Seize First, Question Later: The Institute for Justice’s New Report on the IRS’ Abusive Civil Forfeiture Régime

Considering the growing controversy over the abuse of civil asset forfeiture at the federal and state levels, the Institute for Justice’s newly released report on the IRS’ questionable use of the practice is perfectly timed.

An excerpt from the executive summary:

Federal civil forfeiture laws give the Internal Revenue Service the power to clean out bank accounts without charging their owners with any crime. Making matters worse, the IRS considers a series of cash deposits or withdrawals below $10,000 enough evidence of “structuring” to take the money, without any other evidence of wrongdoing. Structuring—depositing or withdrawing smaller amounts to evade a federal law that requires banks to report transactions larger than $10,000 to the federal government—is illegal, but more importantly, structured funds are also subject to civil forfeiture.

Civil forfeiture is the government’s power to take property suspected of involvement in a crime. Unlike criminal forfeiture, no one needs to be convicted of—or even a charged with—a crime for the government to take the property. Lax civil forfeiture standards enable the IRS to “seize first and ask questions later,” taking money without serious investigation and forcing owners into a long and difficult legal battle to try to stop the forfeiture. Any money forfeited is then used to fund further law enforcement efforts, giving agencies like the IRS an incentive to seize.

Data provided by the IRS indicate that its civil forfeiture activities for suspected structuring are large and growing…

For the uninitiated, under the Bank Secrecy Act of 1970, financial institutions are required to report deposits of more than $10,000 to the federal government.  The law also makes it illegal to “structure” deposits in such a way as to avoid that reporting requirement.  Under the IRS’ conception of the law, “structuring” may be nothing more than making several sub-$10,000 deposits, without any further suspicion of particular wrongdoing.  For obvious reasons, many small businesses and individuals can find themselves on the wrong side of this law without any criminal intent.

When the structuring law is combined with the incredibly low burdens required for the federal government to seize assets through civil forfeiture, the potential for abuse is self-evident.  While the lack of criminal intent may protect against criminal structuring charges, it is no barrier to the government’s overbroad power to initiate civil proceedings against the money itself.

IJ’s report, authored by Dick M. Carpenter II and Larry Salzman, goes in depth to reveal the history and unbelievable breadth of the IRS’ civil forfeiture regime, the perverse incentives it creates for government agencies, and the individual livelihoods it threatens and destroys.  IJ makes the case for much stronger protections for private property rights (including the outright abolition of civil forfeiture as a government power).

Be sure to check out the full report, as well as the Institute for Justice’s other work on asset forfeiture and private property here.

For more of Cato’s recent work on civil forfeiture, see Roger Pilon's recent National Interest  article here, my blog post here, and a recent podcast here.