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What’s better than a tax refund? Getting back your life savings that the Internal Revenue Service had seized.
Ken Quran recently got news that the IRS is returning the $153,907.99 that it took from him almost 2 years ago.
The reason for the IRS’ extreme action? The North Carolina convenience store owner’s bank activity prompted the tax agency to use structuring laws to take Quran’s cash.
And cash is the operable word.
Banking rule backfire
Deposits in actual dollars get added attention under the Bank Secrecy Act, or BSA.
The law has a laudable goal. It was created in 1970 as a way to detect and limit criminal business activities, such as money laundering or illegal drug transactions, that typically are conducted in cash.
Under the BSA, when a person conducts a cash transaction of more than $10,000, he or she must file Form 8300.
But the well-intentioned BSA requirements can pose serious problems for law-abiding citizens.
Lots of legitimate businesses operate for legitimate reasons on a primarily cash basis. And even when they don’t hit the $10,000 trigger, the IRS can become suspicious, seeing transactions just under 10 grand as a sneaky way to avoid the reporting rule.
These series of nonreportable cash transactions are known as structuring. The IRS devotes a special section of its employee manual to examining such suspect activity.
That’s what happened to Quran.
Others also walk the $10,000 line
In June 2014, the IRS seized $153,907.99 from the small businessman because he repeatedly withdrew cash from his bank in amounts under $10,000. Quran said the seized money represented his life’s savings.
Quran was not alone.
Around the same time, several other reports of structuring tax seizures from small businesses were getting media attention. Several affected business owners eventually testified before Congress and the IRS subsequently revised its guidelines to (hopefully) avoid future questionable seizure situations.
Meanwhile, Quran continued to wait for resolution of his case. It finally arrived on Feb. 19.
The Institute for Justice, or IJ, announced on that day that it had received a faxed letter from the IRS in which the agency agreed to return Quran’s money. The IJ, a nonprofit legal organization, represents Quran and others in their structuring cases.
IRS returns millions it seized
IJ says that data it obtained from the IRS via a Freedom of Information Act request indicates that the federal tax agency forfeited about $43 million in 618 structuring cases between 2007 and 2013.
In these situations, the only basis for the seized and since-returned money was that the individuals regularly made cash deposits close to the $10,000 BSA limit.
Another businessman, Maryland dairy farmer Randy Sowers, is still awaiting word from the IRS on $29,500 seized from him because of cash deposits for payments of milk he sold at local farmers’ markets. IJ represents Sowers and is hopeful this client, too, will soon have back his money.
“If the IRS is willing to do the right thing for Ken, they should do the right thing for Randy and all the other property owners in the same situation,” says IJ Attorney Robert Everett Johnson, who represents both men. “[The Quran] decision opens a way for other victims of the structuring laws to get back what’s rightfully theirs.”
Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York. He provides guidance and strategies to improve clients’ financial well-being.