A New Law Ensures RESPECT for Small Businesses
Until now, the IRS has been able to seize funds from small business owners’ bank accounts if they came from cash deposits that seemed suspect. Now, under a new law that received unanimous support in Congress, small business owners are protected from such seizures.
The Currency and Foreign Transactions Reporting Act of 1970 (“Bank Secrecy Act”) requires businesses that receive cash payments of $10,000 or more to report them to the IRS. The law also requires banks to report suspicious activities (e.g., money laundering, tax evasion). However, businesses that deposited or withdrew cash in excess of this threshold could be subject to seizure because of “structuring,” which is making multiple deposits or multiple transactions on multiple days to avoid the $10,000 limit. This seizure did not depend on any adjudication of a crime, or even a criminal charge.
The Treasury Inspector General for Tax Administration found that of the structuring cases examined, 91% did not show any evidence of illegal activities. Those who had money seized but did nothing wrong could eventually recoup their funds after considerable time and expense. Some were effectively extorted, recouping only a portion of what was seized, even though there was no wrongdoing on the owner’s part.
In recent years, there have been some highly publicized cases of egregious action against innocent small business owners…a dairy farmer, a café owner, and a candy distributor to name a few.
Now, the Taxpayer First Act (P.L. 116-25) incorporates the Clyde-Hirsch-Sowers Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools (RESPECT) Act, which is named after two small business owners who were raided by the IRS. This Act limits the ability of the IRS to seize funds for structuring.
This means that businesses legitimately dealing in cash no longer have to fear what have been called “abusive seizures.”
If there are seizures for structuring, there are more due process protections in place:
- Seizure for structuring is permissible only if derived from an illegal source or to conceal criminal activity.
- An owner who has funds seized for structuring can request a hearing in federal court (essentially to refute any basis that the IRS had for seizure).
- The hearing must be held within 30 days.
- If the court does not find probable cause for the structuring seizure, the funds must be returned.
Chalk one up for small business owners who now have the law on their side.