Nearly two years ago, Khalid Quran, a convenience store owner in North Carolina, obtained an unwanted firsthand account of the power that the IRS has when seizing funds that it suspects were deposited and/or withdrawn in violation of federal currency reporting requirements. In June 2014, the IRS seized $153,907 from Mr. Quran’s business account because he allegedly made several withdrawals of cash under $10,000.
The IRS did not accuse Mr. Quran of any other crimes, but the withdrawals alone were enough for the government to assert that he had “structured” his withdrawals in an effort to avoid the currency transaction reports that banks are required to file when the withdrawal (or deposit) is over $10,000. The IRS’s allegation was enough for it to obtain a seizure warrant and seize the funds from Mr. Quran’s business account.
Considering the funds at issue in Mr. Quran’s case were not alleged to be connected to any other crimes, it may seem like a draconian penalty to have your funds seized simply for withdrawing it in a manner that appears like you were attempting to avoid a reporting requirement. In the last two years, several similarly situated taxpayers testified before Congress and relayed stories that were very similar to Mr. Quran’s fact pattern, which was that legal source funds and no allegations of other crimes were leading to funds being seized and then partially or fully forfeited due to the cost of fighting the allegations.
In October 2014, the IRS changed its policy in structuring cases and stated publicly it would only seize funds “on cases where evidence indicates that the structured funds are derived from illegal sources.” Although the new policy was welcomed by asset forfeiture practitioners, it did little on its face to assist individuals who had their money seized prior to the IRS announcement. In addition, the statutory law on structuring remains the same and funds can be forfeited simply for avoiding the currency reports.
Mr. Quran’s case is procedurally somewhat unique in that he had previously consented to forfeit the funds. Nevertheless, Mr. Quran and his attorneys were undeterred and, after the IRS’s new policy announcement, submitted a petition for remission or mitigation of the forfeited funds in July of 2015. Mr. Quran argued, among other things, that the return of the funds would promote the interest of justice and that factors listed in the Internal Revenue Manual (“IRM”) at §22.214.171.124.6.2 supported returning the funds. On February 18, 2016, after the IRS reviewed the factors in IRM §126.96.36.199.6 and Title 28, Part 9 of the Code of Federal Regulations, IRS-CI granted the petition in full and agreed to return the forfeited funds.
Clients who may have currency reporting violations should consult with an attorney to carefully review their options before proceeding. In Mr. Quran’s case, he initially signed paperwork consenting to the forfeiture prior to consulting an attorney. Fortunately, with the help of his attorneys, he was able to undo this potentially costly mistake. Mr. Quran’s Petition for Remission or Mitigation can be viewed here. The IRS’s ruling is here.