Law & the Courts

You Don’t Have to Be a Criminal for the IRS to Seize Your Bank Account

(Paul Hakimata/Dreamstime)

Congress is considering a bill that would prohibit the federal government from punishing people who haven’t committed any crime.

This will take some clarification.

Like many other police agencies, the IRS has extensive and easily abused civil-forfeiture powers. The idea behind civil forfeiture is that criminals should not be allowed to profit from their crimes, and that their ill-gotten loot — cash, cars, real estate — should find its way to the public fisc. In practice, that does happen, but forfeiture also provides a sweet stream of lightly overseen revenue for police agencies, hence the temptation to abuse.

As those who followed the horrifying case of former House speaker Dennis Hastert know, there exists a class of financial crime called “structuring,” a variation on money-laundering. Federal law requires banks to report transactions of $10,000 or more. As a result, criminals involved in cold-cash enterprises such as prescription-opiate trafficking or political corruption often limit their bank withdrawals to amounts just under the reporting threshold in order to avoid detection.

But this gets dodgy when there is no obvious underlying crime. In several cases, individuals have been charged with making just-under-the-limit withdrawals, although they were not charged with any underlying criminal activity; and in some of those cases, the IRS seized their property via forfeiture.

The general legal theory of money laundering requires that there be an underlying criminal act that the laundering is intended to cloak; most commonly, the laundering  disguises income from a criminal enterprise, or simple tax evasion. But if there is not an underlying crime, then there is, by definition, no money-laundering offense, no matter how shady-seeming a set of transactions might be.

#share#Under current law, structuring violations are treated differently. If you make a series of just-under-$10,000 withdrawals because you prefer to deal in cash but do not wish to land on the IRS’s radar, then the IRS can treat that as an offense, even though your only “crime” is taking out $9,999 instead of $10,000 for reasons disapproved of by the federal government. The bill under consideration, the Clyde-Hirsch-Sowers Respect Act (named for three small-business owners who had their property seized in structuring cases although they’d committed no underlying criminal offense) would change that, bringing structuring-case practices into line with conventional money-laundering cases.

The IRS has seized tens of millions of dollars from Americans in cases in which no criminal activity was even alleged, much less proved beyond a reasonable doubt, as the Institute for Justice has documented.

Police powers created to combat drug cartels and international terrorist cells have a funny way of creeping down to cash-dependent dairy farmers such as Randy and Karen Sowers, or to Long Island candy distributors such as the Hirsch family, from whose bank account the IRS seized nearly half a million dollars (unrecovered to this day). But that is where we are with civil forfeiture.

The Clyde-Hirsch-Sowers Respect Act is a bipartisan project that deserves bipartisan support. Its scope is limited to the IRS, and further reforms of government powers of seizure are much needed, at both the federal and the state level. We should give serious consideration to the Institute for Justice’s suggestion that civil forfeiture be abandoned entirely in favor of criminal forfeiture, which would require demonstration of wrongdoing with evidence that satisfies criminal-justice standards.

The Editors comprise the senior editorial staff of the National Review magazine and website.

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