What is civil forfeiture? For small business owners, it can mean persecution by a government agency – without committing a crime. And recently, small businesses have come under fire by the IRS for just this reason.
Take the case of Carole Hinders, the owner of a Mexican cash-only restaurant. She had her entire checking account seized by the IRS, according to The New York Times. She hadn’t committed a crime, but she was depositing less than $10,000 into her account at a time – a red flag, since the IRS considers it an attempt to avoid certain government reporting.
Civil forfeiture is when the government claims assets belonging to a person or group of people, often related to a crime. The idea is to cripple a criminal enterprise by removing their funding, whether that money or item was obtained illegally or not. Unfortunately, this law can also apply to anyone, and the government doesn’t have to prove guilt before making a claim.
“They’re going after people who are really not criminals,” David Smith, a Virginia-based forfeiture expert and lawyer, told the media outlet. “They’re middle-class citizens who have never had any trouble with the law.”
Following such cases of civil forfeiture, it is can sometimes be the end of the road for small business owners. It is extremely costly and time-consuming to pursue the case in court.
IRS vows to cut down on forfeiture
Following The New York Times report, the IRS released a statement vowing to reduce the practice of civil forfeiture. In a statement, IRS chief of Criminal Investigation Richard Weber explained that the government agency won’t pursue cases similar to Carole Hinders, unless there are extenuating circumstances involved.
However, Weber pointed out that making deposits of less than $10,000 in order to avoid government intervention remains a crime, regardless of how that money was earned. This was a sticking point for Hinders’ case. She had a valid reason to make deposits of that amount related to her business, but because of the consistency of her actions, it earned the attention of the IRS.
There are other areas where civil forfeiture comes into play as well, and the IRS isn’t the only agency that can use this law to seize assets. For small business owners, the best course of action is to play it safe and double-check all legal requirements, or consult legal counsel, before taking a risk.