Business owners in Minnesota may find relief in knowing that the new Clyde-Hirsch-Sowers RESPECT Act prohibits the IRS from seizing property without first filing criminal charges. After the IRS accused two small business owners of structuring cash transactions as a means to hide illicit activity, Congress passed the Act to prevent cash-reliant businesses from unconstitutional forfeiture.
According to Forbes magazine, the IRS seized approximately $200 million from 2,100 taxpayers allegedly involved in criminal activity. Between 2005 and 2012, the IRS cited civil forfeiture to confiscate property it alleged was part of a criminal enterprise. Nearly half of the cash amounts confiscated, however, were worth less than $34,000, which is not a general characteristic of criminal activity.
Small cash deposits resulted in an unconstitutional seizure
The Bank Secrecy Act passed in 1970 requires banks and financial institutions to report cash transactions of $10,000 or more. If an employee of a financial institution suspects a business is engaging in any criminal activity, he or she must file a suspicious activity report with the U.S. Treasury. When a business deposits small cash amounts under $10,000 frequently, the transactions may trigger a report if it appears there is an intent to hide illicit activity.
Although it is not common, false suspicions may arise when legitimate cash-heavy business owners make small and frequent cash deposits. Because of reports of such suspicious activity, the IRS seized bank accounts of legitimate small business owners. Law enforcement officials did not charge owners with a crime, but the IRS, in some cases, confiscated cash and property it suspected were illegal gains based on the financial institution’s reports.
Businesses may challenge a civil forfeiture
Under the RESPECT Act, the IRS may seize property and assets only when it is “derived from an illegal source.” The agency may attempt to confiscate cash deposits it suspects were intentionally structured to conceal illicit activity, but business owners may challenge the IRS in court.