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For Years, the Irs Stole Money and Kept the Details Hidden!


When the Internal Revenue Service conducts audits, it requires transparency. They rummage through ledgers, bank accounts, and receipts. When the positions are reversed, however, the appetite for disclosure vanishes.

When our public interest law firm, the Institute for Justice, requested access to the IRS’s forfeiture database, it was denied for more than six years. The IRS first demanded $750,000 in costs before granting the request—a ridiculous demand that would render the Freedom of Information Act ineffective for all except the wealthiest taxpayers.

The IRS attempted bait and switch in court. Rather than providing the raw data, it published a 99 percent censored summary report. It then claimed that it had gone above and above what was required by law.

The scheme worked in district court, but the United States Court of Appeals for the District of Columbia Circuit ruled against the agency in 2019. In April 2022, the IRS eventually handed up the entire database after a second trip to the district court.

The IRS’ message to anyone without a law degree or the financial means to fight a long court battle is clear: Do not try this at home. Accountability benefits the taxpayer, but it does not benefit the tax collector.

When IRS agents raided his bank account and stole his life savings without warning or cause in 2014, Institute for Justice client Lyndon McLellan witnessed the double standard firsthand.

McLellan bought a little convenience shop on the side of the road in Fairmont, North Carolina, in 2001 and worked there for 13 years. He eventually extended the business to include a restaurant and a lunch counter.

McLellan was a hard worker who rarely took holidays. More importantly, he managed a trustworthy business. Despite this, federal officials accused him of breaking so-called structuring regulations since his company made numerous bank deposits of less than $10,000.

Structuring is a sort of money laundering in which someone divides money with the intent of avoiding bank reporting regulations. Despite the fact that there is no cause to assume McLellan did it, the IRS seized more than $107,000 nevertheless.

For Years, the Irs Stole Money and Kept the Details Hidden!

He said it took him 13 years to save that much money. “And it took the government less than 13 seconds to take it away.”

Although McLellan was never charged with a crime, the government attempted to keep his money through a legal technique known as civil forfeiture.

This approach does not necessitate a conviction or an arrest; only imprecise allegations will suffice. And once the procedure is completed, Congress enables federal agencies to keep 100% of the earnings.

The paradoxical incentive encourages misuse, and the IRS became greedy as a result. The Institute for Justice represented small company owners in Iowa, Maryland, Michigan, New York, and North Carolina between 2013 and 2015.

The targets all had the same experience: they had money in their bank accounts one day then didn’t the following.

The exploitation of structuring laws was eventually cracked down on, and all of the Institute for Justice’s clients received their money back. Questions remained, however.

How many unwitting victims were there? How much money did the scheme bring in each year? And how did the government spend its ill-gotten gains?

Because the IRS refused to cooperate, the Institute for Justice hired outside counsel to file a lawsuit. Because the database is big, going through the raw data will take some time.

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However, as soon as the results are ready, they will be disclosed. Regrettably, efforts by the government to conceal forfeiture data will continue—and not only at the federal level. Many state and local governments conceal information, making it harder to investigate.

The Institute for Justice’s 2020 report, “Policing for Profit,” is the broadest and most extensive forfeiture research ever conducted. Gaps still exist.

Some states mandate law enforcement agencies to disclose only combined data, allowing them to omit specifics that would help them detect abuse. Other states have no reporting requirements.

Because records are never created in the first place, they cannot be made public. Alaska, Delaware, Louisiana, and Montana are the worst offenders, receiving failing ratings on a transparency report card included in “Policing for Profit.”

The ideal policy solution is straightforward: legislators should follow New Mexico’s lead and abolish civil forfeiture, which is inherently corrupt. In the meantime, politicians should increase openness.

IRS auditors do not request information politely. When serving a warrant, neither do police officers. They slam doors, dig into cupboards, and scrutinize computer files.

They take any cash they discover along the route. The government could at the very least disclose thorough accounting of each seizure and follow the money as it moves through the system.

In any case, the information is public. The public dislikes civil forfeiture more they learn about it. The IRS and other government organizations are well aware of the situation, which is why they prefer concealment.

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