The Internal Revenue Service’s seizure program for allegedly structured business deposits swept up millions of dollars in legally sourced funds that were not returned to their owners, according to a major report from the IRS’s independent inspector general. Inappropriate handling of structuring investigations continued in some cases even after a 2014 policy change intended to reform the process, the report showed.
Of the sample of seizures reviewed from fiscal years 2012 to 2015, the IG audit found that 83 percent of the investigations involved funds with a legal source and with no tax law violations identified. From these 231 cases, $17.3 million — seized solely on the basis of allegations that transactions were structured — was forfeited to the federal government. By comparison, only 9.4 percent of investigations involved illegal activity or illegal sources of funds, and just 7.5 percent involved legal sources of funds but violations of tax law.
When considered in light of the grand total of $130.6 million that was civilly forfeited in the course of 649 IRS criminal investigations during the review period, the rate of seizure of lawful funds suggests a massive sum forfeited by businesses breaking no laws other than the Bank Secrecy Act prohibition on “structuring” transactions to avoid reporting triggers at $10,000. “[T]he purpose of the BSA reporting requirements is focused on detecting and deterring criminal behavior,” the report noted. “In other words, the BSA reporting requirements were not put in place just so that the Government could enforce the reporting requirements.”
The report also showed that the IRS failed to follow its own policy by considering property owners’ “reasonable explanations” for their cash transactions. In about one-third of cases, individuals — often businesses that rely on cash, such as restaurants, gas stations and small retail outlets — told investigators that they had legitimate business purposes, insurance requirements or personal safety reasons for structuring deposits. “We found no evidence that [the IRS] attempted to verify the property owners’ explanations,” the report found.
In response to controversy over the seizure program, the IRS revised its policy in 2014, saying it would not pursue seizure of funds related to legal-source structuring cases unless justified by “exceptional circumstances.” However, in more than a quarter of investigations reviewed after the policy change, the IG report found that government actions were either inconsistent with the new policy or that there was no evidence the government conformed to the new policy.