In 2013, the IRS seized the bank account of Carole Hinders, a small business owner in Iowa, not because of any crime, but because she made relatively small, cash-only deposits in her bank account. A New York Times story provides details of the seizure. Tax attorney Rob Wood discusses this unusual IRS tactic.
As Wood explains, the IRS seized the bank account because the deposits made by the business owner were all less than $10,000. This seems like a strange occurrence because, as a rule, a taxpayer must do something strange to attract attention from the IRS. There is a special form that must be filled out when more than $10,000 is involved.
Wood points out that a deposit of more than $10,000 triggers a reporting form. Since this article appeared, there has been a fair amount of attention paid to the seizure procedure the IRS has used. “Big banks file lots of these forms.” Wood suggests that a lot of depositors intentionally use smaller deposits to avoid the forms.
The theory of the seizure procedure is to catch drug traffickers and other law breakers who would seek to stay under the IRS’s radar by making only small cash deposits. In this case, however, there is no suggestion that Ms. Hinders is suspected of any crime. The IRS simply seized the money and will not give it back unless she is able to prove somehow that she is innocent—a sharp reversal of usual practice in the U.S. Contesting an IRS seizure can be very costly and may not work at all.
People like Ms. Hinders may feel that they are helping out the bank by making small deposits so that the bank is not required to fill out the forms. But the IRS may view the making of small deposits as “structuring,” a criminal effort to hide from the IRS and avoid paying taxes. Wood notes that the IRS is suspicious of cash transactions. He recounts a tale of an IRS sting of buying cars in San Francisco for cash only, trying to catch car dealers failing to report the cash deals.
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.