EDITORIAL: Reform would help end abuses under so-called ‘structuring’ laws

A House committee last week took a much-needed step toward preventing IRS abuses under so-called “structuring” laws. The tax agency has used such statutes to confiscate the bank accounts of small business owners simply because of their banking habits.

Under the Bank Secrecy Act, financial institutions must report to the government all transactions in excess of $10,000. They must also notify the authorities of any deposits or withdrawals that may be “structured” to avoid the reporting requirement.

The regulation is intended to help law enforcement identify suspicious activity in the hopes of apprehending criminals dealing in large amounts of cash. Instead, the IRS has used the law like a common thief might use a Ruger 9mm pistol and seized bank accounts under civil forfeiture statutes without ever accusing account holders of committing any larger crime.

Take the case of Long Island small-business owner Jeff Hirsch. In 2012, federal agents raided his bank account, taking $446,000 because he made frequent deposits of just under $10,000. Mr. Hirsch got his money back more than two years later, but only after the Institute for Justice took the case and helped generate unflattering media coverage of the money grab.

Nor was this an isolated event — indeed, a Treasury Department review in April found it to be the norm. The audit analyzed 278 instances in which the IRS invoked structuring laws to seize cash and the source of the money was later identified. In a whopping 91 percent of those cases, the money had been legally obtained.

A previous Institute for Justice study also found plenty of injustices. Between 2005 and 2012, the institute discovered, the IRS confiscated more than $242 million in about 2,500 cases on structuring grounds. In one-third of those cases, the agency’s justification was simply that the individual had made a series of deposits slightly below $10,000.

Earlier this year, the IRS agreed to enact safeguards and even to return money that it may have seized inappropriately. But the enabling statutes remain in place.

On Thursday, however, the House Ways and Means Committee approved the Clyde-Hirsch-Sowers RESPECT Act, sponsored by Rep. Peter Roskam, an Illinois Republican, and Rep. Joseph Crowley, a Democrat from New York. The measure would codify important reforms.

First, the bill limits forfeiture activity under structuring statutes to cases in which the government can show the money in question was derived illegally or that the banking activity at issue was intended to cover up criminal activity. It would also allow property owners to more quickly challenge a seizure. Previously, they had to wait months and even years before seeing a judge — a particular burden on small-business owners who need access to their accounts to operate.

A similar bill unanimously passed the House last year, but never received a vote in the Senate. This year, there should be no excuses. This is a bipartisan proposal that would protect the rights of all Americans. It deserves quick passage.