Today we welcome guest blogger Robert Everett Johnson who is an attorney at the Institute for Justice. He joined the Institute in August 2014, and litigates cases protecting private property, economic liberty, and freedom of speech. You may remember the Institute for Justice for its recent victory in the Loving v. United States case where it took on the return preparer regulations. See our post from Dan Alban who litigated that case and who also works at the Institute. It currently represents clients who have had property seized based on the anti-structuring laws. I have been following the cases with interest. Today’s post points out the chilling results that can occur when the government invokes these powers. Keith
The New York Times recently reported about a series of cases in which the IRS has seized money from innocent Americans based on purported violations of so-called “anti-structuring” laws, which make it a crime to deposit less than $10,000 cash in the bank in order to evade bank reporting requirements. Carole Hinders, the proprietor of a Mexican restaurant in small-town Iowa, had almost $33,000 seized after her mother advised her that keeping cash deposits under $10,000 would make life easier for the bank. And three brothers in Long Island—Jeffrey, Richard, and Mitchell Hirsch—had over $400,000 seized after their accountant likewise advised them to keep cash deposits under $10,000.
I am an attorney at the Institute for Justice, a non-profit public-interest law firm that represents Carole Hinders and the Hirsch brothers. The regular bloggers here at Procedurally Taxing have generously invited me to guest blog about these cases. The question they have asked me to address is this: Putting aside the moral outrage at what the IRS has done, has the IRS transgressed the bounds of the law?
The answer to that question is “yes.” And that answer has both substantive and procedural components. Substantively, the IRS has pursued these cases despite the fact that Carole Hinders and the Hirsch brothers do not have the intent required by the anti-structuring laws. And, procedurally, the IRS has pursued these cases in a manner that violates both constitutional principles of due process and the governing provisions of the Civil Asset Forfeiture Reform Act of 2000.read more...
- The IRS’s Conduct Is Substantively Unjustified
The IRS in these cases appears to have proceeded on the assumption that there is probable cause to believe that individuals have engaged in structuring wherever a bank statement shows a pattern of deposits under $10,000. In the case of the Hirsch brothers, for instance, the affidavit filed to justify the seizure of the bank account stated that there was a pattern of “approximately one hundred sixty-five (165) structured cash deposits . . . in amounts of less than $10,000.01,” and that this pattern was “consistent with structuring.” The structuring laws, however, do not authorize the IRS to seize money based on a mere pattern of sub-$10,000 deposits.
There is no federal law that prohibits depositing cash in an amount under $10,000; the governing federal statutes are more nuanced. Banks are required to report all currency transactions over $10,000. 31 U.S.C. § 5313(a). And the anti-structuring law makes it a crime for an individual to deposit less than $10,000 with the “purpose of evading the reporting requirements” imposed on the bank. Id. at § 5324(a). Under the anti-structuring laws, liability cannot be premised on the mere observation that someone has consistently deposited less than $10,000 cash. The “purpose” behind that pattern of deposits must be to evade bank reporting requirements.
There are many reasons why individuals might choose to keep their deposits under $10,000, quite apart from a desire to evade bank reporting laws. For instance, many banks charge a fee for cash deposits over $10,000—presumably to cover the cost of preparing the reports required by federal law. Individuals may keep their deposits under $10,000 to avoid paying a fee, even if they are indifferent to whether the federal government receives a report. Other people are simply advised by bank tellers or other bank employees that it would be easier for the bank if they were to keep their deposits under $10,000, and agree to break up their deposits to make life easier for bank employees. Or, in another common scenario, businesses may have insurance policies that protect cash from theft or other loss only in amounts up to $10,000. These businesses may consistently deposit cash in amounts under $10,000 because they wish to avoid exposure under their insurance policies. None of these reasons for “structuring” cash deposits would give rise to liability under the federal anti-structuring law.
Carole Hinders and the Hirsch brothers had perfectly innocent reasons for depositing cash in amounts less than $10,000. As detailed by the New York Times, Carole was told by her own mother that it was simply easier for the bank to handle deposits in amounts under $10,000. Before the IRS decided to intervene, Carole had kept her deposits under $10,000 for decades on the basis of that advice. The Hirsch brothers, meanwhile, had a series of banks shut down their bank account, and finally were advised by their own accountant that banks would be less likely to close their account if they kept their deposits under $10,000. In both cases, the “purpose” of keeping deposits under $10,000 was to avoid hassle and disruption—not to keep information secret from the federal government.
In these and other cases, the IRS is seizing money based solely on a pattern of deposits, without warning and without any serious investigation to determine the reason for that pattern. But the IRS should not simply assume that every case that looks like it might involve structuring actually does involve structuring. The IRS should conduct a serious investigation to determine the reason behind a pattern of deposits, and should do so before it swoops in and takes a business’s entire bank account. Too often, the IRS has not taken that basic step.
- The IRS’s Conduct Is Procedurally Improper
In addition to being substantively unjustified, the IRS’s conduct also runs afoul of procedural protections afforded by federal statute and the Constitution. The IRS routinely draws out structuring cases for years: In the case of the Hirsch brothers, the IRS has held the seized currency for over two years, but has not yet commenced any forfeiture proceedings. And in the case of Carole Hinders, although over one year has elapsed since the account was seized, Carole has not yet had an opportunity to present her defense to a judge. This kind of delay causes extraordinary difficulties for businesses that are deprived of their operating capital while awaiting their day in court. And it also makes it easier for the IRS to pressure many property owners into extortionate settlement agreements. In addition to being unfair to property owners, this habitual delay is flatly unlawful.
In the Civil Asset Forfeiture Reform Act of 2000 (“CAFRA”), Congress enacted deadlines to govern these kinds of forfeiture proceedings. See 18 U.S.C. § 983(a)(1). Under CAFRA, the government has a 60-day window to do one of three things: it may send “written notice to interested parties” of a “non-judicial civil forfeiture proceeding”; it may “obtain a criminal indictment containing an allegation that the property is subject to forfeiture”; or it may “file[ ] a civil judicial forfeiture action against the property.” Id. § 983(a)(1)(A).In other words, the government may choose to proceed via administrative forfeiture, criminal forfeiture, or civil judicial forfeiture. If the government does none of these things, however, CAFRA provides that “the Government shall return the property” to “the person from whom the property was seized.” Id. § 983(a)(1)(F). The IRS blew far past these deadlines in dealing with the Hirsch brothers. Instead of commencing forfeiture proceedings in a matter of days after the seizure, the IRS has waited years.
The IRS’s conduct not only violates CAFRA, but also violates the Constitution’s guarantee of due process. Although the IRS filed a judicial forfeiture action against Carole Hinders’ property within the CAFRA deadlines, Carole has nevertheless waited over a year for any opportunity to present her defense to a judge. If the local sheriff had come to Carol’s restaurant to seize an oven or a refrigerator, Carol would plainly have been entitled to a pre-seizure hearing or, if there were exigent circumstances, to a prompt post-seizure hearing. See Fuentes v. Shevin, 407 U.S. 67, 90, 96-97 (1972) (striking down state provisions that allowed vendors to have goods seized without prior hearing); Krimstock v. Kelly, 306 F.40, 53 (2d Cir. 2002) (Sotomayor, J.) (holding that New York City was required to provide an interim hearing pending criminal proceedings after seizing cars from suspected drunk drivers). There is no reason why the IRS should be held to a lesser standard when it seizes bank accounts. Yet both Carole and the Hirsch brothers have been denied any prompt post-seizure hearing. That delay violates due process.
Indeed, when the IRS waits years after seizure to commence forfeiture proceedings, as it has with the Hirsch brothers, that delay is so extreme that it should bar the IRS from forfeiting the money evenimagining thatstructuring has occurred. In United States v. Eight Thousand Eight Hundred and Fifty Dollars ($8,850) in U.S. Currency, 461 U.S. 555 (1983), the Supreme Court set out a multi-factor test to determine when delay is so extreme that it acts as a total bar to further forfeiture proceedings. A court will look “to four factors: length of delay, the reason for the delay, the defendant’s assertion of his right, and prejudice to the defendant.” Id. Under the first of these factors, there is no question that a delay of years is substantial; courts have found violations of due process based on comparable or shorter periods of delay. See, e.g.,United States v. One Motor Yacht Named Mercury, 527 F.2d 1112, 1113 (1st Cir. 1975) (twelve months); United States v. One (1) Nissan 300 ZX, 711 F. Supp. 1570, 1572-73 (N.D. Ga. 1989) (eighteen months). Prejudice to the property owners also is self-evident; in addition to the harm of being deprived of access to their bank account, crucial evidence may be lost or forgotten with the passage of time. Courts must demand some extraordinary justification from the IRS to explain this kind of delay. In the mine run of cases, no such extraordinary justification will be available.
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This post is not intended to provide a complete catalogue of the IRS’s errors, or to exhaust the universe of arguments that may be advanced as these cases make their way through the courts. Rather, the intent is to demonstrate that the outrage over the IRS’s conduct is not merely justified as a matter of moral principle—but also as a matter of law.
The IRS has seized money from innocent people without warning or serious investigation, and then has held the money for years without providing any opportunity for a hearing before a judge. The IRS has done so despite the fact that the property owners have good reasons for keeping their deposits under $10,000, and thus are not guilty of structuring. And the IRS also has done so despite a federal law that provides hard deadlines to commence forfeiture proceedings—deadlines that the IRS has passed many times over. Indeed, the procedural willfulness of the IRS is so extreme that the agency has violated the foundational protections afforded by due process. Anyone who values the rule of law should be outraged by such conduct.