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US DOJ Restricts IRS Use Of Civil Asset Forfeitures

by Mike Godfrey,, Washington

06 April 2015

The US Department of Justice (DOJ) has announced a restriction on the Internal Revenue Service's (IRS's) use of civil forfeiture laws to seize the assets of small businesses, following criticism of the practice during a House of Representatives Ways and Means Subcommittee on Oversight hearing in February this year.

The Civil Asset Forfeiture Act of 2000, which is aimed at preventing money laundering, drug trafficking, and other crimes, has been criticized for enabling government agencies to use greatly reduced standards of evidence to seize assets. Agencies are able to confiscate and sell the property of individuals suspected of (but not necessarily charged with) a crime.

It has been noted that the law has also been used to seize funds from some small businesses, in some cases leaving them with no working capital to cover payroll costs and maintain needed inventory. As the onus is often on the asset owner to prove their innocence, those affected must either pay for a lawyer or defend their property themselves. Overall, more than USD2bn was collected in 2013 from civil and criminal forfeitures.

In his opening statement to the hearing on February 11, Subcommittee Chairman Peter Roskam (R – Illinois) pointed out that the IRS has used the law "to seize the bank accounts of people suspected of 'structuring' – that is, of making cash deposits worth less than USD10,000 to avoid reporting requirements."

He added that "it's catching a lot of innocent people. … Small businesses keep getting caught in the snares largely because they are just that – they're small; they do a lot of transactions in cash."

In response, Attorney General Eric Holder has issued a policy focusing the use of asset forfeiture on the most serious illegal banking transactions. In the absence of criminal charges, judicially authorized warrants to seize bank accounts involved in structuring can now only be obtained if the prosecutor first develops probable cause of additional federal criminal activity and that determination is approved by a supervisor.

Otherwise, a prosecutor may ask a judge to issue a seizure warrant only if either the US Attorney or the Chief of the DOJ Criminal Division's Asset Forfeiture and Money Laundering Section personally determines that seizure would serve a compelling law enforcement interest.

In addition, the new policy imposes important protections after a seizure has taken place. The policy requires that a prosecutor should direct a seizing agency to promptly return funds if the prosecutor determines that there is insufficient admissible evidence to prevail in a criminal or civil trial.

The policy also imposes a 150-day deadline to file a criminal indictment or civil complaint against a decision to seize funds, or otherwise directs a return of the full amount of the seized funds. Finally, the policy requires a formal, written settlement agreement vetted by a federal prosecutor for settlements of structuring offenses.

In his testimony, IRS Commissioner John Koskinen had already apologized to small businesses that had "got caught up" and had assets seized. He had also confirmed that, in the future the IRS would "focus its resources on cases where evidence indicates that the structured funds are derived from illegal sources."

However, following the DOJ's policy change, Roskam pointed out that the Administration has acknowledged "that its practice of seizing bank accounts on mere suspicion of wrongdoing is destructive and unjust. However, the 'policy change' offers little actual protection for Americans unless it is enshrined in statute and provides for verifiable enforcement mechanisms beyond DOJ's current system of 'just trust us.'"

The Fifth Amendment Integrity Restoration Act (FAIR Act), reintroduced into Congress earlier this year, would provide that an affected person could, within fourteen days of receiving a notice of a seizure, request a court to hold a "probable cause" hearing. If, within fourteen days of such a request, a requested hearing is not held, or if the Government fails to show probable cause, the seized funds would be automatically returned to the taxpayer.

TAGS: individuals | court | compliance | tax | small business | business | tax compliance | law | banking | Internal Revenue Service (IRS) | enforcement | tax authority | legislation | United States | standards

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