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From Banking and Finance Law Daily, February 12, 2015

IRS adopting “common sense” approach to seizing structured bank accounts

By J. Preston Carter, J.D., LL.M.

Internal Revenue Service Commissioner John A. Koskinen testified at a House Ways and Means Subcommittee on Oversight hearing that the IRS will no longer pursue the seizure and forfeiture of bank accounts associated solely with “legal source” structuring cases. Instead, he said, the IRS will take a “common sense” approach in this area.

Background. Under the Bank Secrecy Act (BSA), financial institutions are required to report individuals engaging in cash transactions exceeding $10,000 in currency. These reports, called Currency Transaction Reports (CTRs), in combination with other reports, such as Suspicious Activity Reports, constitute a set of data widely used by federal law enforcement organizations to uncover a variety of illegal activities both domestically and around the world, Koskinen said.

He noted that, to circumvent BSA reporting requirements, criminals manipulate cash transactions to fall below the $10,000 threshold that triggers the requirement to file a CTR. Criminals structure financial transactions to avoid BSA reporting for any number of reasons. For instance, Koskinen said, structuring can be used to conceal from the government illegal cash-generating activities, such as drug-dealing. For a structuring violation to occur, the individual must act with the purpose of evading reporting obligations under the BSA. One tool to combat criminal activity is the seizure and forfeiture of assets related to those criminal activities.

Common sense approach. At issue in recent months has been the practice of law enforcement organizations seizing forfeiture funds that were structured but were not derived from or associated with any other illegal activity. In response to Congressional pressure, the IRS said it is changing its policies for seizing banks accounts from otherwise law-abiding business owners simply because they structured bank transactions to avoid federal reporting requirements.

Although structuring bank deposits or withdrawals to evade BSA reporting requirements is a felony, regardless of whether the funds come from a legal or illegal source, Koskinen said, after conducting a review of structuring cases last year, the IRS has concluded that it will focus its resources on cases where evidence indicates that the structured funds are derived from illegal sources. “We have tried to take a common sense approach to how we operate in this area,” he said.

MainStory: TopStory BankSecrecyAct CrimesOffenses

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