Could a tax mistake land you in an asset forfeiture situation? Usually not without a few intervening communications from the Internal Revenue Service, although an exception exists for suspected criminal tax activities. The IRS has powerful collection tools at its disposal, and today’s post takes a closer look at forfeiture.
As a preliminary matter, it is important to understand that the procedures for a civil tax dispute may differ from a criminal tax investigation. The distinction often arises from the taxpayer’s alleged intent. If there was a deliberate intent to break applicable federal tax laws, a criminal tax charge could be involved.
Although IRS investigators are not psychic, there are some behaviors that serve as triggers, such as a series of large cash deposits in a bank account just under the $10,000 reporting threshold. This trigger may alert IRS investigators to illegal activities, such as drug trafficking or money laundering.
Unfortunately, innocent behaviors may sometimes be mischaracterized as criminal tax issues. In a recent example, the IRS utilized its civil forfeiture authority to freeze over $68,000 in a family business’ bank account. Notably, the IRS does not need a conviction to exercise that authority; a suspicion of criminal activity is often enough.
Of course, a taxpayer can always turn to the judicial system to legally obtain his or her seized property. For a small business owner, however, asset liquidity could be the lifeline of the business. Waiting for the courts to unwind the tangle of an erroneous forfeiture could take too long.
Fortunately, there are proactive measures. As a law firm that focuses on tax law, we have answered many questions for our clients. Ideally, such questions are made before a tax filing has occurred. However, our strong legal advocacy can also protect a taxpayer’s rights in the event that an action needs to be undone or modified.
Source: Huffington Post, “IRS Returns Bakery’s Money After 3 Years. Now It Wants To Put The Owners In Prison.” Nick Wing, May 25, 2016