Abusive IRS ‘Structuring’ Cases Continue, Despite Promise of Reform

Published July 26, 2015

In rural North Carolina, Lyndon McLellan runs the L&M Convenience Mart, a small gas station and restaurant, half a mile outside the limits of Fairmont. In the summer of 2014, every last penny of McLellan’s business bank account was drained by Internal Revenue Service (IRS) agents, on the pretext McLellan was attempting to conceal evidence of money laundering.

Even though federal prosecutors never filed any charges against him, the $101,702.66 seized from McLellan’s bank account remains in the government’s treasure chest, and not in the hands of the man who legally acquired it through his hard work.

The IRS requires banks to file “suspicious activity reports” with the U.S. Treasury Department if they suspect someone is guilty of “structuring” deposits to avoid bank reporting rules.

Depositing less than $10,000 can be interpreted as an attempt to avoid detection by law enforcement authorities, as banks are required to report transactions larger than $10,000. Also, frequent or large deposits of cash can result in an account being red-flagged and seized by government agents, presuming guilt until the individual proves the innocence of the deposit. That’s the exact opposite of the presumption of innocence on which the nation’s justice system is based.

In October 2014, the IRS announced it would show self-control and use its power under the nation’s civil forfeiture laws sparingly.

IRS criminal investigations chief Richard Weber told The New York Times the agency “will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases.”

Two months after announcing its newfound reservoir of structuring-case self-control, the government filed its forfeiture complaint against McLellan. In a February 2015 House committee hearing, IRS Commissioner John Koskinen was questioned about the agency’s flouting of the policy change in persecuting McLellan.

“If that case exists,” Koskinen remarked, “then it’s not following the policy.”

Eventually, the assigned federal prosecutor, Steve West, dropped the case, apologized profusely to McLellan, and returned the small businessman’s legally obtained money.

Well, not exactly. When the Institute for Justice (IJ), a nonprofit public interest law firm based in Virginia representing McLellan, notified West of Koskinen’s testimony, West accused IJ of leaking McLellan’s story to the Congressional committee.

“I do not know who did that, and I am accusing no one, but it was not from our office and could only have come from your clients,” West said, adding, “publicity about it doesn’t help.”

Complaining that spreading the word about civil asset forfeiture abuse “just ratchets up feelings in the agency,” West offered to return only half the money the IRS had improperly seized.

Instead of government serving the public, legal abuses such as those perpetrated on McLellan and other victims of IRS seizures show government serving itself at the public’s expense. The situation cries out for reform.

Like a schoolyard bully taking other students’ lunch money, the IRS’s swaggering mistreatment of the nation’s taxpayers will continue unabated until those in the agency face real punishments for their frequent abuses of our civil rights.

[Originally published at The Times and Democrat]