IRS Seized Millions from Innocent Small-Business Owners through “Coercion and Power of Government”

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Tax Revolution Institute – by Guillermo Jimenez

“You’re always looking over your shoulder. When you think you’re doing the right thing, you wonder, ‘Am I doing the wrong thing, even though I think I’m doing the right thing?” This is how Maryland farmer Calvin Taylor describes his experiences with the Internal Revenue Service, and unfortunately, the sentiment is all too common.

In 2011, the owner of C.W. Taylor Farms in Preston, Maryland, had more than $90,000 — his life’s work — seized by the IRS. His crime: a violation of the Bank Secrecy Act known as structuring, or “smurfing.”

Structuring is the act of making repeated cash deposits of less than $10,000 in order to avoid federal reporting requirements. The word “smurfing” is a banking-industry term that is, of course, a reference to the 1980s cartoon The Smurfs, in which a large group is made up of several smaller entities.

As Radley Balko writes in the Washington Post, the term smurfing in this case is spot on:

If you grew up on the cartoon in the 1980s, or were unfortunate enough to have seen the 2011 movie, you’ll also know that the word smurf itself is rather ambiguous. It can mean whatever the person using the word wants it to mean. And that’s a pretty decent metaphor for how structuring laws function in the hands of federal officials.

Originally, the Bank Secrecy Act was aimed at making it more difficult for mobsters, drug dealers, terrorists, and money launderers to cover their financial tracks. However, the law regarding structuring is so ambiguous and arbitrary that hundreds of innocent people have been caught up in the federal dragnet over the years.

In several cases, legitimate small-business owners have had their lives turned upside down by the IRS — the contents of their bank accounts seized through civil-asset forfeiture — even though the money in question had never been linked to any sort of crime. According to the Institute for Justice, a US libertarian public-interest law firm, the IRS seized more than $43 million from 618 cases between 2007 and 2013. In each of those cases, the agency did not report any suspicion of a crime other than the act of structuring itself.

In other words, the mere act of periodically depositing less than $10,000 into their bank accounts caused over 600 business owners and their families to go through financial hell. What’s more, the IRS not only seized these individuals’ money without knowing if any real crime had been committed, the agency decided to keep the funds even after their own investigations failed to reveal any other wrongdoing. Why? The IRS did it simply “because they could,” according to Taylor, who continues to fight to get his property back.

Part of the problem with the way the law works in practice is that few Americans seem to know what structuring is or that it’s even illegal. This is evidenced by the sheer number of civil-asset forfeiture cases that share a similar pattern: A small-business owner goes to the bank and tries to make a deposit of just over $10,000. The bank teller informs the customer that because the deposit is more than $10,000 he will be required to fill out additional paperwork and report the transaction to the government. The customer at this point does what most people would do in this situation and opts to avoid the extra hassle and simply make a smaller deposit, completely unaware of the crime he has potentially committed in the eyes of the federal government.

The same story has played out in case after case, including that of Randy Sowers, another Maryland farmer who had more than $60,000 taken by the IRS. On May 25, Sowers and his attorney, Robert Johnson of the Institute for Justice, testified before the House Ways and Means Oversight Subcommittee regarding their struggle with the IRS and the agency’s civil-asset forfeiture abuses.

“Structuring is a crime, but there’s nothing morally criminal about it,” Johnson told theDaily Signal. “It’s a crime because Congress said it’s a crime. It’s true, the government can put you in jail for depositing money in the wrong amounts.”

Those words should send a shiver down the spine of any individual, regardless of political affiliation or ideological stripes, who still believes in living in a free society without fear of “doing the wrong thing, even though you’re doing the right thing.”

Perhaps that is part of the reason why there has been such bipartisan outrage, at least in rhetoric, emanating from Congress on this particular issue. So much so, in fact, that the House Ways and Means Oversight Subcommittee paused deliberations on the question of IRS Commissioner John Koskinen’s impeachment — a hearing which was deeply divided along partisan lines — to collectively lay into the IRS over the agency’s civil-asset forfeiture seizures.

Congressman Charlie Rangel (D-NY) said during the hearing that he had “never seen” the kind of bipartisanship within the committee that there is on this issue, adding that he felt “embarrassed” to be part of a government that would do the sort of things that have been done to Taylor, Sowers, and so many others.

“It’s hard to believe this can happen in our country,” Rangel said. “This amounts to stealing somebody’s property by using coercion and the power of government.”

The chairman of the committee, Peter Roskam (R-IL), told the Daily Signal that the IRS’s actions in these cases clearly constitute “an abuse of power.”

“The government is being dismissive of notions of fundamental justice, even when they acknowledge that the underlying policy is wrong, even when the IRS has apologized for the implementation of that policy,” he said. “It is still a miserable enterprise trying to [get] funds restored to the individuals.”

In an effort to curb this sort of abuse, Chairman Roskam and Representative Joseph Crowley (D-NY) have introduced a bill — the Clyde-Hirsch-Sowers Respect Act — to prohibit the IRS from seizing funds unless the agency can prove the money was acquired illegally through some other crime.

However, in actuality, the bill merely codifies into law the policy changes that the IRS and Justice Department already claim they enacted in 2014 and 2015, respectively, in response to public outrage on the issue. While making the policy change law is an important step to prevent future abuse, it isn’t enough. Congress can and should do more.

An agency like the IRS has repeatedly shown that it cannot be trusted to police itself on this or any other of its laundry list of issues. Despite the IRS’s supposed rule change, and the agency’s claims that it is no longer targeting innocent people over their bank deposits, Robert Johnson says the practice continues, such as the case of the Vocatura family in Westerly, Rhode Island, and the ongoing investigation into their bakery business.

Then there is the lingering issue of the $43 million that the IRS has already seized and has made no effort to return. What’s worse is that the IRS does not even seem to know where the money has gone. It’s as if the money disappeared into the ether, or as Chairman Roskam says IRS and Justice officials put it when he inquired as to Sowers’s money specifically, it has been “dissipated into the system.”

How is this acceptable in any way, shape, or form?

As Tax Revolution Institute Executive Director Dan Johnson has said, one of the core tenants of TRI’s mission is the principle that no one should fear the nation’s federal tax-collection agency if they’ve done nothing wrong.

There may be no better example of why the IRS must be held to account than their abusive civil-asset forfeiture seizures. As Calvin Taylor reminded the Ways and Means subcommittee during his hearing: “Thomas Jefferson said something about the government getting so big that it can take everything you have. It just seems very, very real to me right now.”

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