H.R. 5523, Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act

H.R. 5523

Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act

Committee
Ways and Means

Date
September 20, 2016 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On­­­­ Tuesday, September 20, 2016, the House will consider H.R. 5523, Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act or the Clyde-Hirsch-Sowers RESPECT Act, under suspension of the rules. H.R. 5523 was introduced on June 16, 2016, by Rep. Peter Roskam (R-IL) and was referred to the Committee on Ways and Means, and in addition, the Committee on Financial Services.

Bill Summary

H.R. 5523 would limit the Internal Revenue Service’s (IRS) civil asset forfeiture authority. To seize funds the IRS believes to have been structured to avoid Bank Secrecy Act reporting requirements, the IRS would have to show probable cause that those funds were derived from an illegal source or connected to other criminal activity. H.R. 5523 also would provide procedural protections, including a prompt post-seizure hearing for people whose assets the IRS has seized. If a court determines the government should return funds and interest to a person whose funds were seized by the IRS based on allegations of structuring, the bill would exempt the interest from Federal income tax.

Background

Current law requires that banks and other financial institutions report to the Treasury any financial transaction that involves more than $10,000 in cash. People who circumvent that requirement by conducting a series of smaller transactions instead of a single transaction are subject to both civil and criminal penalties.

The Federal government, including the IRS, is able to use civil procedures to seize assets the government believes are involved in illegal activity without ever having to prove that the owners of the assets actually were engaged in criminal activity. The Ways and Means Subcommittee on Oversight found IRS Criminal Investigation (IRS CI) was seizing funds that appeared to have been used in transactions “structured” to be under $10,000 to avoid Bank Secrecy Act reporting requirements.[1]

The Committee found that numerous small business owners had legitimate reasons for keeping their transactions under $10,000, including insurance policies that only protected cash-on-hand up to $10,000 and bank tellers who told the small business owners to keep their deposits under $10,000 to reduce paperwork. When business owners tried to get their money back, their cases would be sent to the Department of Justice (DOJ); frequently, DOJ attorneys would hold the funds long enough that the business owners felt compelled to settle the cases and give up a portion of the funds to get the remainder returned to them.[2]

The IRS changed its policy in October 2014 to restrict civil asset forfeitures based on allegations of structuring to only seize assets involved in other criminal activity, except in exceptional circumstances. H.R. 5523 would codify those restrictions without an exemption for exceptional circumstances. It also would allow asset owners an opportunity to contest the IRS’ seizure in a court hearing 30 to 60 days after the seizure. Further, if an asset owner contests a seizure and the court orders that the government return assets and interest to the asset owner, the bill would exempt that interest from Federal income tax.[3]

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[1] See House Report 114-730.
[2] Id.
[3] Id.

Cost

The Congressional Budget Office (CBO) estimates that implementing the legislation would have no significant administrative cost over the next five years because most provisions would codify existing IRS policy and practice. The staff of the Joint Committee on Taxation (JCT) estimate that enacting the bill would decrease revenues by a negligible amount over the 2017-2026 period; therefore, pay-as-you-go procedures apply. Enacting H.R. 5523 would not affect direct spending.

Additional Information

For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.