Investigation Finds IRS Seized Millions Of Dollars From Innocent Individuals And Business Owners

from the IRS-Criminal-Investigations:-A-Cash-Only-Business dept

The IRS's Inspector General has confirmed what many of its victims have known all along: the Criminal Investigations' asset forfeiture program isn't really for "disrupting criminal enterprises." It's for taking money from innocent people.

The Treasury Inspector General for the Tax Administration (TIGTA) took a look at forfeitures tied to the IRS's so-called "structuring" cases. If you deposit more than $10,000 into a bank account, the IRS is notified and you, the depositor, have extra paperwork to fill out. This fulfills IRS reporting requirements and is generally a headache for the depositor and the bank.

If you deposit less than $10,000 in cash, it's perfectly legal. Do it often enough and the IRS starts to believe your cash deposits are the product of criminal activity. Even if you never have enough on hand to clear the $10,000 mark with a single deposit, a string of smaller deposits makes the IRS suspicious IRS's eyeballs turn into dollar signs.

The IRS is allowed to investigate suspected structuring. The problem is, the IRS has very little interest in investigations. It likes taking money from people's bank accounts, but has no stomach for the rest of the legwork. The IRS IG pulled a random selection of structuring cases and discovered a large majority of them had no business being called "cases." In 9 out of 10 "cases," there was no illegal activity discovered. [TIGTA Report PDF]

In 26 (9 percent) of the 278 structuring cases, we were able to establish that the funds came from a Title 18 illegal source or involved any other illegal activity. In the other 252 (91 percent) of the 278 cases, we did not find evidence that the structured funds came from an illegal source or involved any other illegal activity. Businesses that deal with currency transactions (retail, wholesale, service, automobile, restaurant, gas station, etc.) were primarily (210 of the 252 legal source cases) affected by the structuring seizures.

The IRS was able to get away with this for so long because it moved fast. It processed seizures quickly and pressured asset owners into taking settlements, rather than risk turning easy money into trickier criminal prosecutions where actual evidence might be needed.

All told, the IRS took more than $17 million away from US citizens without ever establishing the funds were the result of criminal activity or the asset owners were engaged in structuring. And that's just in the ~300 cases sampled for the TIGTA report.

The report also notes the streamlined stripping of money comes bundled with the streamlined stripping of rights. It's even worse with the IRS than it is with regular law enforcement, where assets are presumed "guilty" and it's up to owners to prove the innocence of property no longer in their possession. While it's understandable the IRS would find advance warning an impediment to its forfeiture efforts, the lack of investigation beforehand means the agency's seizure warrants were likely seriously deficient.

Interviews were conducted only after the seizure warrant was signed by a judge and the property was seized; therefore, judges did not possess information from interviews with the property owner when making their probable cause determination. This could have provided the judge with a possible explanation for the banking transactions to consider before signing the seizure warrant. We are not suggesting that CI should always conduct interviews of subjects prior to obtaining a seizure warrant. In fact, CI indicated that seizures are often conducted before the interview to protect the interest of the Government by ensuring that the assets are not moved. However, when 91 percent of the property owners are not believed to be conducting any illegal activities (other than structuring), conducting the interviews after the seizure leaves judges without relevant information about what subjects knew about CTRs and what their intent was behind their currency transaction patterns...

In IRS seizures, the money is taken first. Any investigation follows after accounts are frozen or drained. Once owners are finally made aware of the situation, the CI division does what it can to ensure the IRS maintains control of the seized assets. The Inspector General found IRS agents aren't apprising citizens of their rights and remedies.

For 106 of 229 cases, the agents did not state the purpose of the interview or we did not find evidence they did. IRM procedures in Title 26 cases require special agents to advise the property owner regarding the purpose of the contact. For 62 cases, the special agents did not identify the purpose of the contact, and for 44 cases, the interview does not document whether the special agent explained the purpose of the interview to the property owner…

For 181 of 229 cases, we identified a problem with the information provided to the property owner about the seizure. In 110 cases, the property owners were not informed until the end of the interview that a seizure took place. In 60 cases, the property owners were not informed that a seizure took place, and in 11 cases we could not determine if the property owner was informed that their funds had been seized.

[...]

In only five of 229 interviews were property owners provided the noncustodial advice of rights prior to the interview.

This extreme indifference towards citizens and their rights and property inevitably leads to this sort of thing:

In the one case we can discuss publicly, the property owner alleged that special agents and local police arrived at the property owner’s place of business and used police search dogs in the search. The entrance and exit to the store were allegedly blocked, and it was alleged that the taxpayer was asked to answer questions. The property owner, who spoke limited English, was told that his account was seized, and he was presented with a Consent to Forfeiture to sign. He alleged that officers spoke in loud tones at him instructing him that he should sign.

Someone put money in the bank the wrong way... and they're met with police dogs, yelling, and borderline coercion. But I guess that's what's needed to get "criminals" to cooperate. Oh wait.

After the Institute for Justice was retained to represent the property owner, all of his funds were returned.

All of this leads to the following: the IRS's investigatory arm isn't in the "criminal disruption" business, but rather the simpler, more profitable forfeiture business.

Outcomes across the CI Asset Seizure and Forfeiture Program did not appear to be consistently determined by the facts of the cases but rather by property owners’ risk tolerance to the high costs of litigation...

If there's any good news to be had, it's that the IRS is (mostly) no longer pursuing alleged structuring cases if the deposited money appears to have come from a legitimate source. That was put into place after a couple of very uncomfortable Congressional hearings back in 2014. TIGTA says, for the most part, the IRS is following the new guideline. However, it still found five cases where the new rule appears to have been ignored and notes the IRS has still granted itself a sizable loophole to exploit.

Under the change in policy, CI will no longer pursue legal source structuring cases unless exceptional circumstances justify the seizure and the seizure is approved by the appropriate CI executive. CI has not yet defined what circumstances rise to the level of “exceptional.”

The other good news is that enough pressure -- applied by citizens and their representatives -- can get the government to severely scale back a program that brought in lots of easy money.


Reader Comments

Subscribe: RSS

View by: Time | Thread


  • identicon
    Anonymous Coward, 6 Apr 2017 @ 10:58am

    If there's any good news to be had, it's that the IRS is (mostly) no longer pursuing alleged structuring cases if the deposited money appears to have come from a legitimate source.

    That this is a reasonable sentence to include in any kind of serious context is insane. Even the worst governments don't reach this point. Redefine legitimate to suit their needs, yes, but they never explicitly go after people for legitimate actions.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 6 Apr 2017 @ 11:04am

      Re:

      "they never explicitly go after people for legitimate actions."

      I'm pretty sure this idealized government doesn't exist.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 6 Apr 2017 @ 2:19pm

        Re: Re:

        Really? I've never seen a historical example of it, at least. They change the definition of legitimate to suit them. They limit the definition of legitimate to almost nothing. They plant evidence and go after people for that. They lie about their motives and means, they cheat, etc. But I've never seen an example of any government stepping up and saying "Yes, what you are doing is perfectly legitimate, and we're confiscating all your money because we know it is coming from a legitimate source."

        If you have an example, I'd be happy to hear it. I'm by no means an expert on history.

        reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 11:02am

    So how does IRS conduct mass surveillance of these bank records? Is it like call records where they search the database for selectors or do the banks inform them beforehand?

    reply to this | link to this | view in chronology ]

    • icon
      David (profile), 6 Apr 2017 @ 2:28pm

      Re: Federal law requires banks to snitch.

      So they look for edge cases. Then they look to see why they have X amount of money but have never exceeded the painful effort of $10k limit. It must be because they are criminals as only criminals wouldn't want to go through their stupid paper work. The limit btw is distinctly less than the cheapest new car on the market.

      Easy pickings. One case (linked from here IIRC) was because their insurance company wouldn't cover a loss of $10K, so whenever they hit $9K they made a deposit. IRS swooped in.

      Essentially the IRS is crooked, staffed by crooks and, IMHO, and always has been. We need a Federal Sales Tax and to fire a butt load of IRS leeches.

      reply to this | link to this | view in chronology ]

      • identicon
        Wendy Cockcroft, 10 Apr 2017 @ 5:46am

        Re: Re: Federal law requires banks to snitch.

        Sales taxes tend to hurt the poor more than the rich. You've already got sales taxes (we call it VAT over here), and in some Red states it's on food — essentially clawing back STAMPS money by taxing the stuff it's been provided for.

        No, a progressive scaled income tax is better. And before anyone starts blathering on about punishing success, we the workers are already being punished for having the "wrong" jobs, even though, more often than not, they're the only jobs available. And don't get me started on a "deserved" rate of pay. The worker is worthy of his (or her) hire.

        I'm happy with my job and pay rate but I've not forgotten what it was like to struggle and I've noticed that it's a damn sight harder now than it was back in the day. I feel so sorry for those poor people on the breadline: the market ain't providing for them even when they work their socks off.

        reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 6 Apr 2017 @ 2:31pm

      Re:

      The IRS outsources the surveillance of bank records to the banks. The banks report to the IRS "suspicious" transactions. Oh, and when your bank reports you, they don't usually tell you they are doing so.

      reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 7 Apr 2017 @ 12:27am

      Re:

      "So how does IRS conduct mass surveillance of these bank records?"

      To my knowledge, banks are required to report certain patterns to them.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 7 Apr 2017 @ 10:44am

      Re:

      Banks are required to file a report for deposits over $10k, or if they see structuring (they're required to look), or if a teller deems anything else suspicious.

      reply to this | link to this | view in chronology ]

  • icon
    Roger Strong (profile), 6 Apr 2017 @ 11:12am

    It's worth mentioning that some of these "structuring" cases happened because it's what the banks instructed their customers to do.

    In February 2012, the IRS seized the entire bank account for Randy and Karen’s farm, containing $62,936.04. [...] Randy and Karen deposited cash in amounts under $10,000 only because a bank teller told Karen that doing so would avoid unnecessary, unspecified paperwork.

    The IRS assumes that everyone is an expert in tax law with an encyclopedic knowledge of banking laws. That way they never have to treat "This is what the experts told me to do" as a valid defense.

    reply to this | link to this | view in chronology ]

    • icon
      Bergman (profile), 6 Apr 2017 @ 12:28pm

      Re:

      It's not just the IRS that does that. The entire legal system presumes that all citizens have an encyclopedic knowledge of all laws as a result of a mere high school education, and apply the doctrine that ignorance of the law is not an excuse.

      Unless the accused is trained in the law -- cop, lawyer or judge. Then ignorance IS an excuse, because no one can be expected to know every law.

      Seriously.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 7 Apr 2017 @ 10:46am

      Re:

      Randy and Karen deposited cash in amounts under $10,000 only because a bank teller told Karen that doing so would avoid unnecessary, unspecified paperwork.

      That teller broke the law. They're require to report structuring when they suspect it, and they can hardly claim they didn't notice if they suggested it. The bank could easily be fined for it, and the teller might be criminally liable.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 11:33am

    Criminal activity can be many things. Who doesn't know the woman who watches 10-15 kids every day and only takes cash? That is $70-80K a year.

    Who doesn't know a contractor that will charge less if you pay cash?

    How about all those "Polish" cleaning ladies that clean houses, taking only cash?

    Everyone knows of the hooker or drug dealer that makes tons of money, all in cash.

    There are usually two charges involved, tax evasion and money laundering. Both are serious crimes, at least according to the government.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 11:37am

    So...

    I have to PROVE my innocence AFTER I have my rights and money taken away BEFORE I see the inside of court room?

    I am also required to fully understand the same laws that are enforced upon me by people that do NOT fully understand them?

    So... police state? How many people do I have to pay off now just to keep them from fucking with me?

    reply to this | link to this | view in chronology ]

  • icon
    Gumnos (profile), 6 Apr 2017 @ 12:06pm

    Don't worry officer

    I didn't hack into the bank and perform a wire-transfer of millions of dollars out of IRS accounts into offshore holding accounts. I was performing a citizen's arrest on the funds for the illegal asset-forfeiture seizures they supported.

    reply to this | link to this | view in chronology ]

  • icon
    Violated (profile), 6 Apr 2017 @ 12:18pm

    Shame

    Is it not nice how the Government has been directly stealing from the public. This is not about Justice but about a law loophole and simply targeting richer people.

    Then whatever happened to these Judges with a 91% failure rate when to authorize a seizure there must be at least some inkling of a crime at hand. Legitimate business owners targeted clearly shows these Judges failed the most simple step to protect the public from an overzealous administration.

    What is it USA? Is your bankrupt economy too poor to pay ego inflated would class government job wages meaning they have to steal? Or is this the whole corruption​ scam of drug and hooker party funds?

    Then in return the Government gives you a health service that can be rated between dead and exploited. Or how about an education system that can often leave students over $200k in debt before they even start their first job.

    I am saying clean up your house USA when this is all disgusting.

    reply to this | link to this | view in chronology ]

    • identicon
      Wendy Cockcroft, 10 Apr 2017 @ 5:50am

      Re: Shame

      This is indeed an example of taxation as government force. As for world class government job wages you may find they only go to those at the top of the pile. Ask any "government" worker from civil servants to teachers to police whether or not they've got a sweet deal on pay. The answer, you may find, is no.

      This is the intellectually bankrupt ideology known as "neoliberalism" in action. Can we bin it, please? The wealth ain't trickling down.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 12:20pm

    Equal Pay...

    Could not help to laugh at the equal pay for women propaganda they were just pumping...

    The real question is... How many months out of the year are you a tax slave and what do you really own???

    Divide men and women but avoid the true source of the problem... people are not free!

    reply to this | link to this | view in chronology ]

  • icon
    Anonymous Anonymous Coward (profile), 6 Apr 2017 @ 12:29pm

    Keeping up with the IRS

    I had an uncle who was a senior managing partner in one of the Big Eight accounting firms (when there were still eight of them) who told me that even though he had been in the business for over 30 years, he still went to school three months a year in order to keep up with changes to the tax code. And IRS wants Joe Sixpack to know their rules?

    reply to this | link to this | view in chronology ]

    • identicon
      JEDIDIAH, 6 Apr 2017 @ 3:36pm

      Re: Keeping up with the IRS

      If you are a lawyer dealing in tax law, your typical doctorate (JD) isn't good enough. You have to have another degree (LLM) above and on top of that.

      reply to this | link to this | view in chronology ]

  • icon
    Bergman (profile), 6 Apr 2017 @ 12:30pm

    breathing while in possession of currency

    "CI has not yet defined what circumstances rise to the level of “exceptional.”"

    I suspect their definition of exceptional is "currency in the possession of someone with a pulse."

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 1:30pm

    and this government wonders why we have a problem with outsiders recruiting its citizens for nefarious purposes.

    if we would get back to simpler times and government only as bad as it used to be . . . but with this sort of outrageous behavior, who can blame people for being negative?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 1:43pm

    The IRS is nothing short of legalized theft to begin with, so the fact they are doing this is just par for the course. We are FORCED to hand over 30-40% of our labor at the barrel of a gun. If you resist or protest or simply disagree on how much you owe them (hint: nothing) they can just seize anything of value that you have and throw you into a cage. Tell me if this makes sense to anyone.
    Does any individual have the right to demand your money on the threat of physical harm or confinement? No of course not. So if the individual doesn't have that right then neither does any institution or government body. Full stop. Just because it's the government doing it doesn't make it right. Just because the government wrote it down on a piece of paper saying they have that right doesn't mean they have that right. Because the right to steal doesn't exist. Somehow they managed to brainwash everybody into believing the government has a right that doesn't exist. Hey fake it til you make it, right? Or in this case fake it til you siphon off enough money from the plebs so you can enslave them. Oh wait are we past that milestone already?

    reply to this | link to this | view in chronology ]

    • identicon
      teka, 6 Apr 2017 @ 5:36pm

      Re:

      yeah, you told'em.
      Sheeple redpill sovereign citizen admiralty flag gold trim nation-state patriot government!

      Feel free to relocate to a failed state that has no public works, civil security or evil thefting taxation. You can discuss your ideals while being literally held at gunpoint to have 100% of your labor forcefully taken by an individual or group who is interested in your opinion.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 6 Apr 2017 @ 7:12pm

        Re: Re:

        We keep giving them our money and they can't even be bothered to use it responsibly. And why should they? It's not like they're ever held responsible for any misuse of our funds. Check out this GAO summery of their financial audit: http://www.gao.gov/products/GAO-17-283R

        They state portions of the budget are unauditable. They don't even know where the money is going! Trillions of dollars in tax money that nobody seems to be able to account for. Is that a problem to you? Why does the government have rights that we as people don't? It is stealing if it's taken involuntarily. The entity perpetrating the act doesn't change what the act is.

        reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 7 Apr 2017 @ 10:49am

        Re: Re:

        Feel free to relocate to a failed state that has no public works, civil security or evil thefting taxation.

        Are you aware federal income tax didn't exist before 1913 in the USA? I'm not supporting the tax=theft idea but let's not pretend we'd be living in a desolate wasteland without the IRS.

        reply to this | link to this | view in chronology ]

    • icon
      The Wanderer (profile), 7 Apr 2017 @ 11:20am

      Re:

      Does any individual have the right to demand your money on the threat of physical harm or confinement? No of course not.

      No, but people do have the right to agree to contribute their money towards the accomplishment of shared goals.

      On an individual level, that's done by talking it out among one another and making individual offers and acceptances.

      On a larger scale, that's no longer practical. What we do instead is designate people to do the meeting, talking, offering, and accepting on our collective behalf. The act of designating those people is called an "election".

      By electing people who decide to do things, and failing to recall those people or otherwise kick them out after they so decide, we as society have agreed to contribute our resources - in the form of money - to doing those things.

      All the IRS does, in theory, is handle the collection of those resources for that purpose.

      If individual members of society don't want to accede to that collective agreement, the only option society leaves them is to leave, and go live elsewhere. (Unfortunately, there is no longer much of anywhere left to go where no such agreement is in force - and the few possible candidates tend to be places where other factors make life relatively horrible anyway.)

      Or so the reasoning runs.

      reply to this | link to this | view in chronology ]

  • icon
    Padpaw (profile), 6 Apr 2017 @ 1:56pm

    who knew?

    So the real money in organized crime is to join the government

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 6 Apr 2017 @ 2:19pm

    Resistance Ain't Futile

    'Minds me of a fella I used to work with, who told me 'bout moonshiners and dynamite in the mountains o' Nor' Ca'lina. "Revenoors" can be taught not to mess with you.

    reply to this | link to this | view in chronology ]

  • identicon
    My_Name_Here, 6 Apr 2017 @ 6:15pm

    I don't see what the problem is here, except for Masnick's typical attempts to drive home an anti-authoritarian narrative. Sad, but not surprising.

    I know you're going to censor me, Masnick, but I will still state it for the record. Anything to bring you down.

    reply to this | link to this | view in chronology ]

    • icon
      PaulT (profile), 7 Apr 2017 @ 12:30am

      Re:

      "I don't see what the problem is here"

      If you stopped obsessing over who wrote the article for long enough to read its contents, you might know. Or, you support people having money and property seized without due process. If the latter, may this happen to you soon so that you may see the problem.

      "an anti-authoritarian narrative"

      Well, your authorisation stance helps illuminate why it's a good thing to have that narrative, at least.

      "Anything to bring you down."

      Yes, you're bringing him down by driving up page views to his site and posting rambling nonsense that drives more page views to reply. I'm sure that makes sense in that empty shell of yours.

      reply to this | link to this | view in chronology ]

  • icon
    Uriel-238 (profile), 7 Apr 2017 @ 12:48am

    So, money laundering is not just for criminals anymore?

    When the government agencies regard your work as criminal no matter what we do, only personal ethics drive us to engage in legitimate work, if illegitimate work is any more lucrative.

    Especially if the costs of doing criminal business now have to be applied to ordinary business.

    It's a wonder anyone does business in the US if they have the option to do otherwise.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 7 Apr 2017 @ 6:13am

      Re: So, money laundering is not just for criminals anymore?

      Well, since money laundering is criminal, it still is just for criminals.

      Your local dog walker that only takes cash probably isn't paying taxes on that, which makes them a criminal. Hell, if you win the office final four pool and don't report that as income, you may just be a criminal.

      reply to this | link to this | view in chronology ]

      • icon
        Uriel-238 (profile), 7 Apr 2017 @ 12:30pm

        Being an American citizen is criminal.

        Our legal system can indict a ham sandwich and find a workable case on pretty much anyone.

        And we still have this attitude where a conviction means justice is served and an acquittal means the culprit evaded justice on a technicality. We never assume an acquittal means law enforcement arrested the wrong guy.

        So, yeah, we're all criminals evading the attention of the law.

        reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 7 Apr 2017 @ 9:11am

    "search" as in fugitive or contraband?

    What are "police search dogs" anyway?

    Are these the hyper-aggressive "police" breeds (generally unavailable to the public) that are, furthermore, rigorously trained to bite people?

    Or are these of the more normal "pet shop"-type dog breeds that are trained to sniff rather than attack and kill?

    reply to this | link to this | view in chronology ]

    • icon
      Uriel-238 (profile), 7 Apr 2017 @ 12:27pm

      Re: "search" as in fugitive or contraband?

      Most detection dogs are terriers, the same breed from which we get pit bulls.

      Police have attack dogs, rescue dogs, trackers and detection dogs.

      Attack dogs are trained to guard a spot, intimidate and harrass targets. War dogs are trained to kill. Police dogs are supposed to be trained not to kill.

      Rescue dogs have some tracking but are trained to intercept targets and push them over. The presumption is that they're disoriented, not hostile.

      Tracking dogs will, given a scent, follow it to its source.

      Detection dogs are trained specifically for a scent or set of scents (commonly drug contraband or explosives). We use them best in airports to find substances in large piles of luggage.

      Then there's highway patrol dogs, which seem to signal whenever the handler wants. I don't know what their training is, except to serve as a probable-cause machine.

      reply to this | link to this | view in chronology ]


Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here
Get Techdirt’s Daily Email
Use markdown for basic formatting. HTML is no longer supported.
  Save me a cookie
Follow Techdirt
Special Affiliate Offer
Anonymous number for texting and calling from Hushed. $25 lifetime membership, use code TECHDIRT25
Report this ad  |  Hide Techdirt ads
Advertisement
Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Chat
Advertisement
Report this ad  |  Hide Techdirt ads
Recent Stories
Advertisement
Report this ad  |  Hide Techdirt ads

Close

Email This

This feature is only available to registered users. Register or sign in to use it.