The House Ways and Means Oversight Subcommittee held a hearing Wednesday on “protecting small businesses from IRS abuse,” a day after the House Judiciary Committee held a misconduct hearing in an effort to oust IRS Commissioner John Koskinen.
Wednesday’s hearing followed up on a hearing in February 2015 on the IRS’s use of civil asset forfeiture to seize money from small businesses accused of money laundering. Some businesses made deposits of just under $10,000 to avoid complicated bank-reporting requirements, but were then accused of “structuring” transactions and had their funds seized by the IRS. The IRS changed its policies in October 2014 to stop such forfeitures in the future, but many business owners have fought to get back the funds that were seized (see Lawmakers Urge IRS to Return Seized Assets to Maryland Farm Couple). At Wednesday’s hearing, lawmakers pressed IRS officials to explain why some small businesses are still waiting to get their money back.
“The IRS knew that seizing money from farmers and store owners who appeared to be structuring their transactions wasn’t right unless they were doing it to cover up other crimes,” said subcommittee chairman Peter Roskam, R-Ill. “That’s why the IRS announced a new policy in October 2014, that it wouldn’t seize money unless it was ‘derived from an illegal source.’ That’s a better policy than what the IRS was doing before, and we were pleased to hear about the acknowledged need to do better. Now, a year and a half later, we want to know how things are going under that new policy. And, indeed, a new policy doesn’t right all wrongs. Those people whose assets were seized under the old policy were not treated fairly. Several of them have sent petitions to the IRS and DOJ asking for their money back. The IRS granted one of those petitions and gave back $154,000. From all accounts, the IRS did this because it was the right thing to do. However, DOJ has not provided any relief, either financially or procedurally, to those who have petitioned for return of their funds. Those petitioners deserve a fair, transparent review process and an answer.”
Rep. John Lewis, D-Ga., the ranking Democrat on the subcommittee, noted that since the previous hearing, he and other members have written a number of letters requesting updates on the policy change. “Together, we asked what can be done for those taxpayers whose assets were seized before the change,” he said. “We must do more to resolve this issue for small businesses. It is the right thing to do; it is the just thing to do.”
Koskinen and IRS Criminal Investigation chief Richard Weber explained the IRS’s policy change. “We believe the IRS’s current policy strikes a balance between the needs of law enforcement and the rights of property owners,” they said in their written testimony. “By concentrating on illegal source structuring violations, we are now able to devote our limited resources to investigating the most egregious federal violations, including those cases where structuring activity is indicative of other, more serious crimes. This change in policy does not render prior seizures unlawful, as structuring is still a federal felony regardless of whether the source of the funds is legal or illegal. Rather, the policy is intended to more closely realign IRS priorities by focusing on other criminal violations within its jurisdiction. IRS-CI will continue to investigate structuring violations as they relate to other financial crimes, including tax and money laundering violations.”
They said the IRS has a new process going forward to elevate the review and approval process for Petitions for Remission or Mitigation in certain structuring seizure cases under which the IRS Criminal Investigation would consider granting relief or make a recommendation to the Justice Department.
Robert Everett Johnson, an attorney with the Institute for Justice, a law firm that has been representing a number of businesses who had their assets seized by the IRS, also testified at the hearing. “Today, over one year later, the government still has not corrected its abuse of the structuring laws,” he said. “The government has not returned money that was seized and forfeited before its policy change. Randy Sowers has filed a petition asking the government to return $29,500 seized in May 2012, and the government has not answered that petition although more than 10 months have gone by since it was filed. More than 600 individuals—who together had over $43 million taken by the IRS because of how they deposited or withdrew money from the bank—also continue to wait for some measure of justice. At the same time, small business owners continue to face persecution at the hands of federal prosecutors because of their bank deposits.”
He pointed to Vocatura’s Bakery, a third-generation family business located in Norwich, Conn., which had over $68,000 seized by the IRS in May 2013 under the structuring laws. “The government has now held the Vocaturas’ money for over three years without bringing its case before a judge—violating statutory deadlines set by Congress as well as internal DOJ policies,” said Johnson. “Just recently, in February 2016, the government pressured the Vocaturas to plead guilty to criminal structuring charges and to agree to forfeit both the initial $68,000 seized by the IRS as well as an additional sum of approximately $160,000. When the Vocaturas refused, federal prosecutors retaliated by serving the Vocaturas with an overbroad grand jury subpoena seeking eight years of almost every financial record generated by the business.”
Sowers also testified at the hearing about how he was still waiting for his money back. “I am a man of my word, and I stick to my agreements, but my ‘agreement’ to give up $29,500 was made under overwhelming pressure, including the implicit threat that federal prosecutors would try to put me in jail if I did not agree,” he said. “I do not believe such an agreement is valid. To me, it was a case of extortion by the government. Over 10 months have gone by since I filed my petition. I am still waiting for the government’s response. The IRS took something that does not belong to them and that they had no right to take. Now I am asking them to do the right thing and give it back.”
Another witness, Calvin W. Taylor Jr., who operates C.W. Taylor Farms in Maryland, described how the IRS had seized over $90,000 from his business’s bank account in 2011, effectively cleaning it out, even though IRS agents initially told him they didn’t think he had done anything wrong.
“We recently filed a verified petition with the U.S. Department of Justice asking it to return the money that was illegally seized from us, together with interest, attorney fees and other costs,” he said. “The DOJ acknowledged our petition, and it included a letter it says it sent last June that appears to make a veiled threat to still prosecute me. We do not see how even if we should get our money back that we will ever be whole. This was a devastating and undeserved blow to our family that undermined our faith in the federal government, caused unwarranted embarrassment and harm to our family and our business, and was a very ugly chapter of our lives. With all the illegal financial activity going on—such as drug dealing, human trafficking and terrorist financing—the DOJ and the IRS should have better things to do than stealing legally earned money from hardworking taxpayers.”
On Tuesday, the House Judiciary Committee held the first of two hearings into accusations against IRS Commissioner Koskinen related to the loss of emails from Lois Lerner, the former director of the IRS’s Exempt Organizations unit (see House Committee Plans Misconduct Hearings for IRS Commissioner). Koskinen declined to attend the hearing, saying he had received short notice and still needed to prepare for Wednesday’s hearing. However, he submitted a statement to the committee defending his conduct and arguing against impeachment. He plans to attend the second hearing.