IRS Drops Its Asset Forfeiture Case Against Owner Of Small, Cash-Only Restaurant

by Tim Cushing
Techdirt
Dec. 16, 2014

Some of the recent heat surrounding asset forfeiture seems to have gotten to the IRS. Late last week, it moved to dismiss one of its more high-profile cases -- one that had received extensive coverage from the New York Times and countless other sources. [via Michael Scarcella's (of the National Law Journal) invaluable Twitter feed]

A brief refresher:

Carole Hinder had run a small, cash-only restaurant for nearly 40 years without incident before the IRS decided to step in and seize $33,000 from her bank account. Shortly after that, it acquired a warrant to seize another $150,000. The IRS's case hinged on the fact that every deposit made to the account totalled less than $10,000.

From the dismissal order [pdf link]:
As reflected in the affidavit in support of the verified complaint, from April 2012 through February 2013, more than $315,000 in currency was deposited into Mrs. Lady’s, Inc. bank account in approximately fifty-five separate deposits. No individual currency transaction exceeded $10,000 during that period. A sample of cash transactions between May 2012 and August 2012 showed a pattern of deposits consisting of frequent large deposits in amounts under $10,000 that were near in time to smaller deposits that, taken together, would have triggered bank reporting requirements.
Hinder's defense was that her mother had advised her to break up the deposits into smaller amounts as a "convenience" to the bank. Staying below the reporting requirements does actually make the bank's work easier (and the customer's), but the IRS (and law enforcement) view this sort of behavior, no matter if it's linked to criminal activity or not, as "structuring" -- deliberate attempts to avoid reporting large amounts of cash to the government.

The dismissal order indicates the IRS may have had evidence on its side. (That is, evidence that someone broke up deposits to avoid hitting the $10,000 mark. Not evidence that Hinder was involved in criminal activity or somehow intentionally screwing the IRS.) Despite this, it moved to drop the case, using the old "we have better things to do" excuse. It also maintains it did nothing wrong.
Pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure, the United States hereby moves to dismiss, without prejudice, the instant case. Despite two judicial probable cause finding supported by Claimant’s clear pattern of manipulating bank deposits below $10,000 in order to evade the reporting requirements of 31 U.S.C. § 5313, plaintiff believes, in the exercise of its prosecutorial discretion, that allocating its limited resources elsewhere would better serve justice in this case. Notwithstanding, the request herein, the request should not be construed as an acknowledgement or admission to any liability or wrongdoing whatsoever.
The dismissal is without prejudice, meaning the IRS is still free to pursue this in court in the future. The court also notes that this voluntary dismissal does not remove the IRS's claim to the disputed assets seized by the agency. So, it's not a complete win for Hinder, but it does at least indicate the IRS is somewhat responsive to negative press. The IRS does have limited resources, and it's going to be better off pursuing clearly illegal actions than chasing down fringe cases and fighting battles in two courts (federal and public opinion). The IRS has also announced that it will no longer pursue apparent "structuring" if there's no indication the money comes from illegal sources. This is a step in the right direction, especially considering asset forfeiture has become shorthand for government abuse and the agency's pursuit of small business owners seemingly nothing more than the intersection of vindictiveness and greed.

IRS Motion to Dismiss (PDF)












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