Asset Forfeiture in White-Collar Criminal Cases: What High-Net-Worth Taxpayers Need to Know

When targeting high-net-worth taxpayers in criminal cases, the Internal Revenue Service (IRS) has several tools at its disposal. One of these tools is its power to seize taxpayers’ property. The IRS does not need to wait for the Justice Department to secure a conviction to seize taxpayers’ property—and this means that taxpayers can lose possession of their property while their criminal tax investigations are pending.

This presents substantial risks. Even if an IRS seizure (or a subsequent forfeiture) is unjustified, regaining control of seized property can prove extraordinarily challenging. While seizure involves federal authorities taking possession of taxpayers’ property, forfeiture transfers ownership of the property to the federal government. In both scenarios, taxpayers must work with experienced counsel to protect their assets—and they must be prepared to take legal action against the federal government if necessary.

What Taxpayers Need to Know About IRS Asset Seizures and Forfeitures

With this in mind, when facing possible forfeiture during a criminal tax investigation, there is a lot that high-net-worth taxpayers need to know. Here are some key considerations:

1. The IRS Has Jurisdiction to Seize Taxpayers’ Property

When seeking to take control of taxpayers’ property during criminal tax investigations, the IRS does not need to work with other law enforcement agencies to effect seizures and forfeitures. Instead, it has jurisdiction to do so on its own. This makes seizure and forfeiture not only highly effective enforcement tools for the IRS but highly efficient ones as well.

With that said, to effect seizures and forfeitures, the IRS must follow specific procedures that vary depending on the statute (or statutes) under which it is pursuing enforcement. It must obtain court approval for forfeitures in criminal cases as well. But, this is also generally a matter of procedure, and federal courts routinely approve asset forfeitures in criminal tax cases. Even so, taxpayers have options for defending against asset forfeitures in all circumstances and asserting a strategic defense is essential for avoiding unnecessary consequences.

2. The IRS Can Pursue Seizure and Forfeiture on Various Grounds

The IRS can pursue seizure and forfeiture on various grounds—and determining the specific grounds for a seizure or forfeiture is critical for mounting an effective defense. For example, some of the grounds for asset forfeiture in federal criminal tax cases include:

• Involvement in transactions or attempted transactions that violate 18 U.S.C. Section 1956 (money laundering), 1957 (transactions involving property derived from specified unlawful activity) or 1960 (operating unlicensed money transmitting businesses);
• Use of the property (or intent to use the property) in violation of any provision of the Internal Revenue Code; and,
• Violations of the federal Bank Secrecy Act (BSA), including violations involving offshore bank accounts and other foreign financial assets.

Importantly, regardless of the substantive issues underlying an asset forfeiture, the grounds and procedures for defending against asset forfeitures (and recovering seized property) are different from those for defending against substantive allegations of money laundering, tax evasion, tax fraud and other crimes. As a result, when faced with the possibility of a seizure or forfeiture, it is imperative to work with experienced counsel who can provide effective representation.

3. The IRS Only Needs to Establish “Probable Cause” to Seize Taxpayers’ Property in Criminal Cases

While prosecutors must prove taxpayers’ guilt beyond a reasonable doubt to secure a conviction, the IRS only needs to establish “probable cause” to seize taxpayers’ property during criminal investigations. This is a much lower burden of proof. As a result, even if the government doesn’t have the evidence it needs to secure a conviction, the IRS may still have the evidence it needs to seize a taxpayer’s property.

Once the IRS seizes a taxpayer’s property, it only needs to establish that forfeiture is warranted “by a preponderance of the evidence.” This is a higher standard than “probable cause” but still a lower standard than “beyond a reasonable doubt.” Thus, even if a criminal conviction is unwarranted, forfeiture of the taxpayer’s property may still be justified under the law. This is critical to understand—and it is one of several reasons why it is crucial for taxpayers to engage experienced legal counsel who is familiar with the evidence, standards and procedures involved in federal asset forfeiture matters.

4. The Statute of Limitations for Forfeiture is the Statute of Limitations for the Underlying Crime

Similar to the federal government’s ability to pursue criminal charges, its ability to pursue forfeiture is subject to a statute of limitations. Under federal law, the statute of limitations for forfeiture is the same as the statute of limitations for the underlying crime. This means that the government has five years to initiate the relevant proceedings in most cases.

The statute of limitations can play a key role in some cases. When a criminal tax investigation looks several years back into the past, the timing of the events at issue can become a central issue. If the statute of limitations for pursuing a charge has expired, then the IRS cannot pursue forfeiture regardless of the facts at hand.

5. Fighting Federal Asset Forfeiture Requires a Proactive and Strategic Defense

Due to the unique and high-risk nature of IRS seizure and forfeiture actions, high-net-worth taxpayers who are at risk of losing their property to the government need to engage highly experienced defense counsel. Executing a proactive and strategic defense is essential, and this requires an in-depth understanding of all of the complex substantive and procedural issues involved. While taxpayers will be able to protect their assets in many cases, they can also easily lose their assets to forfeiture unnecessarily if they don’t take appropriate action in response to the IRS’ investigation.

Contact Us for More Information About IRS Forfeiture

At Brown Tax, P.C., we have substantial experience representing high-net-worth taxpayers in federal asset seizure and forfeiture matters. If you would like to know more about our experience in this area, please call 888-870-0025 or contact us online to request a confidential consultation.