Is Civil Forfeiture Incentive for Perverse IRS Behavior?

Due process is held out as one of the cornerstone guarantees of the U.S. Constitution. What it is generally understood to mean is that the government can’t exercise punitive action against a person merely on suspicion of wrongdoing.

Under that concept, actions such as the seizure of money or assets should not happen unless the government has charged a person with criminal activity and proven its case in a court of law. But, because of what’s called the civil forfeiture law, such seizures can and do happen.

Indeed, according to the Institute for Justice, which describes itself as a libertarian defender of civil liberties, it is done routinely by the Internal Revenue Service. The result is that an innocent person may find themselves caught in the middle of a tax controversy, the resolution of which requires an attorney’s help.

Under civil forfeiture the government has the power to go after property that it suspects was gained as a result of criminal activity. And, as the case of a small business owner in Michigan shows, charges and a conviction may not be required.

According to the owner, the IRS had looked into his small grocery business in 2010 and 2012. The checks apparently were prompted by the fact that the owner regularly makes deposits of less than $10,000 in cash to a bank across the street from his business. Federal law aimed at preventing money laundering requires banks to report cash deposits of $10,000 or more.

While the IRS said it found no violations of banking laws, in 2013 it drained the bank account of more than $35,000, and let the owner know only after the fact.

The presumption by the IRS appears to have been that the grocery store owner’s deposits must be an attempt to avoid the reporting threshold, but no charges were filed. The reality, says the owner, is that the deposits were an effort to minimize the risk of being robbed.

After some initial haggling, the IRS reportedly offered to return 20 percent of what it took. After the store owner got legal help, the IRS returned the full sum.

Pundit George Will suggests the civil forfeiture law serves as an “incentive for perverse behavior” by the government. True or not, it has inspired the Institute for Justice to go to court in a bid to stop such IRS actions going forward.

Source:The Washington Post, “The heavy hand of the IRS seizes innocent Americans’ assets,” George F. Will, April 30, 2014

Tags: Blog, Tax Controversies