A recent New York Times article contained anecdotes of several taxpayers having their bank accounts seized by the IRS even though they had not been convicted of any crimes. The article leaves the reader with the impression that taxpayers are helpless to defend against such action. While the New York Times article accurately conveys how traumatic such seizures can be for those involved—Sgt. Jeff Cortazzo, who was forced to delay his daughter’s college education for a year; and Carole Hinders, whose 40 year old cash-only Mexican restaurant hangs in the balance—it is important to understand that these citizens have certain rights after a seizure occurs. While the IRS can seize assets without a court of law actually finding a taxpayer guilty of a crime, procedural safeguards exist to ensure that a taxpayer is not subjected to an unjust forfeiture by the federal government.

Bank Secrecy Act – Suspicion of Structuring Can Give Rise to Civil Asset Forfeiture

On a memorable episode of The Sopranos, Carmela Soprano (Tony’s wife) finds a fake fingernail lodged in her husband’s clothing, presumably left behind by one of Tony’s many mistresses. Fed up and furious with Tony’s philandering, Carmela removes a large stack of cash Tony hid in their backyard and deposits the money, in $9,900 increments, into various bank accounts held in her name. Carmela limits her deposits to $9,900 because she knows that banks are required to report to the federal government any deposits exceeding $10,000. In doing so, Carmela was engaging in the federal crime of “structuring,” which, as explained below, would subject those accounts to civil forfeiture.

The Bank Secrecy Act requires banks to report any deposits, withdrawals or transfers greater than $10,000. 18 U.S.C. § 5313. The law was enacted to root out tax cheats or people like the Sopranos who derive their income from criminal enterprises. Federal law also requires banks to report any activity they suspect as intended to circumvent the reporting requirements (i.e., repeated deposits just under the $10,000 threshold). Finally, federal law criminalizes structuring transactions in a way to thwart the reporting requirements, commonly referred to as “structuring,” a felony punishable by a fine and/or up to five years in prison. See 18 U.S.C. § 5324.

Using civil asset forfeiture procedures, the federal government can seize bank accounts involved in “structuring,” even if the money comes from legitimate sources. Carole Hinders, who was profiled in the New York Times article, learned this the hard way. For the last 40 years, Hinders has owned a cash-only Mexican restaurant in Arnolds Park, Iowa. Last year, IRS criminal agents administratively seized over $30,000 from Hinders’s checking account based on the theory that like Carmela Soprano, she too was engaging in “structuring.” Agents believed that Hinders had been making deposits of less than $10,000 in order to thwart the bank reporting requirements. While Hinders admits to purposely keeping her deposits under $10,000 to avoid the reporting requirements, she says she did so to help the bank avoid extra paperwork, not for some other nefarious purpose. Hinders had no idea she was committing a crime, or that the federal government could seize her account as a result. Unfortunately for Hinders, the key is whether she intended to skirt the reporting requirements, not that she knew doing so was against the law.

Civil Forfeiture Overview

Civil forfeiture is a proceeding against property, not an individual—referred to as an in rem proceeding. The civil forfeiture process is separate from, and not dependent on, a criminal prosecution. The United States has authority under 31 USC §5317(c)(2) for the civil forfeiture of property involved in violation of the currency transaction reporting statutes, 31 USC § 5313 or § 5324 (the Bank Secrecy Act).

The process of civil forfeiture begins with the actual or constructive seizure of the property at issue. The actual seizure frequently occurs prior to the initiation of a formal civil forfeiture action. In the case of a bank account, the seizure would likely prevent the account owner from accessing the funds.

Civil forfeiture can proceed judicially or administratively. In a judicial forfeiture, property may be seized pursuant to a warrant obtained in the same manner as provided for a search warrant under Rule 41 of the Federal Rules of Criminal Procedure (Fed. R. Crim. P. 41). An Assistant United States Attorney (AUSA) must submit an application for the seizure of particular property, as well as a special agent’s sworn affidavit setting forth the facts that provide probable cause for the seizure. A seizure warrant may be issued in any judicial district in which a civil forfeiture action against the property may be filed, and may be executed in any judicial district in which the property is found.

An administrative forfeiture is the process by which property may be forfeited to the United States by the seizing investigative agency (i.e., the IRS ) without judicial involvement. This is what apparently happened to Hinders and the other individuals profiled by the New York Times. It should be noted that federal agencies other than the IRS, such as United States Customs & Border Protection, are increasingly aggressive in instituting administrative forfeiture proceedings. Title 18 USC § 983 sets forth the general rules for civil forfeiture proceedings, including non-judicial or administrative forfeiture proceedings.

Responding to Civil Asset Seizure

The administrative agency must send notice of the seizure to all interested parties (i.e., account holders), as soon as practicable, and no more than 60 days after the date of the seizure. The administrative agency must also publish notice of the seizure once a week for three consecutive weeks in a newspaper of general circulation in the judicial district where the property was seized. The notice must describe the seized property and state when, where, why, and from whom it was seized, and set forth the deadline for filing a claim.

To challenge an administrative forfeiture, whether by the IRS or another federal agency, the procedures are largely the same.

First, the party receiving notice of the seizure may petition the government agency responsible for the seizure for remission of the seized property. This petition must be filed within 30 days of receiving the seizure notice. The administrative agency has discretion in deciding whether to grant the petition, and in most cases, will deny the petition. If the administrative petition is denied, or the aggrieved party is dissatisfied with the administrative agency’s ruling on the petition, the party has 30 days from the date of the agency’s decision to file a claim (as outlined below) requesting a referral to the U.S. Attorney’s Office for institution of judicial forfeiture proceedings. Note, the filing of an administrative petition is not a prerequisite to filing a claim requesting a referral to the U.S. Attorney’s Office for forfeiture proceedings.

Upon receiving a claim, the investigating agency reviews the claim for sufficiency before forwarding the claim to the U.S. Attorney’s Office. If the claim form is incomplete or does not meet the statutory requirements, the investigative agency must notify the claimant, as soon as possible, and allow a reasonable time to comply. A claim must be made under oath (subject to the penalty of perjury) and identify the specific property being claimed, the claimant’s interest in the property (and provide customary documentary evidence of such interest if available), and state that the claim is not frivolous. If the requirements for the claim are not met within the time allowed, the claim shall be void and the administrative forfeiture shall proceed as though the claim was not submitted. When a sufficient claim is received, the administrative forfeiture proceedings will be terminated and the investigating agency will forward the claim to the U.S. Attorney’s Office.

After receiving a valid claim, the U.S. Attorney’s Office will file a complaint for forfeiture in the United States District Court within 90 days after a claim has been filed. In some cases, the U.S. Attorney’s Office may contact the claimant about resolving the matter prior to filing the forfeiture action.

It is important to note that the burden of proof in a civil judicial forfeiture action is on the government to establish by a preponderance of evidence that the property is subject to forfeiture. The filing of the claim presents the best opportunity to recover the seized property, as the arbiter is a neutral federal district court judge, not a member of the administrative agency responsible for the seizure as is the case in the petition procedure outlined above.

Conclusion

In sum, if faced with a civil asset seizure/forfeiture action, aggrieved parties must understand that they have an opportunity to challenge the government’s theory that the property was involved in structuring or some other crime. Because these challenges are subject to compliance with strict timelines, it is important to contact counsel immediately to evaluate all options. While the New York Times article has increased publicity surrounding this area of the law—and certainly highlights the potential for government abuse—it is important for any citizen faced with this predicament to realize that there are ways to contest these seizures if undertaken promptly.