IRS Backs Down, Agrees to Return Seized Bank Accounts

Published November 27, 2013

The Internal Revenue Service has filed motions to voluntarily dismiss two civil forfeiture actions against innocent Detroit-area small-business owners. Terry Dehko of Fraser, Mich. and Mark Zaniewski of Sterling Heights, Mich. will each get back all of the money seized without warning from their business’s bank accounts (more than $100,000 in total) by the federal government. 

The IRS’s action came just hours after the Institute for Justice announced it was joining a second civil forfeiture lawsuit in Michigan against the federal government.

Although the motions vindicate the property rights of Dehko and Zaniewski, they do not solve the nationwide forfeiture problem. As recently demonstrated in the New Yorker and The Economist, civil forfeiture is now one of the greatest threats to property rights in the nation. A separate federal lawsuit filed in September by the Institute for Justice on behalf of Terry Dehko and his daughter, Sandra Thomas, seeks to reform civil forfeiture law to protect the constitutional rights of property owners. That lawsuit will continue.

‘Raiding Accounts of Innocent Americans’

“The IRS should not be raiding the bank accounts of innocent Americans, and it should not take a team of lawyers to put a stop to this behavior,” said IJ Senior Attorney Clark Neily. “We are thrilled that Terry, Sandy, and Mark will finally get their money back, but their fight does not end today. Our constitutional lawsuit against the federal government seeks to rein in the shameful practice of civil forfeiture.” 

On September 25, Terry Dehko and his daughter Sandy joined with the Institute for Justice to file a constitutional lawsuit challenging the federal government’s use of civil forfeiture. That case seeks a federal court ruling declaring property owners are entitled to a prompt hearing either before or immediately after their property is seized, and enjoining the federal government from using civil forfeiture without providing such a prompt hearing.

The lawsuit also asks the court to clarify it is not illegal for law-abiding businesses to make frequent cash deposits for legitimate business purposes. Like most small-business owners, Dehko and Zaniewski make regular cash deposits at their banks, and that is the sole reason the IRS seized their money.

Small Deposits, Big Potential Problem

The Dehko case is typical of the predicament in which small-business owners find themselves. Dehko owns Schott’s Market, a family grocery store that receives cash every day from its customers. To reduce the threat of robbery or theft, the store has always avoided letting too much cash accumulate. The store’s insurance policy also limits coverage for theft or other loss of cash to $10,000—a common provision for small-business policies. So the Dehkos have routinely deposited amounts smaller than $10,000 in a nearby bank.

Federal law requires banks to report cash transactions above $10,000, and several years ago the federal government made it illegal to “structure” cash deposits for the purpose of avoiding this requirement. So business owners face being accused of “structuring,” and having bank accounts seized, even when making deposits smaller than $10,000 is standard business practice.

Seizures With No Charges

Civil forfeiture allows the government to take private property from people without ever charging them with, let alone convicting them of, any crime. The proceeds of civil forfeiture are used to pad the budgets of the very agencies that seize the property. And when the federal government seizes cash—even your entire bank account—the law provides no prompt way to get a court to review the seizure. After seven months, Zaniewski never received a hearing before a judge to contest the seizure of his property. Dehko waited more than 10 months. The government never charged anyone with any crimein either case.

“Last year alone, the government took in more than four billion dollars in forfeiture money,” said IJ Attorney Larry Salzman. “Taking money from innocent people like Terry Dehko and Mark Zaniewski is wrong, and it needs to end immediately.”

Source: Institute for Justice