On March 30th, the Treasury Inspector General for Tax Administration (TIGTA) released a report titled “Criminal Investigation Enforced Structuring Laws Primarily Against Legal Source Funds and Compromised the Rights of Some Individuals and Businesses” (here). The TIGTA report (the Report) analyzed and made recommendations regarding how IRS Criminal Investigation (CI) administered cases involving possible currency structuring violations of Title 31 U.S.C. Section 5324(a). In a prepared statement, National Taxpayer Advocate, Nina E. Olson said that the TIGTA report shows that CI did not “administer the structuring rules in a manner consistent with its stated goal of interdicting criminal enterprises. Rather, CI seized the funds of otherwise law-abiding small business owners who may have been trying to avoid paperwork when making cash deposits at the bank.”
The Currency and Foreign Transactions Reporting Act of 1970, referred to as the Bank Secrecy Act, requires U.S. financial institutions to file reports of currency transactions exceeding $10,000. 31 U.S.C. Section 5324(a) states that no person shall, for the purpose of evading the reporting requirements, cause or attempt to cause a U.S. financial institution to fail to file a required report. Whoever violates the structuring law can be fined, imprisoned, or both. Any property involved in violation of this law may be seized and forfeited.
Because it had been highly criticized for seizing and forfeiting funds of innocent business owners, in October 2014, CI instituted a new policy that it would no longer pursue the seizure and forfeiture of legal source funds that may have been involved in structuring in violation of Section 5324(a). This is a link to a prior blog post discussing the IRS announcement of procedures for return of property seized in legal source structuring cases. The TIGTA audit and report were initiated to evaluate the IRS’s use of seizures against property owners suspected of structuring transactions to avoid bank secrecy since the policy change.
The Report found that despite the October 2014 policy change, most seizures for structuring violations continue to involve legal source funds from businesses. The report says that the government had seized and forfeited over $17.1 million in 231 legal sources cases. In these cases, CI relied primarily on patterns of banking transactions to establish probable cause to seize assets for structuring violations. In many cases, these were small business owners who were not aware that structuring cash deposits to avoid the filing of currency transactions was illegal and did so to avoid having to prepare the paperwork. In some cases, small business owners were told by bankers or advisor to structure deposits to avoid the preparation of the necessary paperwork. The Report recommends that CI establish better controls to ensure that it selects cases that meet the agency’s goals and policies, consider reasonable explanations that individuals provide and return legal source funds promptly in cases with no illegal activity.
On March 30, a bill (H.R. 1843) that would require the IRS to find probable cause for a crime before it seizes any property owner's money was reintroduced in the House of Representatives. The bill would amend Title 31 and require the IRS to find probable cause that the money in question came from an illegal source or criminal activity before it seizes assets that qualify as structuring activity.
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