J. Justin Wilson
J. Justin Wilson · July 14, 2017

Late yesterday, the House Ways and Means Committee – approved a bill to stop the Internal Revenue Service from raiding the bank accounts of innocent, 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.

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. Neither man was ever charged with a crime.

Both Jeff and Randy ultimately recovered their wrongfully taken money, but only after years of legal proceedings and high-profile media coverage—including a front-page article in The New York Times and an editorial in The Wall Street Journal. The two men have also testified about their experiences before the House Ways and Means Oversight Subcommittee.

“The IRS used civil forfeiture to steal from innocent, hard-working small business owners,” said IJ attorney Robert Everett Johnson, who represented Jeff Hirsch and Randy Sowers in their fights against the IRS. “The Clyde-Hirsch-Sowers RESPECT Act is a much needed reform of federal forfeiture laws that will protect small-business owners across the country from IRS abuses.”

To rein in 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 bill will now head to the U.S. House of Representatives for a floor vote. Last year, the House unanimously approved the Clyde-Hirsch-Sowers RESPECT Act, though due to time constraints from the presidential election and transition, it failed to receive a vote in the Senate.

“I’m so glad this is going to help other people in my situation,” said Jeff Hirsch. “That’s one of the reasons why I pursued my case for so long, even when things were down. I knew this fight was going to help other people.”

Jeff and Randy are not alone. 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. Incredibly, one-third of those cases involved nothing more than making a series of sub-$10,000 cash transactions.

In April, a bombshell 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.”

“The RESPECT Act is an important first step to address one type of forfeiture abuse by one federal agency,” said IJ Attorney Darpana Sheth, who heads the Institute’s nationwide initiative to end forfeiture abuse. “But Congress must pass comprehensive reform that protects the due process rights of all property owners and removes the perverse financial incentive underlying forfeiture laws.”

To that end, 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.

“The RESPECT Act would curtail one of the nation’s worst forms of civil forfeiture and prevent these abuses from re-occurring in the future,” Johnson noted. “But the federal government must compensate owners who had their money wrongfully taken before the IRS policy change.”

Following a pathfinding petition effort by IJ, the IRS began informing hundreds of eligible property owners that they could file petitions to recover their money. At the bill’s hearing yesterday, Rep. Roskam reported that the IRS reviewed 454 petitions and returned more than $6 million to property owners. The agency also transferred 250 to the Department of Justice for review, but the DOJ has only acted on 73 petitions. Just as troubling, the Justice Department approved returning money in just 32 percent of cases—well below the IRS’ recommendation of 80 percent.

“The Justice Department must promptly return the money they wrongfully seized and held onto for years,” Sheth added. “Justice delayed is justice denied.”