by a federal prosecutor and authorized by a federal judge, the statement said. But the IRS said it is modifying its practices.
“We recognize that small businesses and other taxpayers often make deposits under $10,000 without any intent to avoid the reporting requirements,” the statement said. “After conducting a review of structuring cases, the IRS concluded that it will focus its limited resources on cases where evidence indicates that the structured funds are derived from illegal sources.”
Read the report here.