The IRS Can Seize Tons Of Your Cash If You Deposit It The Wrong Way

The IRS is using a controversial policy known as civil forfeiture to seize huge piles of cash from Americans' bank accounts even if they've never been convicted of a crime, according to the Institute for Justice, a public interest law firm.

The Institute for Justice is challenging the IRS' use of civil forfeiture, which allows the government to seize assets it suspects have been illegally obtained. It's often local police departments that seize people's cash, but the IRS has also used civil forfeiture law to take money directly from bank accounts, as The New York Times reported this weekend.

All you have to do to capture the IRS' attention is deposit less than $10,000 at a time in your account.

Banks that get deposits of more than $10,000 have to report those deposits to the federal government. A person who purposely tries to evade these reporting requirements is guilty of a crime known as "restructuring" (or "smurfing.") It's a crime to purposely duck these reporting requirements even if the money comes from a legal source.

If the IRS even suspects you're guilty of restructuring, it can take your cash. The problem is that people, especially small business owners, could have other reasons for making large deposits under $10,000.

For instance, a Michigan grocery store owner made large deposits because he had an insurance policy that only covered up to $10,000 in cash, The Times reported.

And Carole Hinders, owner of an Iowa restaurant called Mrs. Lady's Mexican Food, said she made large deposits under $10,000 because her mother told her the bank had to do "extra paperwork" if she made deposits over that amount.

One day in August, two federal agents knocked on Hinders' door and told her they'd cleared all $33,000 out of her bank account. Now, the Institute for Justice is representing Hinders in her efforts to get that money back. Here's how the Institute for Justice summed up her defense:

In her defense, she will show that she had no intent to evade the reports that banks must file with the U.S. Treasury concerning cash transactions greater than $10,000. Rather, she had legitimate business purposes for her banking practices. Because her restaurant does not accept credit cards, and because it is unsafe to accumulate substantial cash on her premises, she goes to the bank often to make smaller cash deposits. For more than 30 years, she has kept her bank deposits to less than $10,000 because she was told that larger deposits cause an inconvenience to the bank. She had never heard of the term "structuring" until federal agents knocked on her door last year to tell her they had emptied out her bank account. But it's not illegal to run an honest cash business, and Carole Hinders is not a criminal.

Between 2005 and 2012, the IRS seized more than $242 million in "restructuring" cases, according to the Institute for Justice. In response to the recent Times article, the IRS said that it would cut back on forfeiture in restructuring cases and focus mostly on cases where the money was illegally obtained.

However, that policy shift won't apply retroactively to cases like Carol Hinders'. The new policy also doesn't change the law on restructuring. If leadership at the IRS changes, the agency could change its policy again to be more aggressive.