IRS Fraud Victim Refunded Seized $107k – Minus Interest
A North Carolina convenience store owner whose entire savings were mistakenly seized by the US Internal Revenue Service in July 2014 has finally won the right for the US$107,000 to be repaid to him.
A North Carolina convenience store owner whose entire savings were mistakenly seized by the US Internal Revenue Service (IRS) in July 2014 has finally won the right for the US$107,000 to be repaid to him.
Following a series of legal proceedings costing the claimant, Lyndon McLellan of Fairmont, North Carolina, over US$20,000, the government finally announced it would “no longer pursue” the alleged fraudulent activity, known as structuring, which resulted in McLellan’s operating profits being taken from his bank account.
“We’re thrilled that the government has recognized that what they were doing to Lyndon was wrong and that they’ve dropped the attempt to forfeit Lyndon’s money,” Robert Johnson, McLellan’s lawyer, told the Daily Signal which originally reported on the case. “This case was a mistake and unconstitutional from the start, and we’re just glad the government has recognized that.”
The saga principally revolves around profit submissions for businesses. Deposits in a bank account of over US$10,000 mean the bank is required to notify the Treasury. In McLellan’s case, his bank advised depositing lower amounts to avoid the extra paperwork necessary, a practice which unwittingly exposed him to IRS investigation.
As part of a policy originally implemented to tackle organized crime such as drug trafficking, deposits under US$10,000 occasionally raise “suspicious activity reports” which the IRS can then investigate, Johnson explained. While cases involving innocent members of the public had been rare, investigations from such reports skyrocketed in recent years, from 114 in 2005 to 639 in 2012. McLellan was likely one of the unlucky ones.
The result was a team of law enforcement officers arriving unannounced at McLellan’s convenience store in July 2014, having seized all funds in his business account hours earlier. After being quizzed on his knowledge of structuring, McLellan was faced with no choice but to enter legal proceedings.
‘Doing the right thing’
After turning down an offer of a 50% reimbursement on principle, the full amount was offered Wednesday, seemingly due to changes in the Department of Justice’s policy towards seizures of civil assets. Legal fees and expenses, as well as interest on the money seized, were not included, however, something which Johnson is now fighting to obtain.
The Daily Signal further notes that government policy requires reimbursed funds to be kept in an interest-generating account, which would allow tax on interest to be retained by the IRS.
“Ultimately, the important thing is Lyndon is getting his money back. The government is doing the right thing,” Johnson added said. “But at the same time, the government needs to make Lyndon whole.”
The story, which became something of a scandal among those touched by the media attention generated, has led to accusations of illegal profiteering on the part of the IRS due to errant seizures, as well as the carrying out of legal activities by unauthorized parties.
Specifically, local law enforcement is tasked with consulting the aforementioned suspicious activity reports and acting as necessary, something which Johnson considers illegal.
“The IRS deputizes these local law enforcement officers to go through suspicious activity reports and to identify cases where people are subject to forfeiture. So you have somebody who is not a federal official and yet is deputized to be enforcing federal law.”
Throughout the proceedings, McLellan was never charged with committing an offence.