During a recent hearing of the House Ways and Means Committee, lawmakers challenged IRS Commissioner John Koskinen on the Service’s use of civil-asset forfeiture laws, demanding to know why some small business owners were caught up in the Service’s investigative web when they had committed no crime. Lawmakers also announced during the hearing that the Treasury Inspector General for Tax Administration (TIGTA) is planning to review the IRS’s practices in this area.
Structuring and civil forfeiture
Federal law requires domestic financial institutions to report a cash transaction exceeding $10,000 with the Secretary of the Treasury. An “anti-structuring” provision under 31 U.S.C. §5324 prohibits individuals from structuring, or attempting to structure or assist in structuring, transactions for the purpose of evading these currency transaction reporting requirements.
The law also prohibits an individual to cause or attempt to cause a domestic financial institution to fail to meet the federal reporting requirements for currency transactions. In other words, if an individual has made numerous cash deposits under the $10,000 reporting threshold, that could trigger the anti-structuring provisions of the law.
IRS practices under fire
The IRS has faced criticism that it is improperly applying the law to seize the assets of small businesses or individuals who have unwittingly broken the anti-structuring law, but intended no criminal activity. In 2014, several media outlets reported that the IRS had seized funds belonging to small business owners with histories of making repeat cash transactions under the $10,000 reporting threshold. The reports prompted the IRS to announce it 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 and the case has been approved at the director of field operations level..
Koskinen appeared at the subcommittee’s hearing on the IRS’s use of civil forfeiture laws to defend the practice and found himself fending off accusations, among others, that revenue agents were under pressure to fill quotas on assets seizures. The commissioner vigorously denied the accusations, stating that the IRS has never established such goals.
“It’s illegal to have a goal tied to collections,” Koskinen said. He further stated under additional questioning that quotas have never been a part of a revenue agent’s evaluation. “We are prohibited from rewarding anybody on the amount they have collected,” he added.
“To be clear, structuring is a felony no matter the source of the funds, and federal law allows for seizures as a permissible tool,” Koskinen added. He conceded, however, that many small businesses and individuals may make deposits under $10,000 without any intent to avoid the reporting requirements.
Koskinen stressed the IRS’s policy change, announced last October, which would have the IRS pursue only those cases where criminal activity is evident. “We have tried to take a common sense approach to how we operate in this area,” Koskinen added. “The IRS 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,” Koskinen said.
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