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Civil forfeiture, part 1: When is the IRS allowed to do it?

If you are a small business owner, the bank account you use for your business is vital to you. Day by day, the transactions that occur there are like your life blood

It is therefore obviously a huge problem when the IRS seizes that account, contending that there has been suspicious activity under the Bank Secrecy Act or some other federal law. In this two-part post, will describe the problem of civil forfeiture and update you on recent efforts to reform the process.

Seizures of a bank account or other property in the name of civil forfeiture are different from the bank account levies we discussed in our April 3 post. With a bank account levy, the reason the government seeks to seize the funds is to satisfy an existing tax debt.

With civil forfeiture, the rationale is different. The justification is supposedly that the funds themselves, not the taxpayer, are suspicious because they may be linked to money laundering or other criminal activity. Law enforcement agencies have often taken property using this legal fiction, despite the fact that in many cases no criminal charges are ever filed.

Many of these cases concern cash deposits of less than $10,000 made in banks. The Bank Secrecy Act (BSA) imposes certain reporting requirements on banks for deposits that meet the $10,000 threshold. As the IRS notes in its Revenue Manual, the BSA and other federal laws authorize the IRS to seize property that appears to be involved in money laundering or other violations of these laws.

The laws were put in place to go after drug kingpins, terrorists and other prominent wrongdoers. In practice, however, civil forfeiture laws have ensnared many law-abiding family businesses.

The result has been a considerable outcry and calls for reform. In part two of this post, we will update you on what the IRS and the Justice Department have changed and how Congress has responded to the problem.

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