Last October, after The New York Times started asking questions about the Internal Revenue Service\u2019s practice of taking legally earned money from innocent people based on allegations that they tried to evade bank reporting requirements, the IRS said it \u201cwill no longer pursue the seizure and forfeiture of funds associated solely with \u2018legal source\u2019 structuring cases unless there are exceptional circumstances.\u201d A case highlighted by ABC News, involving money snatched from an Iowa widow, suggests how big that \u201cexceptional circumstances\u201d loophole might be.<\/p>\n
In 2011 an IRS agent named Jeff McGuire paid a visit to Ronald Malone, an Iowa publishing executive who at the time was dying from cancer. McGuire told Malone that bank deposits he had made looked fishy: They totaled $35,000, but each was less than $10,000, the threshold for transactions that banks must report to the Treasury Department. Deliberate evasion of that requirement is a federal crime, even when the money comes from legitimate sources, as Malone\u2019s did. McGuire explained that to Malone, who signed a form acknowledging the explanation. The IRS did not seize the money, and no charges were filed.<\/p>\n
After Malone died, his widow, Janet, deposited another $19,000 of his savings in amounts below $10,000. This time the IRS seized the money and referred the case to the Justice Department for prosecution. The agency\u2019s attitude: We warned you once.<\/p>\n
According to an affidavit quoted by ABC News, Malone conceded that she was home during McGuire\u2019s visit but noted that she did not sign the form and said she did not remember the details of the meeting because \u201cshe was in a state of despair over her husband\u2019s health.\u201d She predicted that \u201cyou won\u2019t prosecute a widow.\u201d They showed her.<\/p>\n
Under an agreement with the government, Malone will give up the money and plead guilty to a misdemeanor that is punishable by up to a year in jail and a fine of up to $250,000. \u201cThis is shocking,\u201d Institute for Justice attorney Larry Salzman told ABC News, \u201cbecause it demonstrates that prosecutors are not taking seriously the IRS\u2019s alleged policy change not to prosecute legal source structuring.\u201d I.J. has represented several business owners whose money the government seized based on suspicion of structuring but returned after I.J. challenged the forfeitures.<\/p>\n
According to an I.J. report published last week, the IRS seized $242 million based on suspected structuring in more than 2,500 cases from 2005 to 2012. In at least a third of those cases, there were no allegations of criminal conduct aside from the purported structuring itself.<\/p>\n