Law Curbs IRS’s Power To Raid SMB Bank Accounts

The Internal Revenue Service will have less power to raid small business bank accounts as the result of new legislation signed into law by President Donald Trump last week, Forbes reports noted Wednesday (July 10).

Trump signed the Taxpayer First Act, which includes the Clyde-Hirsch-Sowers RESPECT Act, limiting the IRS’s ability to seize small businesses’ cash without filing criminal charges.

Current legislation requires financial institutions to report cash deposits or withdrawals larger than $10,000, though allows the IRS to raid bank accounts if someone is making multiple deposits or withdrawals under $10,000 in a short amount of time.

In 2012, the IRS seized almost $63,000 from small business owner Randy Sowers, and more than $446,000 from Jeff Hirsch, under this law. According to reports, it took years for the business owners to get their money back.

In response to the cases, Congress designed and unanimously approved the Taxpayer First Act to prevent such occurrences, making the law the first in two decades that reins in civil forfeiture, reports said.

But Sowers and Hirsch were not the only victims of such activity by the IRS. Forbes noted that civil forfeiture allowed the IRS to seize nearly $200 million between 2005 and 2012, with about half of the 2,100 seizures involving amounts below $34,000. A report published in 2017 by the Treasury Inspector General for Tax Administration found about 91 percent of the 278 structuring cases examined did not reveal evidence “that the structured funds came from an illegal source or involved any other illegal activity.”

The RESPECT Act now only allows the IRS to seize cash if it stems “from an illegal source” or if transactions were to hide criminal activity.

“With the Clyde-Hirsch-Sowers RESPECT Act now law, innocent entrepreneurs will no longer have to fear forfeiting their cash to the IRS simply over how they handled their money,” said Darpana Sheth, an Institute for Justice senior attorney, in an interview with Forbes. “Seizing for structuring was one of the most abusive forms of civil forfeiture and we’re glad to see it go.”