Some small-business owners who do most of their business in cash have had their bank accounts seized by the Internal Revenue Service—without evidence that they did anything wrong, according to a new report.
An investigation by the New York Times found that the IRS has taken advantage of laws designed to nab drug traffickers and terrorists to seize small businesses’ bank accounts due to suspected tax cheating. When business owners make bank deposits of $10,000 or more, banks must send a report of the transaction to the IRS. IRS agents have therefore become suspicious when they see business owners making deposits of slightly less than $10,000—suggesting they might be trying to avoid leaving a paper trail.
Several business owners have been caught off guard by account seizures and are struggling financially because of it. According to the Times, “the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent.”
One recently targeted business owner was Carole Hinders of Arnolds Park, Iowa. Hinders runs a small cash-only Mexican restaurant. The IRS seized her checking account with a $33,000 balance last year after she made several deposits of just under $10,000. Hinders said she purposely made deposits of that amount because her mom had told her it helped reduce the bank’s paperwork—not because she was hiding anything.
“How can this happen?” Hinders asked the Times. “Who takes your money before they prove that you’ve done anything wrong with it?”
In response to the Times’ investigation, IRS Chief of Criminal Investigation Richard Weber said the IRS would stop targeting business owners bank accounts without solid evidence of fraud. “This policy update will ensure that [Criminal Investigation] continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.'s mission and key priorities,” Weber said in a written statement. “The policy involving seizure and forfeiture in ‘illegal source’ structuring cases will remain the same."
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