When the government accuses you of a crime, sometimes it seizes any and all property it believes is tied to that crime. This process is called “civil asset forfeiture.” When money and assets are seized, it becomes the taxpayer’s burden to prove that they were not involved in or the proceeds of criminal activity — and that can be hard to do.
Earlier this year, the U.S. Supreme Court ruled that civil asset forfeitures are essentially fines for the purpose of constitutional law. That being the case, the Eighth Amendment’s prohibition on “excessive fines” applies to civil asset forfeitures. In other words, these seizures must be reasonable, although what that might mean, exactly, is not clear.
Congress, too, has a role in regulating civil asset forfeitures, and it recently reined in one of the more odious versions. Last week, a unanimous Congress passed the Taxpayer First Act, which contains a sub-act called the Clyde-Hirsch-Sowers RESPECT Act. It is the RESPECT Act that clamps down on an unjust form of civil asset forfeitures.
The Act is named after Jeff Hirsch and Randy Sowers, whose small businesses were victimized by IRS asset seizures.
The problem is “structuring” offenses. Under the 1970 Bank Secrecy Act, banks are required to report cash transactions of $10,000 or greater. This is done in an effort to reveal money laundering, although there is nothing inherently suspicious in depositing $10,000 or more in cash. Small businesses do it all the time.
Jeff Hirsch ran a convenience store distribution business with his brothers. Randy Sowers owns a dairy farm. Both of these are naturally cash-heavy businesses, and Jeff and Randy did nothing wrong by depositing large amounts of cash.
Nevertheless, the IRS accused each man with “structuring” offenses, although it never filed any charges. Instead, it used civil asset forfeiture to seize almost $63,000 from Randy and over $446,000 from Jeff.
According to Forbes magazine, the IRS used civil asset forfeiture to seize almost $200 million in some 2,100 cases between 2005 and 2012. That’s an average of $34,000 — not likely to be the proceeds of a major criminal enterprise.
But were most of those seizures from criminal enterprises? Apparently not. In 2017, the Treasury Inspector General for Tax Administration reported that the IRS “enforced structuring laws primarily against legal source funds.” In an estimated 91% of cases, the Inspector General found no evidence that the structured funds involved any illegal activity.
Under the RESPECT Act, the IRS will only be allowed to seize assets for structuring when those assets are derived from an illegal source or when the structuring was done to conceal criminal activity.