Last year, the IRS said it was changing its policy about seizing bank accounts from small business owners who made numerous small bank deposits -- a practice the agency said was a cover for illegal activity. A case out of North Carolina shows the policy hasn't changed. If anything, it's gotten much, much worse:
...both the IRS and the DOJ are continuing to pursue the forfeiture of $107,000 that belongs to Lyndon McLellan, the owner of a convenience store in rural North Carolina, based on nothing but suspicion of structuring.
As in other structuring cases, McLellan lost his money because of well-intentioned but bad advice from a bank teller. The teller told McLellan's niece, who usually handled L&M Convenience Mart's deposits, she could save the bank burdensome paperwork by keeping the deposits below $10,000, the reporting threshold. Based on the resulting pattern of deposits, the IRS cleaned out McLellan's bank account a year ago, even though there was no evidence that the money came from anything other than his perfectly legal business, which combines a store with a gas station and restaurant. The Institute for Justice, which is suing the IRS and the DOJ on McLellan's behalf, notes that "the government filed its forfeiture complaint in December 2014">2014, two months after the IRS announced it would not forfeit money in cases like this one."
So the IRS doesn't bother to follow its own policies. That's not necessarily news. What makes this case more despicable is the reaction of the U.S. Attorney, Steve West, who took offense that his office's role in the case was made public in a congressional hearing:
After McLellan and his accountant emailed West video of [Rep.] Holding's exchange with [IRS Commissioner] Koskinen, the prosecutor responded with a rebuke:
I'm a bit concerned. At your request, I provided you a copy of the application for seizure warrant, which remains under seal with the Court, and now it appears it has been made available to a congressional committee? I do not know who did that, and I am accusing no one, but it was not from our office and could only have come from your clients. That was certainly not my intent in making this available. Whoever made [the document] public may serve their own interest but will not help this particular case.
Your client needs to resolve this or litigate it. But publicity about it doesn't help. It just ratchets up feelings in the agency.
My offer is to return 50% of the money. The offer is good until March 30th COB.
I.J. notes that the rationale for filing seizure documents under seal is to avoid tipping off the owner, lest he take his money and run. But in this case, the seizure had already happened, and the government had provided the documents to McLellan. "Sealed filings are intended to promote legitimate law enforcement interests," I.J. says, "not to allow prosecutors to evade public scrutiny." And it's more than a little unseemly for a prosecutor to imply that the bad feelings caused by such scrutiny might affect the outcome of a case.
"It just ratchets up feelings in the agency." That line is chilling. In effect, a U.S. Attorney has decided to shake down a small business owner. They keep half the money and the businessman keeps his mouth shut.
We suggest congress
have Mr. West explain himself before a committee...under oath.