Beware IRS is stepping up enforcement action of the Bank Secrecy Act in closing out bank accounts of U.S. taxpayers making cash deposits.
Ronald Malone and his wife Janet Malone of Dubuque, Iowa lived a simple life and enjoying their retirement. Shortly before Ronald’s death in October 2011, Ronald told his wife about a briefcase containing $180,000 cash that he accumulated from his job as a publishing executive and from gambling winnings and investment income. After Ronald died, Janet who at the time was 68 years old, deposited this cash into her bank account in increments of anywhere from $5,800 to $9,000.
Unknown to Janet, these cash deposits were being reported by the bank to the IRS. The IRS having picked this up obtained a warrant to seize the funds in Janet’s bank account based on suspicion that the transactions were meant to avoid tax reporting requirements under the Bank Secrecy Act of 1970.
Well just a couple of weeks ago prosecutors charged Janet Malone with a criminal misdemeanor and she was arrested. It turns out that four years earlier her husband who must have been making cash deposits to the bank was warned by the IRS about continuing this practice. Ronald acknowledged to the IRS Special Agent at a meeting in his house that the small deposits amounting to $35,500 could be considered “structuring” (which is against the law) and signed a form confirming that he’d been warned about the practice. Janet was at the home for part of that meeting between the IRS Special Agent and Ronald, but she had not signed anything. Janet claims that she did not remember the details of the IRS agent’s 2011 visit with her husband because she was in a state of despair over her husband’s health who at that time was dying of cancer.
Bank Secrecy Act of 1970
As part of the federal government’s dragnet surveillance of the civilian population, everyone’s banking activities are monitored for “red flag” activities. Under the Bank Secrecy Act of 1970, banks are required to report to the IRS transactions on every individual who deposits or withdraws more than $10,000 in cash to or from a personal bank account on a given day. These reports indicate the financial activities that took place and include the individual’s bank account number, name, address, and social security number.
People who know of this law and are seeking to avoid this level of reporting by the bank will often go to great lengths to make multiple deposits so that no single deposit will be greater than $10,000. This tactic is called “structuring”. The IRS thinking that Ms. Malone was making small deposits to evade this reporting requirement used its civil forfeiture power to seize Ms. Malone’s bank account.
That’s right – federal law enforcement agencies are invested with the power of civil forfeiture whereby the agency can take cash, cars and other property without charging the property owner with a crime. The property owner need not receive any advance warning or notice before the assets are seized by the federal government. The government need not prove that a person is guilty of a crime – only that he or she is suspected of committing a crime. This law was designed to catch terrorists, money launderers, drug lords and serious criminals – but it can also be used by the government against law-abiding businesses and law-abiding taxpayers.
The reason that the federal government does not have to read you your rights, or advise you that you can have a lawyer, or do any of the things that the constitution is supposed to provide, is that they don’t charge the person with the crime – they charge your money with the crime. And that crime that your money committed can carry a charge to you of up to one year in jail and a $250,000 fine.
Others Have Been Targets Under This Act
Janet Malone is not the only person whose money got her into criminal trouble. A few weeks ago, I told you about Carole Hinders, another resident of Iowa and a 67 year old grandmother who operated Mrs. Lady’s Mexican Food in Arnolds Park, Iowa for 38 years. But despite her clean tax record, on May 22, 2013 while settling into a crossword puzzle with her grandchildren she was visited at her home by a pair of IRS agents who stated that they had closed her business bank account and seized all her money, which at the time was almost $33,000.
Even professionals could get into criminal trouble from how their money is deposited. The IRS seized $344,405 from Mason City, Iowa doctor Alireza Yarahmadi’s bank account last year after suspecting he made repeated cash withdrawals in increments below $10,000 to evade federal reporting requirements. Dr. Yarahmadi denied wrongdoing, saying he routinely transferred cash from his bank account to safe deposit boxes for safekeeping. His attorney said that Dr. Yarahmadi is an Iran native who is suspicious of banks because his family lost its savings after the 1979 revolution.
Eventually, the government dropped their charges against Ms. Hinders and Dr. Yarahmadi and returned their funds. But Ms. Malone’s case is still pending and the IRS does not appear to have discontinued this practice.
Are There Any Safeguards In Place For The IRS To Follow So Things Like This Do Not Happen?
Critics say the IRS rarely investigates such cases to see if the business owner has legitimate reasons for making small deposits, such as an insurance policy that covers only a limited amount of cash.
Seizing assets without criminal charges is legal under a controversial body of law that allows law enforcement agents to seize cars, cash and other valuables they believe are tied to criminal activity. The burden of proof falls on owners seeking the return of their property. In fact what happened to Ms. Hinders has prompted the two high-ranking members on the House Ways and Means committee to file bipartisan legislation to curb abuses of the practice, known as civil asset forfeiture. Civil asset forfeiture even become an issue in the confirmation of President Obama’s nominee for attorney general, Loretta Lynch, who as United States attorney for the Eastern District of New York presided over a case involving more than $440,000 seized from a family-run cash-intensive candy and cigarette distributor that has been operating in Long Island, New York for 27 years.
There is nothing illegal about depositing less than $10,000 cash unless it is done specifically to evade the reporting requirement. But often a mere bank statement is enough for investigators to obtain a seizure warrant. In the Long Island case, the police submitted almost a year’s worth of daily deposits by a business, ranging from $5,550 to $9,910. The officer wrote in his warrant affidavit that based on his training and experience, the pattern “is consistent with structuring”.
The IRS made 639 of these seizures in 2012, compared to 114 in 2005. And only one in five was prosecuted as a criminal case. So you are probably thinking was the money from the other 80% of cases returned to its rightful owners?
Don’t Take The Chance And Lose Everything You Have Worked For.
Protect yourself. If you are in danger of wage garnishments or bank levies or having a tax lien placed against your property, stand up to the IRS and your State Tax Agency by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.
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