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February 18, 2015


IRS Commissioner Indicates Changes in Policy on Structuring

In an appearance before the House Committee on Ways and Means, IRS Commissioner John Koskinen announced changes in the way the IRS will investigate cases of suspected structuring, particularly as it relates to civil forfeiture.

The Bank Secrecy Act of 1970 requires banks to file a Currency Transaction Report (CTR) for cash transactions exceeding $10,000. “Structuring” refers to when an individual breaks a large transaction down into smaller amounts, in order to avoid the filing of a CTR. For example, suppose a business owner has $15,000 in cash receipts for the day. In order to avoid the filing of a CTR, he deposits $8,000 at Bank A, then drives down the street and deposits $7,000 at Bank B. If banks suspect that an individual is structuring, they are required by law to file a Suspicious Activity Report (SAR). The filing of an SAR often results in the IRS obtaining a warrant and seizing the funds in the account.

Structuring is typically used to cover up an underlying crime, such as tax evasion, money laundering, or illegal source income. In recent years, however, the IRS has made a practice of seizing bank accounts simply because there is a pattern of deposits under $10,000, even when there is no evidence of any underlying crime. In some cases, the money can be hung up for years without any charges being brought.

One individual who testified at the hearing is a Georgia business owner who made all deposits in increments under $10,000 because his insurance policy only covered losses outside of his premises up to that amount. Since he was not structuring his deposits in order to evade reporting requirements, he was not committing a crime. In 2013, two IRS special agents served him with a seizure warrant and said that $940,313 had already been seized from his company’s account. With no money to pay his employees, he was forced to take out a loan and cancel product orders. Although the government conceded that the business owner had paid all of his taxes and had not committed any underlying crime, they still maintained that the funds had been structured. Three days before trial, after accruing more than $150,000 in legal fees, the business owner agreed to forfeit $50,000 in exchange for the return of the remaining funds.

Facing pressure from Congress, Koskinen offered assurances that the IRS has changed its asset seizure policy. In the future, he said, the IRS will only seize assets if it appears that the money is likely coming from criminal activity or in “exceptional circumstances.” He also apologized to any taxpayers who were mistreated.

Civil forfeiture is a topic that has attracted much attention. In January, Attorney General Eric Holder announced limitations on the ability of state and local law enforcement agencies to seize assets then turn the case over to federal authorities for forfeiture proceedings. Under the practice, referred to as “adoption,” the state and local agencies would then be entitled to retain up to 80% of the forfeited assets. With the new changes, “adoption” is only available when property is directly related to public safety concerns, including firearms, ammunition, explosives, and property associated with child pornography. Further, cases that are being considered for adoption under this public safety exception must be approved by the Assistant Attorney General for the Justice Department’s Criminal Division.