The Criminal Investigation Unit of the IRS seized more than $17 million from individuals and businesses that weren’t in violation of the Bank Secrecy Act’s anti-structuring provisions, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA).
The Bank Secrecy Act requires financial institutions to report currency transactions of more than $10,000, and it’s a crime for property owners to structure those transactions in ways that avoid the law’s filing requirements, which makes them subject to civil or criminal forfeiture proceedings.
But the Constitution’s Eighth Amendment requires that penalties in civil forfeiture cases must be in proportion to the conduct and limits what the government can forfeit depending on the facts of the particular case, TIGTA states.
After complaints were filed in 2014 about IRS seizures of property without sufficient evidence of a crime, TIGTA began an audit of the process.
TIGTA determined that 91 percent of the 278 structuring investigations in its sample, where source of funds could be determined, were of businesses and individuals whose funds were obtained legally. All told, $17.1 million was seized and forfeited to the government in 231 legal source cases.
While the Bank Secrecy Act doesn’t distinguish between legal and illegal funding sources, IRS procedures do – the agency’s civil forfeiture program targets criminal enterprises, TIGTA states.
Most people affected by the program “didn’t appear to be” criminals but operated legal businesses, such as jewelry stores, restaurants, gas stations, and scrap metal dealers, TIGTA states. One of the reasons why legal businesses were targeted is because the US Department of Justice wanted task forces to engage in cases that could be settled quickly through negotiation rather than pursuing cases involving other criminal activity, such as drug trafficking.
IRS investigators typically relied on the pattern of currency transactions to support their seizure instead of seeking information about the property owners. When they were later interviewed, IRS agents didn’t always identify themselves properly, didn’t explain why they were being interviewed or explain their rights, and told the property owners at the end of the interview that they had committed a crime.
Under IRS procedures, rights such as the right to remain silent aren’t provided in Title 31 cases, which include violations of the banking law.
In 54 cases, property owners gave “reasonable explanations” for why currency transactions weren’t more than $10,000, and TIGTA found no evidence that the explanations were investigated.
In some cases, the IRS appeared to bargain for no prosecution to resolve the civil case “though it is not clear whether the potential criminal matters were leveraged solely to resolve the civil matter, which would have been improper,” TIGTA states in a notice about the audit.
TIGTA also found that case results with similar facts were inconsistently resolved, and IRS investigators labeled case materials as grand jury information, which delayed the audit.
The IRS made policy changes after the audit concluded, but TIGTA noticed inconsistencies. After two congressional hearings last year on the anti-structuring program, the IRS began notifying 1,800 property owners, who were informed they had committed felony structuring violations, to send in a petition to get their forfeited funds back.
“Criminal Investigation has now made important improvements to this program; however, the IRS should ensure that protections are in place so that people have rights and that innocent people do not feel compelled to settle a civil forfeiture matter under the pressure of possible criminal prosecution,” Treasury Inspector General J. Russell George said in a prepared statement.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.