First, the agency targeted conservative groups seeking non-profit status. Originally characterized by IRS officials as a couple of rogue agents in Cincinnati, the practice was later revealed to be a politically-motivated campaign coordinated by Lois Lerner, the head of the IRS Exempt Organizations Unit. Then, Lerner’s infamous “missing” emails blocked investigators’ efforts to discover if the White House was involved.
Now, the Internal Revenue Service is under fire for using federal law to seize the bank accounts of thousands of small business owners.
The Civil Asset Forfeiture Reform Act of 2000 gives the IRS the power to seize the bank accounts of suspected terrorists, drug dealers and other criminals. The IRS can then deposit the seized money in its Treasury Forfeiture Fund and spend it without Congressional approval.
The law requires banks to alert the IRS when customers make a series of bank deposits that are just under the $10,000, the trigger point for federal reporting. The IRS then looks for patterns of deposits that may be designed to avoid detection.
Sounds like a good idea, but here’s the problem.
In addition to targeting criminals, the IRS dragnet entangles innocent taxpayers who must then fight to get their money back.
In August 2013, IRS agents emptied the bank account of the Mrs. Lady Mexican restaurant in Spirit Lake, Iowa. Carole Hinders, who had owned and operated the tiny restaurant for 30 years, had a clear record. In fact, the feds never claimed Hinders’ money was gained illegally.
When Hinders protested that she’d get a lawyer and fight the seizure, one of the agents smugly responded, “Well, you can try.”
Had IRS agents bothered to investigate, they would find the restaurant was a cash-only business necessitating frequent bank deposits. But critics say the IRS has adopted a policy of “seize first, ask questions later.”
The Institute for Justice, a national property rights law firm, says the IRS seized more than $242 million from 2005 to 2012. The New York Times reports that, of the 639 seizures in 2012, 80 percent targeted innocent legitimate businesses.
Even when the IRS admits they made a mistake, they keep the money, forcing business owners to go to court.
Politico magazine reports the average case takes a year to complete – the longest on record took more than 6.5 years. The delay – during which the employer likely will have to borrow money to run the business and pay workers – increases the pressure on business owners to settle.
Ultimately, the IRS reluctantly offers to give back part of the money – if the business owner forfeits the rest to the IRS.
The IRS admitted that it wrongfully seized almost $1 million from the business account of Navy veteran Andrew Clyde. But they refused to return it unless Clyde forfeited $325,000. Clyde sued and eventually forfeited $50,000 to the IRS to get back the rest of his money.
Clyde told Congress, “I did not serve three combat terms in Iraq only to come home and be extorted by my government’s use of civil forfeiture laws . . . .”
Sen. Rand Paul, R-Ky., and Rep. Tim Walberg, R-Mich., introduced legislation to prohibit the IRS from seizing funds without criminal charges and make it easier for people to get their money back. But lawmakers should add a provision making the IRS pay the legal and court fees of people who win their case.
This legislation deserves bipartisan support. Small business owners have enough trouble dealing with the weak economy, high taxes and oppressive regulations. They shouldn’t have to fear that their own government will hold them hostage.
Don C. Brunell is a business analyst, writer and columnist. He recently retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at theBrunells@msn.com.