On Monday, President Donald Trump signed a bill into law that stops the Internal Revenue Service from raiding the bank accounts of small-business owners. The Clyde-Hirsch-Sowers RESPECT Act, part of the Taxpayer First Act (H.R. 3151) that Congress passed unanimously, is named after Institute for Justice clients Jeff Hirsch and Randy Sowers, two victims of the IRS’s aggressive seizures for so-called “structuring.”
Through structuring laws, the IRS routinely confiscated cash from ordinary Americans simply because they frequently deposited or withdrew cash in amounts under $10,000. And by using civil forfeiture, the IRS can keep that money without ever filing criminal charges.
“With the Clyde-Hirsch-Sowers RESPECT Act now law, innocent entrepreneurs will no longer have to fear forfeiting their cash to the IRS, simply over how they handled their money,” said Institute for Justice Senior Attorney Darpana Sheth, who heads IJ’s National Initiative to End Forfeiture Abuse. “Seizing for structuring was one of the most abusive forms of civil forfeiture and we’re glad to see it go.”
The RESPECT Act was originally introduced by Reps. John Lewis (D-GA) and Doug Collins (R-GA) after Jeff and Randy testified before the House Ways and Means Oversight Subcommittee about their experiences: 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.
To rein in the IRS’ civil-forfeiture power, the Clyde-Hirsch-Sowers RESPECT Act will:
- Limit forfeiture for currency “structuring” only when the funds in question are derived from an illegal source or used to conceal illegal activity. This would codify an IRS policy change from October 2014 prompted by lawsuits from the Institute for Justice and would 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.
Following a pathfinding petition effort by IJ, the IRS received 464 petitions from owners seeking to recover their money that had been seized for structuring. Out of 208 petitions that were within its jurisdiction, the IRS granted roughly 84 percent and returned over $9.9 million to property owners.
For the remaining 256 petitions under the Department of Justice’s jurisdiction, the IRS recommended that DOJ grant 194 of those petitions. Yet the Department only accepted 41 petitions—less than 1 in 6—and refused to return more than $22.2 million as of last summer.
“The Clyde-Hirsch-Sowers RESPECT Act marks the first time in nearly two decades that Congress has reined in federal forfeiture laws, and is an important first step to address one type of forfeiture abuse by one federal agency,” Sheth noted. “But civil forfeiture by other agencies continues unabated. Congress should seize the opportunity to pass comprehensive reform of federal forfeiture laws and protect the constitutional rights of all Americans.”
Two forfeiture reform bills with broad, bipartisan support are currently active in Congress. Rep. Jim Sensenbrenner (R-WI) has reintroduced the DUE PROCESS Act(H.R. 2835), which would strengthen safeguards for innocent owners, including applying the reforms of the RESPECT Act to the DOJ. Similarly, Rep. Tim Walberg (R-MI) has sponsored the FAIR Act (H.R. 1895) which would also ban federal agencies from retaining forfeiture proceeds. And last month, the House approved an amendment that would cut off funding for a notorious federal forfeiture program known as “adoption.”
Forfeiture reform is the rare political issue that transcends party lines. The national platforms for both the Democratic and Republican Parties have endorsed forfeiture reform, as have the editorial boards for over 135 different newspapers. In February, the U.S. Supreme Court unanimously ruled that state civil forfeiture cases are bound by the Eighth Amendment’s ban on “excessive fines.” And in the past five years, 33 states and the District of Columbia have enacted forfeiture reforms.