Running Afoul of Structured Transaction Laws

January 9, 2019 | By: Deborah Kurfiss

structured transactions 91% of Property Seized in Structured Transaction Cases Are from a Legal Source

The Bank Secrecy Act (31 USC 5324) was passed in the 1970s to address the problem of money laundering and other crimes that require large transfers of money. Under the auspices of this act, financial institutions must report financial transactions over $10,000.  Criminals found ways to sidestep this monitoring, such as by making several deposits under the $10,000 limit, otherwise known as structuring transactions. According to the IRS, “A structured transaction is a series of related transactions that could have been conducted as one transaction, but the financial institution and/or the transactor intentionally broke it into several transactions for the purpose of circumventing the reporting requirements of the Bank Secrecy Act (BSA).”

That’s why in 1986, Congress passed the Money Laundering Control Act, which made structuring transactions a felony. The IRS can seize funds used in “structured transactions” or property bought with such funds. Not only that, but the perpetrator of the structured transaction can face up to five years in prison. It is true even if the funds that were the subject of the structured transaction did not come from an illegal source.

Losing Property to IRS Structured Transaction Seizures Does Not Signify Criminality 

“So, what?” you might think. “I’m not a money launderer or a drug trafficker. Why do I need to concern myself with this?” The problem is that ordinary people have inadvertently run afoul of structured transaction law. The taxpayer must show criminal intent before the government can seize property and funds. However, the taxpayer can imply such intent from circumstantial evidence. For a long time, the IRS’s Criminal Investigation Division (IRS-CI) interpreted such circumstantial evidence incredibly broadly. Consequently, a lot of ordinary people lost everything even though their money or property came from a legal source. A 2017 government study found that 91% of seizures in structured transaction cases came from a legitimate source. Therefore, a law that targets criminals affects innocent taxpayers.

The IRS is more lenient today toward structured transactions than they were in the past.

  • A statement of a policy change in October 2014 indicated that the “IRS-CI will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases unless: (1) there are exceptional circumstances justifying the seizure and forfeiture and (2) the case has been approved at the Director of Field Operations (DFO) level.”
  • The Attorney General issued a memo in March 2015 indicating that if there are no criminal charges, the government may not seize bank accounts that are involved in a structuring case unless the prosecutor can first show probable cause of federal criminal activity beyond the structuring offense itself.
  • In 2016 the IRS pulled back even more on its pursuit of those who structured transactions by sending letters to some who suffered the seizure of property and funds under structured transaction laws. These letters encouraged those guilty of no other crime beyond the structured transaction to petition for the return of their property. It does not mean that structured transactions are legal. They are against the law even if the funds or property involved come from a legal source. But the IRS is no longer actively hunting down those who are not guilty of an underlying crime.

Examples of Structured Transactions

One man who unexpectedly violated structured transactions laws had a cash-based business such as a small retail store. Every three or four days, he would deposit a few thousand dollars. Finally, he decided to buy a car with the money and purchased a cashier’s check to make his purchase. The IRS seized his vehicle because they said he bought it with structured funds.

In other cases, structured transactions may involve transferring money abroad. Let’s say someone is planning to build a house overseas and over a period of time sends cash in increments of $9,000 to their foreign bank account to avoid their bank reporting money transfers over $10,000 to the IRS. Or perhaps they transfer it to friends abroad who will return the money to them later. Even though there is no underlying criminal activity, these are illegal unstructured transactions.

The government oversees the foreign accounts of US citizens closely, which of course helps to uncover structured transactions. For example,

  • US citizens are required to file a Foreign Bank Account Report (FBAR) if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the calendar year.
  • The Foreign Account Tax Compliance Act (FATCA), requires that foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on payments.

Does the IRS Have Complete Power to Seize My Property?

There are some checks on the IRS. The IRS does not have the power on its own to seize your property because it thinks you structured a transaction. They must obtain a warrant from an Assistant United States Attorney. It then must be approved by a federal judge who believes there is probable cause.

What Can I Do if the IRS Seizes My Property Due to a Structured Transaction?

Should the IRS seize your property, money or bank accounts due to a structured transaction, you can seek to have it returned. You have two options, and each has its risks.

  • File for an administrative procedure with the IRS. It puts you in the position of asking the same entity who took your property to return it.
  • File a claim in federal court. When you do this, the United States Attorney’s Office must file a complaint about forfeiture in district court within 90 days. You can then enter litigation with the government to try to recover your property.

It’s Much Easier to Avoid Structuring Transactions Than to Recover Seized Property

If you regularly deal with, transfer, deposit or travel with thousands of dollars, it would be wise to discuss structured transactions with an experienced and licensed tax professional. They can explain various scenarios where you may be at risk in your business. Don’t wait until you have tripped up on the structured transaction laws. A structured transaction offense carries a risk of prison time. Furthermore, once the government seizes your property, it is not easy to recover it even if you had innocent intent.

Disclaimer: Reading this article does not create an attorney-client relationship, nor is this accounting or tax advice. This article should not be used as a substitute for the advice of a competent attorney or tax professional admitted or authorized to practice in your jurisdiction.