It was not uncommon for David Vocatura or other family members to make cash deposits at their bank – many customers at Vocatura’s Bakery, a nearly 100-year-old community institution, paid cash.
But it was those deposits in amounts under $10,000 that drew the attention of the Internal Revenue Service three years ago and put the family through legal hell – and, despite some good news this week, that hell is not over.
The 2013 IRS raid on the Norwich, Connecticut, family business resulted in the agency seizing $68,000 from the Vocaturas’ bank account under civil asset-forfeiture procedures. For three years the IRS pressured David and his brother to plead guilty to criminal charges of “structuring” bank deposits and to agree to surrender the money. They refused.
In retaliation for their refusal, the agency then launched a criminal tax investigation of their business, requiring them to account for nearly every financial transaction over an eight-year-period. That’s when the Vocatura’s took the IRS to court.
On Tuesday, just hours after Vocatura’s Bakery and the Institute for Justice sued the IRS to get the money back, the IRS announced it would return all of the money but is continuing with its retaliatory tax investigation.
“Three years after taking the Vocaturas’ money and forcing them into a prolonged legal nightmare, the IRS is still desperately searching for some way to retroactively justify the seizure,” said IJ attorney Robert Everett Johnson, who is representing Vocatura’s Bakery.
“The IRS should not be launching a fishing expedition into eight years of a business’s financial records just because the owners will not voluntarily agree to forfeiture of their money.”
So-called structuring laws were intended to target real criminals laundering illicit cash, not the entire bank accounts of legitimate businesses. Despite an October 2014 change in IRS policies that was supposed to prevent what has been done to the Vocaturas, the agency has continued pressuring the family.
But in the three years since seizing the business’ assets, federal prosecutors never brought their case before a judge, instead pressuring the owners to agree to a “voluntary” forfeiture. In February, the two Vocatura brothers were presented with a plea agreement that required they plead guilty to criminal structuring, accept a three-to-four year prison sentence, forfeit the original $68,000 and surrender an additional $160,000 worth of personal assets. Their refusal sparked the demand for eight-years worth of business records.
“We finally got our money back, and now we just want the government to leave us alone,” said David Vocatura. “The last three years have been the longest of my life, and all because of how we deposited our money in the bank. Now we feel like the government just refuses to let us go.”
“This is yet another example of prosecutors using strong-arm tactics to threaten forfeiture victims with prosecution and jail time in order to pressure them to surrender their property in a plea deal,” said IJ attorney Dan Alban. “The government threatened the Vocaturas with an investigation if they refused to give up their money. The Vocaturas refused anyway, and now the government is carrying through with that threat.”
Congress is currently in the process of reviewing the IRS’ use of civil forfeiture. The House Ways and Means Oversight Subcommittee held a hearing Wednesday on “protecting small businesses from IRS abuse.”
That hearing followed up on a February hearing on the agency’s use of forfeiture to seize assets from small businesses accused of money laundering. To avoid complicated bank-reporting requirements, some businesses made deposits of just under $10,000, but then found themselves charged with criminal “structuring” of their transactions, resulting in accounts being seized by the IRS.
IRS policies were changed in 2014 to stop forfeitures from businesses involved in legal activities, but the agency has been derelict in returning funds to citizens whose money was taken before the change, as the Vocatura case demonstrates.
“The IRS knew that seizing money from farmers and store owners who appeared to be structuring their transactions wasn’t right unless they were doing it to cover up other crimes,” said subcommittee chairman Peter Roskam, R-Illinois. “That’s why the IRS announced a new policy in October 2014, that it wouldn’t seize money unless it was ‘derived from an illegal source.’ That’s a better policy than what the IRS was doing before, and we were pleased to hear about the acknowledged need to do better. Now, a year and a half later, we want to know how things are going under that new policy. And, indeed, a new policy doesn’t right all wrongs. Those people whose assets were seized under the old policy were not treated fairly. Several of them have sent petitions to the IRS and DOJ asking for their money back. The IRS granted one of those petitions and gave back $154,000. From all accounts, the IRS did this because it was the right thing to do. However, DOJ has not provided any relief, either financially or procedurally, to those who have petitioned for return of their funds. Those petitioners deserve a fair, transparent review process and an answer.”
Congress is not waiting for the IRS to change its policies and decide when they will implement them. On May 19, the Due Process Act was introduced to limit civil forfeitures for structuring to cases where funds are derived from an illegal source or used to conceal illegal activity, giving the IRS policy the force of law.