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Legally Obtained Property and Money Seized by the IRS for Structuring Transactions? Now the IRS Encourages You to Apply to Get It Back!

Structuring to evade reporting requirements: photo of man hiding money in his jacketRecent letters received by some taxpayers from the IRS prove that miracles do happen.  Right now, the IRS is sending letters inviting taxpayers to apply for the return of their legally obtained property that was seized by the IRS for structuring transactions to evade reporting requirements. This is a move by the Department of Justice to correct past abuses that caused many innocent people to lose their life savings.

To apply for relief from the IRS, you must submit your petition for the return of your funds and property with 60 days of the receipt of the letter. Didn’t get a letter but think you are eligible? Don’t wait. Once a seizure takes place, there are time limits on your statutory rights.

This is the time to apply for return of your property. We’ll tell you why and what to do. Please keep reading.

The Bank Secrecy Act and Related Legislation Aimed to Reduce Financial Crimes, but Often Rained Devastation on Tax Paying Citizens

In the 1970’s, in an effort to curb money laundering and other financial crimes, Congress passed the Bank Secrecy Act  in order to detect and monitor certain monetary transactions in an effort to reduce crimes ranging from money laundering and drug trafficking to international terrorism.  One of its terms was that currency transactions in excess of $10,000 must be reported.

Criminals found ways around these laws, such as regularly depositing funds just below the reportable amount. The Money Laundering Control Act of 1986 made this kind of structuring to evade reporting requirements a felony.  Any funds used in what the IRS decided was structuring could be seized (as well as property purchased with those funds), and the taxpayer could get up to five years in prison – whether or not the funds were in fact illegally obtained.

In 1994, Congress clarified that criminal intent was necessary before funds and property could be seized due to structuring, but the legislation indicated that intent could be implied from circumstantial evidence.   The IRS’s Criminal Investigation Division (IRS-CI) construed this circumstantial evidence very, very broadly, and a lot of hard-working Americans became the targets of ruthless IRS seizures. Many who had worked hard for their money and paid taxes found themselves ruined.   Following are just a few examples.

  1. A Michigan man often deposited a few thousand dollars into his bank account every few days. This is not an unusual thing to do for someone who runs a cash-based business, someone who, for example, is a small retailer or craft show artist. After some time, he transferred the accumulated funds to a cashier’s check and bought a luxury automobile. He was shocked when the IRS showed up at his door and towed the car away, claiming it was bought with “structured” funds.
  1. A Michigan couple was traveling overseas with $15,000, each holding half. The customs declaration form asked if each person was carrying over $10,000, and they each answered “no,” which was accurate. But when a customs agent asked them a few questions, the husband admitted that the reason he and his wife were each holding half the money was to avoid the $10,000 reporting threshold.  This admission to “structuring” was enough for the customs agent to confiscate the entire $15,000, even though it had been legally earned and taxes had been paid on it.
  1. Well-established Maryland dairy farmers were surprised when treasury agents appeared at their door one day and questioned them about bank deposits under $10,000. The agents informed them that the federal government had already seized approximately $70,000 in their bank account. The taxpayers finally reached a settlement with the government, but ended up losing $30,000 to seizure. They were not money launderers or criminals of any kind; the money was legally made through their dairy business.

The Tide Has Turned in Favor of Tax Payers – for Now

October 2014 Policy Change: The October 17, 2014 policy states that “IRS-CI will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases unless: (1) there are exceptional circumstances justifying the seizure and forfeiture and (2) the case has been approved at the Director of Field Operations (DFO) level.”

March 2015 Attorney General Policy Memo: Under the new policy, in the absence of criminal charges, judicially authorized warrants to seize bank accounts involved in structuring can only be obtained if the prosecutor first develops probable cause of additional federal criminal activity. A prosecutor may ask a judge to issue a seizure warrant only if either the U.S. Attorney or the Chief of the Criminal Division’s Asset Forfeiture and Money Laundering Section personally determines that seizure would serve a compelling law enforcement interest.

May 25, 2016: Testimony before the House Committee on Ways and Means Subcommittee on Oversight on Financial Transaction Structuring:  Further explanation of new processes

Right now: The IRS is actively sending letters inviting those whose funds and property were seized due to suspected structuring to petition for its return. (Remember, this is only for those who legally obtained the funds.)

This New Lenient Attitude on Structuring Could Disappear Quickly

If this you have never before filed a petition for remission or mitigation, this is the time to file. Don’t wait. The IRS’s more favorable attitude toward those who may be guilty of structuring (but no underlying criminal activity) is based on a Department of Justice memorandum. That means the Attorney General could issue a memo reverting to the old policy tomorrow.

This change in policy does not render prior seizures unlawful; structuring is still a federal felony regardless of whether the source of the funds is legal or illegal. It’s just, for now, the IRS is not going to come after you unless underlying criminal activity is suspected.

What Your Petition Must Contain

In your petition for an administrative review, you must

  • Identify the property seized, the date of seizure and proof of ownership interest in the property
  • Describe the facts and circumstances that you believe justify the return of property to include establishing the source of the funds structured
  • Include copies of documentary evidence if applicable
  • Include a signed declaration under penalty of perjury that meets the requirements of 28 United States Code Section 1746

Remember, if you have received a letter, you only have 60 days to file a petition with the IRS. IF you have not yet received a letter, you cannot count on the Department of Justice and the IRS to continue this more lenient policy, and you are also still subject to statutory time limitations as mentioned above.  Though you must sign the petition yourself, to vastly increase your chances of succeeding, consult an experienced tax attorney.

An alternative to filing a petition with the IRS is to file a claim that is referred to the United States Attorney’s Office, which must file, in federal district court, a civil complaint for forfeiture within 90 days of the property owner’s filing of a claim, thereby converting the administrative proceeding into a judicial matter. From that point forward, the United States Attorney’s Office rather than the IRS has control of the case.

Discuss the best solution for your own situation with a good tax attorney. There will likely be no second chances.

 

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.