Pending Legislation to Limit Government Action on Forfeiture

The U.S. Senate has voted to limit the ability of the Internal Revenue Service to confiscate cash from small-business owners suspected of “structuring transactions (1) ,” and keep the cash without ever filing criminal charges. The Clyde-Hirsch-Sowers RESPECT Act would restrict forfeiture for currency “structuring” only when the funds in question are derived from an illegal source or used to conceal illegal activity. It also would let property owners challenge a seizure at a prompt, post-seizure hearing. Previously, property owners targeted for structuring had to wait months or even years to present their case to a judge.

What is Forfeiture?

Forfeiture is generally defined as the taking of property by the government without compensation when taxpayers have allegedly not complied with a legal obligation or for the commission of a crime. For example, a lease contract may have a forfeiture clause that gives the lessor the right to cancel the lease and reenter the property—with statutory process— if the lessee fails to pay rent. In the context of government action, Congress and state legislatures maintain statutes that allow law enforcement to seize property on suspicion of certain criminal activity. In civil forfeiture cases, the owner of the property doesn’t even need to be guilty of a crime: the proceedings charge the property itself with involvement in, or the results of a crime.

Structuring Transactions

Structuring transactions, also known as smurfing , is the practice commonly associated with money laundering, fraud, and other financial crimes. They are called “ structuring transactions ” because the transactions follow a specific structured pattern to avoid triggering any red flags by banking institutions (2) , or to avoid having to file a currency transaction report, i.e. a form 8300, with the IRS (3) .

The bill is named partly for Institute for Justice clients Jeff Hirsch and Randy Sowers, two small-business owners who had their bank accounts seized by the IRS for alleged structuring. Through structuring laws, the IRS has routinely confiscated cash from small-business owners because they frequently deposited or withdrew cash in amounts under $10,000 which appears to be intentionally “structured” to avoid the F-8300 filing. Under current civil forfeiture laws, the IRS could then keep the money without ever filing criminal charges against the individuals.

How the Proposed Legislation Would Limit the IRS

Under the proposed legislation, within 30 days of seizing the property, the IRS must (a) make a good faith effort to find all owners of the property, and (b) notify the owners of the post-seizure hearing rights established by the bill. If the owner requests a court hearing within 30 days after notice is provided, the property must be returned unless the court holds a hearing within 30 days after notice is provided and finds one of the following apply:

• that there is probable cause to believe that the property was derived from an illegal source; or
• the funds were structured to conceal the violation of a criminal law; or
• criminal conduct other than a structuring violation.

For any further discussion on civil forfeiture or the potential impact from this proposed legislation on your business, please reach out to Kerry Lavelle at klavelle@lavellelaw.com to schedule an appointment.

(1) H.R.1219 - Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act

(2) The Bank Secrecy Act of 1970 (BSA) requires financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering by keeping records of cash purchases of negotiable instruments, filing reports if the daily aggregate exceeds $10,000, and reporting other suspicious activity.

(3) I.R.C. §6050I requires that any person engaged in a trade or business that receives cash in excess of $10,000 in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business