The IRS has used a law meant to facilitate the tracking of illicit financial transactions by drug and terrorist organizations to seize and forfeit vast sums of money from people with absolutely no connection to the criminal underworld – commonly referred to as currency structuring.<\/p>\n
In 2016, the U.S. House of Representatives voted unanimously to curb this practice by passing H.R. 5523, the Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act.<\/p>\n
This is the first of hopefully a long series of federal legislative reforms targeting America\u2019s broken civil forfeiture system.<\/p>\n
Federal law requires that banks report any transactions exceeding $10,000 in value to the federal government, and makes it a crime to \u201cstructure\u201d transactions in amounts less than $10,000 to avoid the reporting requirement. If the IRS suspects someone of structuring a transaction, the entire bank account\u00a0is\u00a0seized under Federal civil forfeiture laws even if officials have no reason to believe this person’s funds are\u00a0from criminal activity.<\/p>\n
These \u201clegal source structuring\u201d cases are hardly infrequent occurrences. Between 2005 and 2012, the IRS seized $242 million in more than 2,500 structuring cases. One-third of these are\u00a0civil actions where structuring was the only wrongdoing.<\/p>\n
The targets of these cases are frequently small business owners who have legitimate reasons for making deposits just below $10,000.<\/p>\n
The Old Law: In order to seize funds prosecutors must prove:<\/p>\n
Under the new law, the IRS would only seize funds derived from an illegal source and structuring violations can lead to forfeiture only if payments are \u201cstructured for the purpose of concealing the violation of a criminal law or regulation.\u201d<\/p>\n
The new bill affords property owners improved due process protections. The IRS must now\u00a0provide notice of seizure within 30 days and property owners would then have 30 days to request an adversarial hearing. The property must be returned to its owner if the IRS fails to hold a hearing within 30 days of the request or if, at the hearing, the IRS cannot demonstrate that \u201cprobable cause [exists] to believe that the property to be seized was derived from an illegal source or the funds were structured for the purpose of concealing the violation of a criminal law or regulation\u201d besides the structuring statute itself.<\/p>\n
Property owners can also\u00a0recovery interest for funds in possession of\u00a0the Federal government and the bill makes interest tax-exempt.<\/p>\n