Justice Dept. refusing to return seized funds

Group of GOP House members urging action by Sessions.

Twenty-one Republicans on the House Ways and Means Committee have penned a letter to Attorney General Jeff Sessions to demand the Justice Department return millions in seized funds to several hundred U.S. taxpayers.

The money had been seized by the Internal Revenue Service in prior years under suspicion of structuring, an obscure provision in the federal code preventing repeated bank deposits of less than $10,000 for the purpose of evading federal reporting requirements. Ostensibly, the purpose of the law is to make it harder for individuals to launder money obtained through crimes like drug trafficking. But a 2017 report by the Treasury’s Inspector General analyzed 278 of these cases and found that, in 91 percent of them, the people who had had their money seized had obtained the funds legally.

In part due to public outrage, in late 2014 the IRS announced that it would no longer pursue forfeiture cases when structuring was the primary offense. Earlier this year, the IRS told the House Ways and Means Committee that it had received 464 petitions for relief from people who had previously had their cash seized under suspicion of structuring. The cases in question are a small subset of the billions of dollars seized and forfeited annually by state and federal authorities.

The IRS reviewed 208 of those petitions and granted 84 percent of them. It referred the remaining 256 cases to the Department of Justice because of how the forfeitures had initially been processed, recommending that the DO J grant 76 percent of them.

However, today’s letter alleges that the DO J largely ignored the IRS’ recommendations and granted only 16 percent of the petitions it received, refusing to return over $22 million in seized funds.

“The Members of this Committee are profoundly troubled by the significant discrepancy between the IRS’s recommended outcomes and DO J’s final decisions,” the letter states. “What was done was not fair, just or right in most cases. The IRS’s actions led to the destruction of many lives and small businesses, some of which will never fully recover.”

One case generating national attention was that of Lyndon McLellan, a convenience store owner in North Carolina who had his entire life savings of over $100,000 seized by the IRS solely because of how he deposited money is his bank account. He was never charged with any crime. After McLellan’s case went public, a U.S. attorney offered to settle by returning half of the money. McLellan refused, and with pro-bono legal representation from the Institute for Justice he eventually got all of his money back.

The letter praises the IRS for recognizing past “mistakes” such as the McLellan case and for “taking appropriate steps well beyond what was legally required to provide relief to taxpayers whose funds were seized.” But the lawmakers have accused the Department of Justice of being “unwilling to admit faults” on the issue. “DO J time and time again has affirmed a position that the Committee believes is wholly indefensible.”

At a hearing in June, for instance, Acting Assistant Attorney General John Cronan testified that petitions for relief were denied due to various reasons, including “evidence that the petitioners were convicted in criminal cases; committed other crimes, including money laundering, fraud, tax, and drug crimes; continued to violate the structuring laws even after the forfeitures; and evaded other financial reporting requirements.”

However, Committee members did not find those arguments convincing, noting that some of the “convictions” involved defendants pleading guilty to structuring in the hopes of getting their money back.