This story by George Will in the Wall Street Journal illustrates the attitude of the IRS. Read it and weep.
Executive summary: IRS agents jackbooted into a grocery store, stole all the money available on flimsy grounds, and refused to give any of it back to the store owners after it was determined no crime had been committed. (CH)
The issue here is deposits of cash.
As opposed to deposits of checks. The IRS tracks cash deposits on the theory that only drug dealers and other crooks deal in cash. If you deposit more than $10,000 in cash, the bank is required to report it to the IRS. I had a client run afoul of this during a contentious divorce when he took $10,000 out of his bank account in cash and put it in his safety deposit box. The bank got confused and reported it as a deposit of cash. Then the IRS showed up on his doorstep and audited down to the timing of the fillings in his teeth.
If you deposit numerous deposits of cash in amounts less than $10,000, that will also get reported to the IRS, who, according to this case, will assume you’re laundering cash for a drug dealer by structuring deposits to avoid the $10,000 filing limit. That’s what happened to this small neighborhood grocery store, 35% of whose sales are cash sales. A similar thing happened to a gas station down the street.
Cash deposits over $10,000 were reported by their bank, as required by law.
It started with IRS audits … in 2010 and 2012. In 2012, the IRS notified the owners they found no violations. Then, months later, on January 22, 2013, the IRS obtained a secret warrant to empty the store’s bank account. They did this under civil forfeiture, the power to seize property suspected of being produced by a crime. Due process is not required for civil forfeitures. Which means you have no recourse to law to prevent it. They can do what they want. Civil forfeiture operates on the guilty-until-proved-innocent-principle. Apparently it’s routine practice of the IRS.
After it was determined that no laws were broken, the IRS offered to give the owners back 20% of their money, and the IRS intended to keep the rest. Normally that would have been the best deal the store could work out. But in this case the owners happened to hear about the “Institute for Justice’s activities against civil forfeiture abuse” (that’s the real name) who sued the IRS for them and got their money back.
This is the Attitude
That story illustrates what I have been talking about for a long time. That’s the attitude I run into in audits. In one audit the Appeals Agent disallowed 100% of the tax deductions. When we pushed it up to trial, they had to accept the deductions or look like idiots at trial because they were easily provable… but then they have apparently tried some administrative stuff to keep a$100,000 of the taxpayer’s money. I fell out of the loop when it went to the lawyer so I am not sure how it finally worked out.
The big point in this story is this … when they discovered no crime had been committed, they offered to return 20% and keep the rest. This is pure intimidation, and most taxpayers fall for it.
Today we have a client claiming he mailed something to the state of New York three days before it was due, and the state is claiming they didn’t get it until five days after the due date. The guy is probably right when he guesses the state’s mail room was slammed. But, the state is sticking to their guns. That’s ludicrous because the postdate is what counts. But the state’s the one with the envelope in their possession and hey are unlikely to be completely honest. He’s going to have to fight it out.
Never deal directly with a government agency. Always use a third party. Like us. ELLIS CPA.