The Worst Part of the IRS Asset-Seizure Abuse: Expect It to Continue

There are many outrageous details in the New York Times’s revelations about a law that lets the IRS seize the assets of Americans whose bank-deposit patterns the agency finds suspicious even if a crime wasn’t committed. There is the fact that “Law enforcement agencies get to keep a share of whatever is forfeited.” There is the fact that “The government can take the money without ever filing a criminal complaint,” and the related issue that “the owners are left to prove they are innocent. Many give up.” There is the fact that in some cases, the banks (or their financial advisors) recommend that supposedly suspicious deposit pattern (less than $10,000 at a time, repeatedly). But the most disturbing part of a very disturbing story might just be this:

On Thursday, in response to questions from The New York Times, the I.R.S. announced that it would curtail the practice, focusing instead on cases where the money is believed to have been acquired illegally or seizure is deemed justified by “exceptional circumstances.”

Not nearly enough about the policy will change, nor will the law allowing it. And there won’t be consequences for those clearly abusing this authority. The IRS simply promises to use better discretion in deciding whose bank accounts they will–literally!–raid.

If you want a description of what happens when a federal agency operates with impunity and is incentivized to go trolling for cash, this is it. And the head of the relevant IRS department, after being exposed as the chief pillager, declares that you can trust him to pillage more responsibly. Any government that condones this is fundamentally at odds with the basic pillars of liberty, including presumption of innocence, due process, and private property protections. At least The Sopranos could be funny.

As the IRS goes blundering and plundering through America’s piggy banks, it’s important to revisit how we got here. Here is the explanation of the law in the Times piece:

The practice has swept up dairy farmers in Maryland, an Army sergeant in Virginia saving for his children’s college education and Ms. Hinders, 67, who has borrowed money, strained her credit cards and taken out a second mortgage to keep her restaurant going.

Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited.

Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize. Under the Bank Secrecy Act, banks and other financial institutions must report cash deposits greater than $10,000. But since many criminals are aware of that requirement, banks also are supposed to report any suspicious transactions, including deposit patterns below $10,000. Last year, banks filed more than 700,000 suspicious activity reports. Owners who are caught up in structuring cases often cannot afford to fight. The median amount seized by the I.R.S. was $34,000, according to the Institute for Justice analysis, while legal costs can easily mount to $20,000 or more.

Aside from the abuse of power–a pattern with the IRS, isn’t it?–this is a story about unintended consequences as well. The government put a regulation in place to catch depositors’ ill-gotten gains. Since criminals pay close attention to the laws they don’t follow, they started easily avoiding the paperwork. So the government simply cast a wider net, creating an air of suspicion around anyone who deposited less than $10,000. If that sounds like a lot of people to you, well, you’d be right, wouldn’t you?

One major objection to the sheer amount of regulation–especially that which is aimed at the financial industries–is that it virtually guarantees that anyone without a lobbyist and a D.C. lawyer on retainer will break the law fairly regularly. This is in part because so many of those laws are convoluted, nonsensical, or unconstitutional, and also because power corrupts and federal agencies have all the power.

This is your federal government in 2014: everyone’s a suspect. Madison is turning in his grave.