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Civil Forfeiture

Civil asset forfeiture is the legal process by which law enforcement agemts, including IRS officers, can seize assets (cash, car, home, etc.) from a person suspected of carrying out an illegal activity. Such action can be conducted without the individual being charged of a crime. This controversial process allows a government official to seize bank accounts, property, or take cash from any person without having to charge the person with a crime or provide proof of any wrongdoing. Moreover, the responsibility of proving innocence falls on the victim.

Earlier this year, as reported by the New York Times, Lyndon McLellan lost over $107,000 (his life’s savings) to the IRS when the agency raided his company’s bank account. He runs a small business, L&M Convenience Mart in North Carolina. It had taken him 13 years to save the money that the IRS took away in seconds. His only “crime” was that he was depositing less than $10,000 at a time in his bank account.

The IRS was acting under a law created to limit tax evasion, money laundering and drug trafficking. Federal law prohibits “structuring” deposits of less than $10,000, as it might be used to avoid reporting requirements. Under the Bank Secrecy Act, banks and other financial institutions are required to report cash deposits greater than $10,000. However, making smaller frequent deposits is only a crime if it is done to evade reporting requirements. Despite this, a bank statement showing frequent deposits of less than $10,000 is sufficient for federal investigators to obtain a seizure warrant.

McLellan’s is not an isolated case. There have been thousands of victims of civil forfeiture, many of them small business owners. Carole Hinders, the owner of a humble cash-only restaurant in Iowa is another such victim. Like McLellan, Ms. Hinders was also depositing less than $10,000 in her bank at a time. The IRS raided her checking account, taking away $33,000 from it. She was not charged with any crime.

Dissatisfaction with civil forfeiture is growing, as innocent small business owners and individuals with no intention to evade taxes are losing years of savings only because they chose to deposit less than $10,000 at a time. Statistics reveal that 639 seizures were made in 2012, up from 114 in 2005. Only one in five was prosecuted as a criminal structuring case.