The Internal Revenue Service is revising its civil asset forfeiture policies after coming under pressure from Congress for failing to return funds wrongly seized from small businesses.
John Koskinen
Civil asset forfeitures are being used by many law enforcement agencies around the country but have become increasingly controversial in recent years. A congressional subcommittee held a hearing in March and pressed the IRS, the Treasury Department and the Justice Department to change their civil forfeiture policies (see Lawmakers Prod IRS to Return Funds Seized from Taxpayers).
Small businesses that deposit money in their bank accounts in amounts just under $10,000 often fall under suspicion of structuring their transactions to evade laws requiring banks to report deposits of $10,000 or more. However, some banks advise their business clients to keep the amounts below $10,000 so they don’t have to deal with the onerous reporting requirements.
Small business owners and farmers have testified before Congress about how their bank accounts have been seized by the government and the funds were not returned even after no evidence was found of criminal activity. The IRS changed its policies in October 2014 to stop seizing bank accounts in cases where structuring was the only suspected illegal activity, except in extraordinary circumstances. But some asset seizures have nonetheless continued and a number of taxpayers whose assets were seized prior to the policy change have had trouble getting their money returned.
IRS Commissioner John Koskinen wrote a letter to House Ways and Means Oversight Subcommittee chairman Peter Roskam, R-Ill., and ranking member John Lewis, D-Ga., last Friday informing them that the IRS is changing its policies to help those taxpayers, and he reported on the status of the investigations in which assets were seized prior to the Oct. 17, 2014 policy change.
“We intend to send notices to persons or entities that had property seized relating to structuring activity between October 1, 2009 and the date of our policy change,” he wrote. “This notice will advise the persons or entities that they may be entitled to a return of their property through the petition for remission or mitigation process. We have identified over 700 investigations for which we will mail these notices. If an investigation was referred for prosecution or the property owner has already received a full return of property, a notice will not be sent.”
He added that the notice will be tailored depending on whether the forfeiture was an administrative procedure or a civil judicial procedure. “Once a petition is received as a result of these notices, we will either make a determination in administrative forfeiture cases or make a recommendation to the Department of Justice in civil judicial forfeiture cases,” wrote Koskinen. “For administrative cases, any property owner who participates in this process to seek a return of their funds or property qualifies by establishing that the underlying funds came from a legal source and there is no evidence the petitioning property owner engaged in structuring to conceal other criminal activity, such as tax evasion, money laundering or other crimes.”
Koskinen said the IRS plans to mail the notices related to administrative forfeiture cases this week and those related to civil judicial forfeitures by June 17, after a follow-up meeting with the Justice Department.
During the congressional hearing, an attorney for the Institute for Justice, a law firm that has been representing many of the victims of the civil asset forfeitures, testified that the IRS took $43 million from 618 people between 2007 and 2013. Koskinen said the IRS could not reconcile its findings with those figures, although he acknowledged there were approximately 700 cases.
“I’m glad to see the IRS finally recognize the need to return the money they stole from innocent Americans,” Roskam said in a statement Tuesday. “It took two years, two hearings, and letters from every Republican and Democratic member of the Oversight Subcommittee, but we can now see justice on the horizon. I’m encouraged by this latest development and look forward to continuing our oversight work to make sure the Justice Department also follows through on its pledge to deliver justice to the victims of civil asset forfeiture abuse.”
The congressmen’s office noted that the IRS plans to send letters to everyone from whom it had seized assets based on allegations of structuring from October 2009 onward, affecting about 700 cases. Those people can send petitions to the IRS to see if they qualify to get some or all of their money back.
People whose assets were seized before October 2009 also can contact the IRS to see if they are eligible to get their money back. In addition, the IRS has changed its internal policies to require agents to include evidence of illegal source in affidavits before seizing money going forward.
“I am pleased that the IRS is taking clear steps to respond to the strong bipartisan concerns raised in our recent hearing on this grave matter,” said Lewis. “The IRS and the Department of Justice must make every effort to do what is right for small business owners who were not engaged in illegal activities but were unintentionally captured by the law. We must right this wrong once and for all.”