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IRS Seized This Grandmother’s Bank Account Because She Made ‘Suspicious’ (But Perfectly Legal) Deposits

Image source: Institute for Justice

Image source: Institute for Justice

The Internal Revenue Service has seized the bank accounts of hundreds of small business owners and private citizens even though those individuals have paid their taxes and committed no crime.

The accounts were emptied without a hearing or criminal charges simply because the account holders had made lots of small cash deposits.

“How can I be committing a crime by depositing money I worked for and deposited in my own bank account?” Iowa grandmother and restaurant owner Carole Hinders asked.

The IRS took all the money in Hinders’ checking account, $33,000, and closed it because she made lots of small cash deposits. Federal law requires banks to report to the government when a person deposits more than $10,000. Hinders’ restaurant accepts only cash, so she made frequent trips to the bank.

The government says she was trying to avoid the reporting requirements.

“The government is treating Carole like a criminal just for running an honest cash business,” Hinders’ attorney, Larry Salzman of the Institute for Justice, charged.

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Hinders has been charged with no crime and is not accused of tax evasion.

Law Turned on its Head

The IRS was able to seize Hinders’ account without warning or a court hearing by using a process called civil forfeiture. Civil forfeiture is designed to let the agency seize money from drug dealers and terrorists, but it is increasingly being used against law-abiding businesspeople, Salzman charged.

“Civil forfeiture turns the principle of innocent until proven guilty on its head,” Salzman said. “Once your property is taken it’s up to you to prove your own innocence to get it back in expensive litigation against the federal government.”

Hinders had been making deposits from her restaurant, Mrs. Lady’s Mexican Food in Spirit Lake, Iowa, in the same way for 38 years. She made frequent trips to the bank because she did not want to have a lot of cash on hand.

The IRS interrupted that behavior as structuring or an attempt to get around banking laws by making lots of small cash deposits. Hinders didn’t realize what was happening until two IRS agents knocked on her door in August 2013 and told her that they had closed her account and taken her money.

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“I had to scramble. I had to borrow. I had to beg, I had to put money on my credit cards, things I’ve never done before,” Hinders said of life without a checking account.

More than a year later, Hinders still has not gotten her money back. The Institute for Justice is representing her in a legal case against the IRS in an effort to get her cash back.

Federal Monitoring of Bank Accounts Leads to Seizure

Hinders is one of a growing number of business owners and citizens having their bank accounts seized because they made small cash deposits, The New York Times reported. The Institute for Justice found that the number of civil forfeitures made by the IRS rose from 114 in 2005 to 639 in 2012.

The IRS and other federal agencies are using a federal law called the Bank Secrecy Act to force banks to report people that make lots of cash deposits under $10,000, The Times said. Banks filed more than 700,000 suspicious activity reports to federal agencies. When such deposits are identified the IRS can seize the accounts.

Making lots of cash deposits under $10,000 can be construed as structuring or an attempt to evade banking and tax laws. The IRS regards structuring a crime no matter where the money comes from, Richard Weber, the IRS’s Chief of Criminal Investigation, told The Times.

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The IRS policy has many critics.

“They’re going after people who are really not criminals,” attorney David Smith said of the IRS’s forfeiture efforts. “They’re middle-class citizens who have never had any trouble with the law.”

Recent news stories indicate that Smith’s analysis is correct. Other examples of IRS civil forfeiture include:

  • Jeff Hirsch, a cigarette and candy distributor on Long Island, had $447,000 seized from three bank accounts belonging to his family business, Bi-County Distributors, two years ago. Hirsch and his brothers made small deposits for years at the recommendation of an accountant. They’ve been fighting to get the money back ever since.
  • Army Sgt. Jeff Cortazzo had $66,000 he had saved for his daughters’ college seized from his bank. The money came from Cortazzo’s military pay, and he had originally saved it as cash because he didn’t trust banks. A bank teller had told him to deposit less than $10,000, and after following her advice, the Sergeant’s account was seized. Cortazzo eventually settled with the federal government for $45,000, or $21,000 less than he had saved.
  • Three Michigan business owners, including grocery store owner Terry Dehko, had around $200,000 in cash seized from their accounts by the IRS. Dehko lost all of his operating cash because he deposited it in sums under $10,000 to comply with an insurance policy. Dehko and two other business owners got their money back when US District Judge Sean Cox ruled that the IRS had violated federal law by missing a deadline for filing a case.

IRS Feeling the Pressure?

In response to the Times’ questions, Weber said the IRS now only seizes bank accounts when there is an indication of criminal activity. Unfortunately, his statement indicates that such seizures can continue as long as a high-ranking IRS official signs off on them. Here’s what he wrote to The Times:

“After a thorough review of our structuring cases over the last year and in order to provide consistency throughout the country (between our field offices and the U.S. attorney offices) regarding our policies, I.R.S.-C.I. will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture and the case has been approved at the director of field operations (D.F.O.) level. While the act of structuring — whether the funds are from a legal or illegal source — is against the law, I.R.S.-C.I. special agents will use this act as an indicator that further illegal activity may be occurring.”

It sounds as if the IRS will keep monitoring our accounts — and seizing citizens’ money.

What are your views on what the IRS is doing? Leave your response in the section below:

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