By Olivia Marcus
WASHINGTON — Rep. Mike Kelly, R-Penn., turned red with anger Wednesday.
“You talk about waterboarding, this is waterboarding at its worst,” he said.
But Kelly wasn’t talking about torture. He wasn’t even at a national security meeting.
Rather, Kelly was at a Ways and Means subcommittee hearing, and he was talking about the IRS civil forfeiture program.
The IRS is taking heat for seizing money on the basis of a law that requires banks to report cash deposits exceeding $10,000 to the Treasury Department and forbids account holders to “structure” deposits smaller than the $10,000 threshold to avoid having their large cash deposits reported.
Documents obtained by the Institute for Justice, a national law firm that litigates property rights, show that the IRS seized more than $242 million from suspected structuring violations in more than 2,500 cases from 2005 to 2012. But at least a third of those seizures “arose from nothing more than a series of cash transactions under $10,000, with no other criminal activity alleged,” according to the report.
And under federal law, the IRS gets to keep this money. Funds seized through civil forfeiture are deposited in the Treasury Forfeiture Fund, which is available for use by the IRS without any appropriation by Congress.
To get seized funds back, property owners have to go to court against the Department of Justice.
“These laws were intended to target drug dealers and other hardened criminals engaged in money laundering or other criminal activity,” said Robert Johnson, an attorney for the Institute for Justice. “In practice, however, the IRS enforces the structuring laws against innocent Americans who have no idea that depositing less than $10,000 in the bank could possibly get them in trouble with the law.”
Jeffrey Hirsch, who testified at Wednesday’s hearing, said “no other American should be put through the nightmare” he experienced when the IRS seized almost half a million dollars from his business in 2012.
Hirsch owns and operates Bi-County Distributors, a small business that distributes products to convenience stores on Long Island. The company had multiple accounts closed due its frequent cash deposits, which–when more than $10,000–require burdensome paperwork from the bank. Hirsch’s accountant recommended staying below the limit, so Hirsch often made cash deposits under $10,000.
On the basis of civil forfeiture, the IRS seized Hirsch’s money in May 2012 and held it for more than two years without issuing any charges against him. Twice, Hirsch said, the government offered settlements that would require him to surrender “a substantial portion” of the money.
“I rejected these offers as I felt that I had done nothing wrong and should not be forced to give up my hard-earned money for no reason.”
Hirsch said the seizure drove his business “to the edge of insolvency,” forcing him to take extended lines of credit. In an attempt to demonstrate his innocence, he paid an accounting firm $25,000 to audit his own business.
In January, the government agreed to return the money.
“In this country, people are supposed to be innocent until proven guilty. But, in the eyes of the IRS, I was guilty until proven innocent—forced to prove my own innocence to get my property back,” Hirsch said.
IRS Commissioner John Koskinen, who testified at Wednesday’s hearing, said the agency would no longer pursue civil seizure on structuring grounds “unless there are exceptional circumstances.”
“We’ve changed the policy from our standpoint,” Koskinen said.
But lawmakers aren’t satisfied with Koskinen’s promise.
Rep. George Holding, R-N.C., cited concerns that the policy change is not retroactive, and many civil seizure cases will remain in the tangle of the judicial process.
Kelly indicated he would push for stronger laws from Congress.
“It is wrong without any criminal evidence to seize anyone’s property… This flies in the face of everything we are as a country,” Kelly said.
In January, Sen. Rand Paul, R-Ky., and Rep. Tim Walberg, R-Mich., introduced the Fifth Amendment Integrity Restoration Act, which would restrict the IRS from seizing funds without criminal charges and make it easier for innocent property owners to get their money back.
The bill is only in the primary stages of the legislative process, but there are some indications that it may receive bipartisan support.
