IRS and Civil Forfeiture Under the Bank Secrecy Act bring nasty surprises

IRS sign

Photo of IRS sign: Joshua Doubek

by Wendy N. Powell

Wendy N. Powell

Wendy N. Powell (Used with permission)

The Internal Revenue Service (IRS), the most powerful of government agencies, has been under recent scrutiny for extreme civil forfeiture of assets.

With IRS’ power to confiscate and make financial demands, most Americans are increasingly fearful of the “tax man”.  Recent accounts of alleged overreach by the IRS have surfaced, resulting in American taxpayers questioning the agency’s extreme authority. With allegations of abuse resulting in serious financial injury, particularly to small business and individuals, Americans’ disgust over the power of the IRS has escalated. 

By law, the IRS maintains the authority to reach into bank accounts and seize all funds without any type of due process.

Recent allegations of overreach are surfacing concerning the little known Bank Secrecy Act of 1970.

The New York Times  exposed cases of small businesses that have been unfairly targeted by the IRS, having their money seized directly from their checking accounts with no rationale other than the fact that they made deposits in amounts under $10,000. Startling examples of mom and pop restaurants, farmers, families keeping cash at home have arisen.

The Bank Secrecy Act

The Bank Secrecy Act (BSA) of 1970, also known as the Currency and Foreign Transactions Reporting Act, requires all financial institutions in the U.S. to assist federal agencies to detect and prevent money laundering. The act requires financial institutions to keep records of cash purchases and file reports of cash purchases of $10,000 or more and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

Why are they entitled to this information? The IRS partners with the U.S. National Money Laundering Strategy to locate money launderers, drug traffickers, and others with nefarious intent. Good strategy, but should we consider every business nefarious or should there be proof of wrongdoing? Problems arise because there are thousands of reasons that small businesses would make deposits less than $10,000 at a pop. Reasons include cash only businesses—some avoid credit card fees—and the fact some insurance protection ends at particular monetary thresholds.

This seizure of money could very easily break a business without any evidence of wrongdoing whatsoever.

Countless businesses that have deposited less than $10,000 at a time have been targeted by IRS seizing assets for nothing more than suspicion of avoiding reporting requirements. After the money is seized, getting the money back isn’t as simple as the IRS money grab. Many companies must spend money they don’t otherwise have for legal defense often amounting to tens of thousands of dollars. Many settle with the IRS resulting in a loss of income.  Others can’t afford defense resulting in forfeiture of the seized money. The process lets IRS take it away and puts the burden on you to prove you are innocent of money laundering. No allegations, just the coincidence of the amount of the deposit is sufficient for IRS to act.

In and of itself deposits of $10,000 are TREATED as illegal. Banks are not permitted to tell customers that they are getting into a grey area of potential seizure. But many do.

The Department of Justice does not track these activities nor the amount of seizures, leaving this process ripe for fraud.   Shouldn’t we question where does the money go that is not challenged, to the IRS budget or the national debt? According to the Institute for Justice, between 2005 and 2012, the IRS seized more than $242 million in “restructuring” cases.

Because of negative publicity and focus, The IRS has decided to curtail the process of alleged arbitrary seizure focusing on legally obtained money. But is that not the original intent of the law? Has the IRS simply and easily deemed everyone guilty to prove otherwise?

In response to the recent Times article, the IRS said that it would cut back on forfeiture in restructuring cases and focus mostly on cases where the money was illegally obtained. According to Richard Weber,  chief of IRS Criminal Investigation,  …(we) “will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases unless there are exceptional circumstances justifying the seizure and forfeiture…”

But is that not the very narrow intent of the Bank Secrecy Act? There will be no retro redress of concerns and forfeiture. We need to demand redress for those harmed by this overreach of civil forfeiture.

So if you choose to avoid deposits using the “Bank of Serta” in your bedroom, be careful when you deposit your cash. The IRS is not here to believe you. Do we want the IRS having that kind of power?

Even the Beatles got into the act with George Harrison’s song Taxman:

If you drive a car, I’ll tax the street
If you try to sit, I’ll tax your seat…
Cos [sic] I’m the taxman, yeah I’m the taxman

Featured photo by Joshua Doubek

Ed. Note: Day on the Day followed one of the cases, a small shop caught up in the arcane rules of the Secrecy Act. See our story on Schott’s Market.

About the Author

Wendy N. Powell is the author of the critically acclaimed Management Experience Acquired: Necessary Skills for Successfully Managing Any Employee. Her book is now available on e-book sites. She has been featured on ABC, Fox, and NBC and talk radio as a management and career expert. Powell writes for a number of publications, including a column at The Huffington Post.


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About Kay Day

Kay B. Day is a freelance writer who has published in national and international magazines and websites. The author of 3 books, her work is anthologized in textbooks and collections. She has won awards for poetry, nonfiction and fiction. Day is a member of the American Society of Journalists and Authors and the Authors Guild.
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One Response to IRS and Civil Forfeiture Under the Bank Secrecy Act bring nasty surprises

  1. Kay B. Day says:

    The law’s paradigm conflicts with insurance coverage limits. If I’m only insured up to $10k cash on my premises, I must deposit the money to protect it. But if I deposit recurring amounts just under $10k, my accounts can be seized automatically. The law needs reform. Whatever happened to due process in our country? Day on the Day appreciates Wendy N. Powell tackling this issue as part of our ongoing advocacy for small business owners.

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