An Iowa widow is charged with a crime and had nearly $19,000 seized from her bank after depositing her late husband's legally earned money in a way that evaded federal reporting requirements.
Janet Malone, 68, of Dubuque, is facing civil and criminal proceedings under a law intended to help investigators track large sums of cash tied to criminal activity such as drug trafficking and terrorism. But some members of Congress and libertarian groups have complained that the IRS and federal prosecutors are unfairly using it against ordinary people who deposit lawfully obtained money in increments below $10,000.
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At issue is a law requiring banks to report deposits of more than $10,000 cash to the federal government. Anyone who breaks deposits into increments below that level to avoid the requirement is committing a crime known as "structuring" — whether their money is legal or not.
The IRS has increasingly used civil forfeiture proceedings to seize money from individuals and small businesses suspected of structuring violations, according to a review by the Institute for Justice, a libertarian group. The agency seized $242 million in 2,500 cases from 2005 to 2012 — a third of which arose from nothing more than cash transactions under $10,000. Nearly half was returned after owners challenged the action, often a year later.
Some of the depositors had broken up the deposits to save their bankers from having to submit paperwork or because they mistakenly believed it was a way to avoid unwarranted government scrutiny. The Treasury Department receives millions of reports every year, and deposits above the $10,000 threshold incur no additional fees or taxes.
Facing criticism of the practice, the IRS announced in October that investigators would no longer seize funds in cases involving legal sources of money "unless there are exceptional circumstances" and would focus on illegal sources. A U.S. House subcommittee is expected to hear testimony about the practice Wednesday, at a hearing called, "Protecting Small Businesses from IRS Abuse."
Larry Salzman, an attorney with the Institute for Justice, criticized the government's case against Malone given its declared shift in practice.
"This is shocking because it demonstrates that prosecutors are not taking seriously the IRS' alleged policy change not to prosecute legal source structuring," he said.
After the policy change, federal prosecutors in Iowa agreed to return money the IRS seized from two people accused of structuring, including a restaurant owner who had $33,000 taken and a doctor who fought to get back $344,000 in earnings from his medical practice. But prosecutors declined to drop the civil forfeiture case over $18,775 the IRS seized from Malone.
Instead, they added a misdemeanor criminal charge last week alleging she willfully violated the law, after her husband had been warned about the practice four years ago. Malone is expected to plead guilty next week and let the government keep the money, under a plea agreement filed Monday. The charge carries up to one year in jail and a $250,000 fine.
IRS agent Jeff McGuire first went to Malone's home in 2011 to investigate alleged structuring by Ronald Malone, who was dying of cancer, records show. Ronald Malone admitted that bank deposits totaling $35,500 he'd made could appear to be structured and signed a form acknowledging he'd been warned about the law; no charges were filed. Janet Malone was present for part of the meeting.
Shortly before his death in October 2011, Ronald Malone told his wife about a briefcase containing $180,000 cash from his job as a publishing executive, gambling winnings and investment income. She deposited some of it in increments between $5,800 and $9,000. The IRS obtained a warrant to seize it based on suspicion that the transactions were meant to avoid reporting requirements.
Janet Malone was irate when she learned of the 2013 seizure, noting that she didn't sign the form warning her husband and didn't remember details of the earlier visit because "she was in a state of despair over her husband's health," according to an IRS affidavit.
"You won't prosecute a widow," Malone said, according to the affidavit. McGuire responded that the family had been given a pass from the IRS once.
Spokesmen for the IRS and U.S. Attorney's Office declined to talk about how the case fits with the new policy. Malone's attorney declined to comment.