by Douglas Ankney
During the 13-year period from 2001 to 2014, Lyndon McLellan worked hard, expanding his small, roadside convenience store to include a restaurant and lunch counter. He’d managed to save a little over $107,000. But in less than 13 seconds, the IRS took all of McLellan’s savings — alleging he violated “structuring laws.”
Structuring is a type of money laundering where a person divides money so that each deposit is below $10,000 in order to evade bank reporting requirements. But McLellan ran an honest business that simply resulted in frequent deposits of less than $10,000. He was never charged with a crime, and the IRS had no reason to believe he was evading the reporting requirements. Under the expansive rules of civil forfeiture, neither a conviction nor even an arrest is necessary for a government agency to seize a person’s money — vague allegations will suffice. And in most cases, the agencies get to keep 100% of the money.
However, beginning in 2013, the Institute for Justice (“Institute”) represented McLellan and several other small business owners in an action against the IRS. Under the Freedom of Information Act (“FOIA”), the Institute sought the IRS’s forfeiture database. Fighting disclosure, the IRS demanded $750,000 in fees before it would accommodate the FOIA request.
The Institute alleged that such an unreasonable demand would render FOIA useless for all but the wealthiest of citizens. Once in federal court, the IRS then offered to settle by releasing a “summary report” in lieu of the actual data. The report was 99% redacted. While the gamesmanship worked in the District Court, the U.S. Court of Appeals for the D.C. Circuit ruled against the IRS. Finally, back in District Court, the IRS was forced to provide the database in April 2022.
Due to the mammoth size of the database, it currently is not known how many innocent people were victimized by the IRS; how much money was seized under questionable circumstances by the IRS; or how federal agents spent the seized money. Fortunately, all of the Institute’s clients had their money refunded to them.
Unfortunately, federal and state agencies will continue to seize money and assets via abusing the civil forfeiture process. Generally speaking, states allow agencies to report combined data — making it impossible to track and discover abuses. Some states do not require any reporting or creation of records. Often, as here, the agencies fiercely oppose disclosure, requiring attorneys and other legal expenses. The IRS and other agencies know that the more the public knows about how agencies use and abuse civil forfeiture, the more the public opposes it. And that’s why those agencies prefer a cloak of secrecy.
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