J. Justin Wilson
J. Justin Wilson · September 5, 2017

Today, the U.S. House of Representatives unanimously approved a bill to stop the Internal Revenue Service from raiding the bank accounts of small-business owners. Under so-called “structuring” laws, the IRS has routinely confiscated cash from ordinary Americans simply because they frequently deposited or withdrew cash in amounts under $10,000. And thanks to civil forfeiture, the IRS can keep that money without ever filing criminal charges.

“The IRS used civil forfeiture to steal from innocent, hard-working small business owners,” said Institute for Justice Attorney Robert Everett Johnson. “With Congress so bitterly polarized, it’s encouraging to see hundreds of representatives stand together against this inherently abusive practice.”

Sponsored by Reps. Peter Roskam (R-IL) and Joseph Crowley (D-NY), the Clyde-Hirsch-Sowers RESPECT Act (H.R. 1843) is named after Institute for Justice clients Jeff Hirsch and Randy Sowers, two small-business owners who had their entire bank accounts seized by the IRS for alleged structuring. Jeff had over $400,000 seized from his convenience store distribution business on Long Island, while Randy, a Maryland dairy farmer, lost $29,500 to the IRS. Even though neither man was ever charged with a crime, it took years of legal proceedings before they recovered their wrongfully-taken money.

To rein in the IRS’ civil-forfeiture power, the Clyde-Hirsch-Sowers RESPECT Act would:

  • Limit forfeiture for currency “structuring” only when funds in question are derived from an illegal source or used to conceal illegal activity. This would codify a IRS policy change from October 2014 and prevent the agency from backtracking;
  • Allow property owners to 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.

“The Clyde-Hirsch-Sowers RESPECT Act is an important first step to address one type of forfeiture abuse by one federal agency,” noted Johnson, who represented both Jeff and Randy. “But civil forfeitures by other agencies continue unabated. With today’s vote revealing a broad consensus, Congress should seize the opportunity to pass a more comprehensive overhaul of federal forfeiture laws and protect the constitutional rights of all Americans.”

Two broader forfeiture reform bills are currently active in Congress. Rep. Jim Sensenbrenner (R-WI) has reintroduced the DUE PROCESS Act, which would strengthen safeguards for innocent owners, while Sen. Rand Paul (R-KY) has sponsored the FAIR Act, which would ban federal agencies from retaining forfeiture proceeds and abolish the notorious “equitable sharing” program.

Key Facts about Structuring and Civil Forfeiture:

  • One study by the Institute for Justice found that from 2005 to 2012, the IRS seized more than $242 million in over 2,500 cases for alleged structuring offenses. One-third of those cases involved nothing more than making a series of sub-$10,000 cash transactions.
  • In April, a report by the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS’ use of structuring laws “compromised the rights of some individuals and businesses.” In a sample of 278 investigations, there was no evidence in 91 percent of those cases “that the structured funds came from an illegal source or involved any other illegal activity.”
  • Rep. Roskam reported in July that the IRS reviewed 454 petitions for the return of property forfeited under the structuring laws and returned more than $6 million to property owners. The agency also transferred 250 petitions to the Department of Justice for review, but the DOJ has only acted on 73 petitions. The Justice Department approved returning money in just 32 percent of cases—well below the IRS’ recommendation of 80 percent.
  • In their 2016 party platforms, both the Republican and Democratic Parties condemned civil forfeiture and called for reform.
  • Since 2014, 24 states have reformed their forfeiture laws while over 260 editorials have criticized the practice.