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Small Businesses Beat IRS And Get $200,000 Back In Seized Money

IRS backs down

The Dekhos

It is possible to fight the Internal Revenue Service and win, as several business owners have learned.

The agency has decided to return more than $200,000 it had seized from three business owners in Michigan because of a federal judge’s ruling.

As Off The Grid News reported, the IRS can use a legal procedure called civil forfeiture to take all the cash from the bank accounts small businesses — without trial or advance notice. None of the business owners was charged with a crime.

The money was taken because the business owners were making cash deposits of less than $10,000. The IRS contended that the business owners were trying to get around regulations that require businesses to report deposits of $10,000 or more.

Federal judge says IRS did not follow the rules

The IRS started giving the money back after a ruling from US District Court Judge Sean Cox. Cox found that the IRS had missed a deadline for filing a complaint in a case involving the China Lite restaurant in Marysville, Mich.

Under federal law, the IRS has 90 days to respond to complaints about civil forfeiture. Cox found that the agency hadn’t responded in time to a challenge to civil forfeiture filed by the owners of the restaurant. The IRS had seized $136,000 from China Lite’s accounts.

Cox’s ruling also led the IRS to drop civil forfeiture cases against two other Michigan business owners and return their money.

One of those who got his money back is Terry Dehko the owner of Schott’s Market in Fraser, Mich. As previously reported by Off The Grid News, the IRS seized $35,000 in cash from Dehko’s bank account in January because his employees had made multiple deposits of less than $10,000. It was all the money he had.

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“I’ve always paid my taxes and have never been arrested or charged with any crime in my life,” Dehko wrote in a Washington Times editorial. “But in January of this year, I woke up to find that my business’s entire bank account – more than $35,000— had been wrongly seized. … The IRS has turned my American Dream into a nightmare. I have never had to pay a vendor late – until that week in January.”

Also getting his money back was Mike Zaniewski, who had $33,000 seized from the accounts of his Metro Marathon gas station Sterling Heights, Mich., in March, 2013. Zaniewksi told The Bradenton Herald that he was forced to take out thousands of dollars in loans to keep his business operating because the IRS took all of his operating cash.

Civil forfeiture still a threat to small business owners

Civil forfeiture is still a threat to small business even though the Michigan businesspeople got their money back. Judge Cox’s ruling did not block the IRS from engaging in civil forfeiture; it only stopped it in those three cases.

“The IRS should not be raiding the bank accounts of innocent Americans, and it should not take a team of lawyers to put a stop to this behavior,” attorney Clark Neily of the Institute for Justice, a civil liberties group, said. Neily is representing Dehko and Zaniewski in a lawsuit challenging civil forfeiture as unconstitutional.

The lawsuit challenges the IRS’s civil forfeiture policies on two grounds:

  • Business owners are not given a prompt hearing when civil forfeiture proceedings are implemented.
  • Federal law is not clear on if making frequent cash deposits is illegal or not.

The Institute for Justice wants federal courts to block the IRS from instituting civil forfeiture proceedings without a hearing.

Neily and the Institute will face a stiff fight from the federal government. Civil forfeiture has become big business. Many of the agencies that seize the money add it to their operating budgets.

“Last year alone, the government took in more than four billion dollars in forfeiture money,” Institute attorney Larry Salzman said. “Taking money from innocent people like Terry Dehko and Mark Zaniewski is wrong and it needs to end immediately.”

Cox was nominated by President George W. Bush.

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