IRS should admit error in NC forfeiture case

If the perpetual critics of the Internal Revenue Service were to publish a poster to support their cause, Lyndon McLellan of Fairmont in south-central North Carolina might well be the photograph on it. McLellan, who owns a convenience store, deals a lot in cash like many small-business owners. And like many such owners, his bank deposits are often below the $10,000 threshold above which deposits are reported to the government.

But those deposits are governed by a civil forfeiture law that prohibits keeping deposits below the $10,000 intentionally, called structuring, to avoid that reporting requirement. The law was designed to help the government catch drug dealers who deal in cash but want to keep their activities secret.

However, the government has gone through hundreds of thousands of bank reports to catch wrong-doers and in the process, critics say, has snared honest people and seized their assets for, The New York Times reports, “nothing more than a pattern of deposits.”

Take McLellan. His entire $100,000-plus business bank account was seized by the IRS last summer and forfeiture proceedings began, even though McLellan hasn’t been charged with any criminal activity. Other small-business owners around the country have been snared in the IRS net, too. And enough of a controversy has arisen that the agency says it won’t pursue structuring cases absent evidence of a crime, and the federal Justice Department agreed. But the change wasn’t applied to those already in the pipeline, so though McLellan wouldn’t be pursued today, he’s still under the government gun and trying through an expensive legal fight to get his money. The money he earned. That is his.

U.S. Rep. George Holding of Raleigh and North Carolina’s 13th District even brought up McLellan in a Capitol Hill hearing, to be told by the commissioner of the IRS, John Koskinen, that, “If that case exists, then it’s not following the policy.”

Amazingly, the prosecutor of McLellan, Steve West, seemed to be more concerned that McLellan was getting some attention in Congress than he was about fairness. He wrote McLellan’s lawyer complaining that the case was getting publicity, saying in an email exchange provided to The Times that the publicity “just ratchets up feelings in the agency.” Oh, so McLellan should be worried about hurting the IRS’s feelings?

Raising even more doubts about the IRS and government prosecutors, West also offered a settlement in which the government would keep only half of McLellan’s money.

For what? Does being the IRS, like the forlorn couple in “Love Story,” mean never having to say you’re sorry?

McLellan’s lawyer says the reluctance of the government to do the right thing and just drop the case proves that the earlier promises not to pursue people such as McLellan, people who are not connected to criminal activity, isn’t good enough and that there should be laws to limit this kind of “civil forfeiture.” He’s right.

The IRS has not had a good time of it in recent months, what with being accused of targeting right-leaning political groups on tax evasion issues. But though that issue continues to be debated, this one seems clear. It’s arrogance on the part of a government agency and bullying by the legal teams that support that agency. The law on civil forfeiture might have been well-intentioned with regard to drug dealers, but its interpretation and the pursuit of innocent people have either been clumsy or stubborn, two characteristics unacceptable in an agency with tremendous power and the ability to intimidate people. Clearly, it’s time to pull the reins and discipline those responsible for pursuing people who have done nothing wrong.

This story was originally published May 7, 2015 at 7:07 PM with the headline "IRS should admit error in NC forfeiture case."