The House unanimously approved a bill late Tuesday to discourage the Internal Revenue Service from using civil asset forfeitures to seize money and property from taxpayers.

The bill, known as the Clyde-Hirsch-Sowers Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act, would revise the authority and procedures the IRS uses to seize property that has been structured to avoid Bank Secrecy Act reporting requirements. Under the bill, the IRS could only seize property it suspects has been structured to avoid BSA reporting requirements if the property comes from an illegal source, or if the funds were structured for the purpose of concealing the violation of a criminal law or regulation other than structuring transactions to evade BSA reporting requirements.

Within 30 days of seizing property, the IRS would need to make a good faith effort to find all owners of the property, as well as notify the owners of the post-seizure hearing rights established by this bill. The IRS could apply to a court for one 30-day extension of the notice requirement if it can establish probable cause of an imminent threat to national security or personal safety.

If the owner of the property asks for a court hearing within 30 days after the date on which notice is provided, the property would have to be returned unless the court holds a hearing within 30 days after notice is provided and finds there's probable cause to believe the property derived from an illegal source or the funds were structured to conceal the violation of a criminal law or regulation other than a structuring violation. The bill amends the Tax Code to exclude from gross income any interest received from the federal government with respect to an action to recover property seized by the IRS under a claimed violation of the structuring provisions of the BSA.

Randy Sowers
Randy Sowers, a Maryland dairy farmer whose $60,000 bank account was seized by the IRS Photo: Institute for Justice

The bill was sponsored by Reps. Peter Roskam, R-Ill., chairman of the House Ways and Means Tax Policy Subcommittee, and Joseph Crowley, D-N.Y. The Clyde-Hirsch-Sowers RESPECT Act is named after two small-business owners who had their entire bank accounts seized by the IRS for alleged structuring Jeff Hirsch and Randy Sowers. Hirsch had over $400,000 seized from his convenience store distribution business on Long Island, while Sowers, a Maryland dairy farmer, lost $29,500 to the IRS. Even though neither of them was ever charged with a crime, it took years of legal proceedings before they recovered their funds. They were both represented by the Institute for Justice, a libertarian law firm and advocacy group.

“The IRS used civil forfeiture to steal from innocent, hard-working small business owners,” said Institute for Justice attorney Robert Everett Johnson in a statement. “With Congress so bitterly polarized, it’s encouraging to see hundreds of representatives stand together against this inherently abusive practice.”

A study by the Institute for Justice found that from 2005 to 2012, the IRS seized more than $242 million in over 2,500 cases for alleged structuring offenses. One-third of those cases involved nothing more than making a series of sub-$10,000 cash transactions.

House Ways and Means Committee chairman Kevin Brady, R-Texas, praised passage of the legislation. “The House sent a clear signal to the IRS this week that bullying law-abiding Americans will not be tolerated,” Brady said in a statement. “After years of bipartisan oversight to hold the IRS accountable for their wrongdoings, the Clyde-Hirsch-Sowers RESPECT Act stands up for the innocent small business owners and farmers who were forced to hand over their hard-earned dollars to the IRS—in some cases losing their livelihoods and life savings. The bill puts in place strong safeguards to prevent the IRS from wrongfully seizing the assets of hardworking Americans. I commend Tax Policy Subcommittee Chairman Roskam and Rep. Crowley for their work to protect taxpayers, and I urge the Senate to pass this important legislation.”

Two wide-ranging civil forfeiture reform bills are also under consideration in Congress. Rep. Jim Sensenbrenner, R-Wis., has reintroduced the DUE PROCESS Act, which would strengthen safeguards for business owners, while Sen. Rand Paul, R-Ky., has sponsored the FAIR Act, which would prohibit federal agencies from keeping forfeiture proceeds and abolish the so-called “equitable sharing” program, under which the proceeds of seized assets are shared between state and federal law enforcement authorities.

Under “structuring” laws, the IRS has routinely confiscated cash from ordinary Americans because they frequently deposited or withdrew cash in amounts under $10,000. The IRS is able to keep that money without ever filing criminal charges.

An April report by the Treasury Inspector General for Tax Administration found the IRS’s use of structuring laws “compromised the rights of some individuals and businesses.” In a sampling of 278 investigations, it found no evidence in 91 percent of those cases “that the structured funds came from an illegal source or involved any other illegal activity.”

In October 2014, the IRS’s Criminal Investigation unit introduced a new policy specifying that it would no longer pursue the seizure and forfeiture of funds related to legal source structuring. However, in the same month the policy changed, the TIGTA report noted, The New York Times reported that IRS Criminal Investigation had been seizing funds in structuring investigations without filing a criminal complaint, leaving property owners to prove their innocence. Many of them gave up trying.

In July, Roskam noted that the IRS had reviewed 454 petitions for the return of property forfeited under the structuring laws and returned more than $6 million to property owners. The IRS also transferred 250 petitions to the Department of Justice for review, but the DOJ has only acted on 73 of the petitions. The Justice Department approved returning money in only 32 percent of cases—far below the IRS’ recommendation of 80 percent. In their 2016 party platforms, both the Republican and Democratic Parties condemned civil forfeiture and called for reforms to the practice. Since 2014, according to the Institute for Justice, 24 states have reformed their forfeiture laws while over 260 editorials have criticized the practice.

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.