The IRS Lies, Steals, Extorts

Why do we need to outlaw asset forfeiture without trial? Why do we need to abolish structuring laws? Why do we need to burn the IRS down and salt the Earth?

This is why:

Last October, in response to the outrage provoked by “structuring” cases in which the government took people’s money because their bank deposits were too small, the IRS said it would no longer do that unless there was evidence that the money came from an illegal source. In March the Justice Department announced a similar policy for seizures based on structuring, which entails making deposits of less than $10,000 with the intent of evading bank reporting requirements. Yet both the IRS and the DOJ are continuing to pursue the forfeiture of $107,000 that belongs to Lyndon McLellan, the owner of a convenience store in rural North Carolina, based on nothing but suspicion of structuring.

As in other structuring cases, McLellan lost his money because of well-intentioned but bad advice from a bank teller. The teller told McLellan’s niece, who usually handled L&M Convenience Mart’s deposits, she could save the bank burdensome paperwork by keeping the deposits below $10,000, the reporting threshold. Based on the resulting pattern of deposits, the IRS cleaned out McLellan’s bank account a year ago, even though there was no evidence that the money came from anything other than his perfectly legal business, which combines a store with a gas station and restaurant. The Institute for Justice, which is suing the IRS and the DOJ on McLellan’s behalf, notes that “the government filed its forfeiture complaint in December 2014, two months after the IRS announced it would not forfeit money in cases like this one.”

Reminder: when Elliot Spitzer, who had prosecuted people for structuring, structured payments to his madam to avoid detection, he wasn’t punished at all. This law is frequently applied to people who can’t afford to fight it or make a ruckus. The only reason McLellan can fight this is because the IJ — one of the more singularly awesome organizations in the country — is fighting on his behalf.

It gets worse. North Carolina congressman George Holding grilled the IRS commissioner about this case. This pissed off the federal prosecutor. You see, the warrant is under seal by the court. Ostensibly, this is to “protect” the defendant but in reality it protects the government from having their scumbag behavior exposed (see here for where these seals have been used to silence Scott Walker supporters when they have been subjected to midnight raids and fishing expeditions to try to find some evidence … any evidence … of wrong-doing). Similar gag orders were used to try to silence the late Siobhan Reynolds when she opposed government efforts to crack down on pain-killer use.

Of course, when sealed records are leaked by prosecutors — such as when Barry Bond’s sealed testimony in the BALCO case was leaked — no one cares.

Anyway, the prosecutor’s response has to be read to be believed:

I’m a bit concerned. At your request, I provided you a copy of the application for seizure warrant, which remains under seal with the Court, and now it appears it has been made available to a congressional committee? I do not know who did that, and I am accusing no one, but it was not from our office and could only have come from your clients. That was certainly not my intent in making this available. My intent was for you and your clients to be able to actually know the facts so you could review them and have an intelligent discussion with me. Whoever made it public may serve their own interest but will not help this particular case.

Your client needs to resolve this or litigate it. But publicity about it doesn’t help. It just ratchets up feelings in the agency.

Not unreasonable. But … wait for it.

My offer is to return 50% of the money. The offer is good until March 30th COB.

In other words, “shut the hell up and we’ll give you back the half the money”. And remember, if it weren’t for the support he’s receiving from the IJ, this would likely be the best outcome for McClellan.

A few weeks ago, John Oliver — whose commentary I normally find funny and occasional insightful — defended the IRS. He pointed out, correctly, that they didn’t make the tax law so ridiculously byzantine and that they barely have the resources to deal with the ungodly mess Congress has handed to them. He pointed out that for every dollar we spend on the IRS, we get six back. I don’t find it particularly persuasive since that means more money extracted from our citizens (sometimes in error and frequently at the expense of people like McClellan, who can’t afford to fight).

But this illustrates perfectly why people hate the IRS and the prosecutorial machinery that surrounds them. This is an agency that once had “Seizure Fever — Catch It!” posters printed up. This is an agency that zealously uses the unconstitutional powers Congress gives them. This is an agency that has happily complied with Presidential requests for targeted political audits and harassment. And now it is an agency that lied about what they were doing, seized someone’s assets and threatened him when he went public with it.

So yeah, we need to burn the tax code down. Yes, we need to pass laws to stop asset forfeiture — it’s clear that we can’t rely on the agencies to do it on their own. But once we do that, we also need to tear down the IRS and replace it with something else. They are too used to using and abusing the power our Congress and our Courts have stupidly given them.

Ending Shared Theft

I can’t believe I’m going to say this but here goes. Ahem. Cough. Uh, is this thing on?

Hi. Um … here we go …

Eric Holder has done something right.

Attorney General Eric H. Holder Jr. on Friday barred local and state police from using federal law to seize cash, cars and other property without warrants or criminal charges.

Holder’s action represents the most sweeping check on police power to confiscate personal property since the seizures began three decades ago as part of the war on drugs.

Since 2008, thousands of local and state police agencies have made more than 55,000 seizures of cash and property worth $3 billion under a civil asset forfeiture program at the Justice Department called Equitable Sharing.

The program has enabled local and state police to make seizures and then have them “adopted” by federal agencies, which share in the proceeds. It allowed police departments and drug task forces to keep up to 80 percent of the proceeds of adopted seizures, with the rest going to federal agencies.

I’ve talked about civil asset forfeiture many times. This is the vile practice where law enforcement officials seize your money, your car or your bank accounts and … well, basically keep it. You never have to be charged with a crime. They never have to prove the assets came from crime. They just take it, like a highwayman. And they are perfectly free to use those assets for any purpose, including, in one case, a margarita machine.

Some states have trained to “reign this in”. Granted, they haven’t reigned it in by say, abolishing it. But they’ve at least tried to redirect the money from going directly to law enforcement to going to schools or something. The Feds responded with their Equitable Sharing Program, where the police turn the money to the Feds to bypass state laws. The Feds keep a cut and then turn it right back over to the police. That’s the program Holder is suspending.

Now, to be fair, this is a directive. The next AG could reverse it. Hell, Holder could. Let’s not mistake this for, say, Congress passing a law to abolish it. Radley Balko breaks down the decision further, pointing out that federal investigations — such as investigations by the DEA or IRS — will still be able to use this tool. And, in fact, local law enforcement will be able to use Equitable Sharing when they are part of a federal or joint investigation. In fact, Holder’s justice department recently successfully argued before the Supreme Court, in Kaley, that the government could seize your assets before trial to keep you from hiring a good lawyer.

So let’s not dance in the streets just yet. But this is a step in the right direction. The next thing that needs to happen is for Congress to abolish the practice completely. Asset forfeiture may have made sense when we were seizing the 18th century smuggling ships of overseas booze barons. It makes no sense in a modern context. If the Supreme Court won’t abolish it, Congress must and should.

Want Help? Ask Conservatives

Everyone know that only Democrats care about minorities. Everyone knows that only Democrats care about the poor. Everyone know that only Democrats care about women. Republicans just like to cruise around in their limos laughing at the plight of those less fortunate than them. Meanwhile, Democrats can’t sleep at night because they are so worried about the oppressed masses. Right? Right?

Let me introduce you to Shaneen Allen:

Last October, Shaneen Allen, 27, was pulled over in Atlantic County, N.J. The officer who pulled her over says she made an unsafe lane change. During the stop, Allen informed the officer that she was a resident of Pennsylvania and had a conceal carry permit in her home state. She also had a handgun in her car. Had she been in Pennsylvania, having the gun in the car would have been perfectly legal. But Allen was pulled over in New Jersey, home to some of the strictest gun control laws in the United States.

Allen is a black single mother. She has two kids. She has no prior criminal record. Before her arrest, she worked as a phlebobotomist. After she was robbed two times in the span of about a year, she purchased the gun to protect herself and her family. There is zero evidence that Allen intended to use the gun for any other purpose. Yet Allen was arrested. She spent 40 days in jail before she was released on bail. She’s now facing a felony charge that, if convicted, would bring a three-year mandatory minimum prison term.

There is a wide prosecutorial discretion here (more on that in a moment) but it looks like the prosecutor is going to throw the book at her. Allen is the kind of person the Left is supposed to be in a tizzy over — a single working mom doing her best who is about to be crushed by the system. But the liberal Ecosphere has said little, if anything, about her. You know who is taking up her cause? If you said conservatives and libertarians, move to the front of the class. Here is National Review, for example, trying to make her case a national issue. True, this is because conservatives believe in gun rights and the second amendment. But they also believe in justice. And there is a growing awareness of the massive disparities in how gun laws are enforced.

As it turns out, Allen’s case isn’t unusual at all. Although white people occasionally do become the victims of overly broad gun laws (for example, see the outrageous prosecution of Brian Aitken, also in New Jersey), the typical person arrested for gun crimes is more likely to have the complexion of Shaneen Allen than, say, Sarah Palin. Last year, 47.3 percent of those convicted for federal gun crimes were black — a racial disparity larger than any other class of federal crimes, including drug crimes. In a 2011 report on mandatory minimum sentencing for gun crimes, the U.S. Sentencing Commission found that blacks were far more likely to be charged and convicted of federal gun crimes that carry mandatory minimum sentences. They were also more likely to be hit with “enhancement” penalties that added to their sentences. In fact, the racial discrepancy for mandatory minimums was even higher than the aforementioned disparity for federal gun crimes in general.

This isn’t just a matter of black people committing more crimes. In cases where the prosecution is discretionary — such as the enhancement penalties — this is far more likely to happen to black criminals than white ones. And conservatives like Rand Paul have been making this point more and more forcefully of late.

Oh, speaking of Rand Paul … Just last week, Jon Stewart discovered civil asset forfeiture, the process by which the government can seize your property or money by alleging it has committed a crime (that’s not a typo; they literally charge the property with a crime). It will surprise no one that while asset forfeiture casts a wide net, it also has a tendency to fall heaviest on minorities and on poor people who can’t fight back. Anyone want to guess the party affiliation of the man who has proposed to overhaul asset forfeiture law and give people greater civil service protections?

The FAIR Act would change federal law and protect the rights of property owners by requiring that the government prove its case with clear and convincing evidence before forfeiting seized property. State law enforcement agencies will have to abide by state law when forfeiting seized property. Finally, the legislation would remove the profit incentive for forfeiture by redirecting forfeitures assets from the Attorney General’s Asset Forfeiture Fund to the Treasury’s General Fund.

It’s not perfect. But it’s a huge improvement over the existing regime, where local law enforcement can bypass state regs by turning the seized money over to federal agents, who take a cut and give it directly back the law enforcement agencies.

But there’s still more. Let’s move away from crime and toward poverty itself. Last week, Paul Ryan suggested a new set of policies to try to reduce poverty. He would consolidate numerous programs into block grants to the states, expand the EITC, reduce regulations and push criminal sentencing reform. Even some liberals are admitting these are good ideas. They will reward work and expand opportunity — the two things the poor need a hell of a lot more than slightly larger piles of government cash.

There’s been some controversy over Ryan’s proposal to have chronically poor people meet with councilors who will help them improve their lives. But as Megan McArdle points out, while the chronically poor are a small part of the poor, they consume a huge chunk of the benefits. And it is chronic generational poverty that is the true suffering. Ryan’s plan sounds a bit too paternalistic to me. But it’s got to be better than the absent father method our current system upholds where we just throw money at poor people and hope it will magically make them unpoor.

So in just the last week, we’ve seen conservatives oppose arbitrary ruinous enforcement of gun laws, oppose asset forfeiture and propose a new version of welfare reform (after the last one lifted millions out of poverty). You add this to the ongoing push for school choice and you have a platform that would greatly enhance freedom and opportunity for millions of people, most of who are poorer and darker-skinned than your typical Republican.

And the Democratic Party? Well, their big issue right now is trying to save the corporate welfare that is the Ex-Im bank.

Look, I’m not going to pretend the Republican Party is perfect on these issues or any other issue. And there are plenty of Democrats who support the above policies. What I am going to suggest, however, is that the caricature of the GOP specifically and conservatives in general as uncaring racist sociopaths is absurd.

Update: This isn’t strictly related, but you know how Democrats have been whining about the cost of higher ed and the burden it is imposing on the middle class? Well evil conservative Republican Mitch Daniels is not whining, he’s doing something about it.

Theft By Any Other Name

This story is simply unbelievable. It’s got it all: incompetent city government, crony capitalism and stealing a marine’s home for an overdue $134 tax bill:

On the day Bennie Coleman lost his house, the day armed U.S. marshals came to his door and ordered him off the property, he slumped in a folding chair across the street and watched the vestiges of his 76 years hauled to the curb.

Movers carted out his easy chair, his clothes, his television. Next came the things that were closest to his heart: his Marine Corps medals and photographs of his dead wife, Martha. The duplex in Northeast Washington that Coleman bought with cash two decades earlier was emptied and shuttered. By sundown, he had nowhere to go.

All because he didn’t pay a $134 property tax bill.

The retired Marine sergeant lost his house on that summer day two years ago through a tax lien sale — an obscure program run by D.C. government that enlists private investors to help the city recover unpaid taxes.

For decades, the District placed liens on properties when homeowners failed to pay their bills, then sold those liens at public auctions to mom-and-pop investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid.

But under the watch of local leaders, the program has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts — then foreclosed on homes when families couldn’t pay, a Washington Post investigation found.

As the housing market soared, the investors scooped up liens in every corner of the city, then started charging homeowners thousands in legal fees and other costs that far exceeded their original tax bills, with rates for attorneys reaching $450 an hour.

Here’s the short version: Coleman is a 76-year-old retired Marine who owned his $197,000 home free and clear. He also has been showing signs of dementia and, at one point, forgot to pay a $134 tax bill. His son eventually paid the bill — plus $183 in interest in penalties. But it was too late. The lien had been sold to a private company that demanded $5000 in legal fees. The son couldn’t come up with the money and court foreclosed. The Maryland firm that bought the house sold it for $71,000.

This is not an isolated incident. You really must read the whole thing if you have the time. Private companies now hold liens on thousands of properties and have foreclosed on hundreds, frequently over very small amounts of money (after inflating them to unpayable sums with often undocumented legal fees). Poor neighborhoods, already hurt by the recession, are being devastated by these seizures. And these are not people who bought homes to flip them or bought homes they couldn’t afford. These are people trying to be responsible who have, for various reasons, missed a tax payment. Or in many cases, haven’t but had liens put on their homes by mistake.

One 65-year-old flower shop owner lost his Northwest Washington home of 40 years after a company from Florida paid his back taxes — $1,025 — and then took the house through foreclosure while he was in hospice, dying of cancer. A 95-year-old church choir leader lost her family home to a Maryland investor over a tax debt of $44.79 while she was struggling with Alzheimer’s in a nursing home.

Other cities and states took steps to curb abuses, such as capping the fees, safeguarding houses owned by the elderly or scrapping tax sales altogether and instead collecting the money themselves.

Moreover, there is no supervision. Many of these private companies have already been prosecuted in other states for breaking laws and rigging bids. And the DC tax office has sold nearly 2000 liens by mistake.

A 48-year-old math teacher paid his taxes in 2007, but the tax office took his $1,400 payment and applied it to the wrong house, crediting an entirely different taxpayer.

A 58-year-old bank employee almost lost her house in 2010 because the tax office mistakenly sent bills and notices to a wooded lot across from a strip shopping center in Virginia — 12 times.

A 69-year-old hat designer was given the wrong payoff amount and ended up in court to save her property, owned by her family since 1943.

Those homeowners found out about the mistakes in time to fight. Ninety-five-year-old Daisy Dolsey, living in a nursing home and struggling with Alzheimer’s, wasn’t so lucky: She lost her $300,000 house over a $44.79 tax debt even after she paid her taxes.

This is an appalling scandal. This should be national news and the DC Council should be getting pilloried for refusing to address the issue. And it’s only a microcosm of government farming out duties to private companies — which might be defensible enough in a vacuum — but not holding those companies to any standard of behavior or any limitations on their authority. And for the companies it’s a gold mine — the Post reports that $5 million in suspiciously organized and unsupervised bids bought liens on 2/3 of a million in properties. They then charged the owners thousands in administrative and legal fees and foreclosed on the homes if the homeowners couldn’t cough it up

This is theft, plain and simple. This is government, industry and lawyers conspiring to rob people and not giving a fig what it does to the city.

And while I’m on my horse about property rights and corrupt government, the problem of asset forfeiture is only getting worse:

Leino is one of thousands of Philadelphia residents who each year find themselves facing the seizure of their possessions — cars, cash and real estate — via “civil asset forfeiture,” a legal construct that lets law-enforcement agencies seize property linked to crime and keep the proceeds. In Pennsylvania, civil forfeiture is carried out primarily under state drug laws. The Philadelphia DA brings 300 to 600 real-estate forfeiture cases per year, and thousands of cases against small amounts of cash seized in police stops that sometimes, but not always, result in arrests — together bringing nearly $6 million into its coffers annually.

In a series of reports for City Paper [“The Cash Machine,” Nov. 29, 2012] and ProPublica, this reporter has documented how the Philadelphia DA has made civil forfeiture into a vast, unaudited revenue stream, profiting from an upside-down legal process through which the DA has the power to bleed property owners dry of financial resources and imperil homeowners with minimal or no evidence of criminal wrongdoing.

Long before the forfeiture action against her house would be completed, and without a judge or jury ever seeing her face, Leino would be forced from her house and made homeless along with her three children. She would lose her most precious possessions, and ultimately be deprived of her family’s most valuable asset — all without Leino ever being accused of any crime.

Her husband, Sam, was accused. On Feb. 22, 2010, police officers arrived at the family’s house, at 2729 Orthodox St. in Bridesburg, to arrest Sam on charges of selling prescription pills. The officers would later testify that they observed Sam handing over small objects in exchange for money outside the house. After executing a search warrant, police recovered various painkillers. (Sandra Leino says her husband was partially disabled from a truck accident and took the painkillers himself, legally, for his pain.)

Sandra Leino and her three children were not accused of any crime; nowhere in police reports is there even a hint that any of them had done anything wrong.

That didn’t stop the DA from filing a motion to seize the Leino’s house that May — and then, for reasons that remain unclear, kicking them out of it the same month. (The DA’s Office responded to inquiries with a short statement describing the forfeiture action, but would not explain why Leino and her family were made to leave). Leino, her husband (out on bail awaiting his trial), and their children were forced from their home with nowhere to go. They stayed in a motel for one week.

While the family navigated a homelessness imposed on them by the District Attorney’s Office, the DA asked the city’s Department of Licenses & Inspections to conduct a “clean and seal” operation on the Leinos’ house. City officials arrived at the house shortly after the forfeiture motion had been filed (not granted) and began throwing out the Leinos’ possessions — among them pictures of the Leinos’ children growing up, antiques they had collected together as a hobby and a 5-gallon jar of pennies the family had filled as a way to save money.

The house was foreclosed on by the bank. Leino was convicted of a single felony charge. Oh, and the officers who brought the charges against Mr. Leino? Four of them were found to be part of drug-dealing ring within the Philadelphia police. Nearly 300 of the cases they brought have been dropped.

I highlight these two stories specifically because they involve people who are working class, not the rich folks that defenders of asset forfeiture and foreclosure corruption always insist are the real targets of the laws. Whenever you give government this kind of gangster power, it will be turned on everyone, but especially on those who do not have the resources for lawyers and publicity. These are poor and working class people, mostly minorities. The only crimes they have committed are missing a tax bill or low-level drug dealing (or living with someone who has done those things). And they are being robbed blind to stuff the coffers of police departments in one case and rich speculators in the other.

This is what happens when you don’t respect property rights and when you give the government authority to just take people’s possessions. You won’t see Donald Trump having his home sold to speculators. You won’t see a rich politician kicked out onto the street if her husband is dealing pain pills (according to four corrupt cops). Michael Bloomberg’s stop-and-frisk wasn’t used on Wall Street execs. Our War on Drugs imprisons lots of poor people but sees rich drug users as “having a problem”. Our War on Prostitution thinks Eliot Spitzer should run for comptroller while survival-level sex workers should be imprisoned and raped.

Arbitrary government power is always turned against the powerless. There are some things we need government to do, but that power should always be supervised, constrained, reviewed and never allowed to play to the personal benefit of the rich and powerful. The nation has forgotten this lesson. But thank God for the Wapo, for the IJ and for independent journalists who are determined to make sure that this abuse and criminality does not go unnoticed.

Another Victory for the IJ

My favorite organization has won again:

When prosecutors tried to seize his family’s Tewksbury motel where drug incidents had been reported, Russ Caswell couldn’t believe the feds had the right to take a property from someone who was never charged with a crime.

Well, it turns out Caswell was right after all: A magistrate judge in Boston federal court just ruled that prosecutors didn’t have enough evidence to justify seizing the Motel Caswell. They didn’t even come close.

I blogged about this case before. The Feds were trying to sieze a hotel because a few drug deals had gone down there even though the Caswells had called the cops. Motel Caswell ain’t exactly the Ritz — the online reviews are not kind. But the idea that the Feds could swoop in and seize it was ridiculous. And I’m glad they won.

Interesting side note: the US Attorney behind this case? Yeah, it’s Carmen Ortiz again, the same woman who is under fire for the Swartz case. Not having a good month is Ms. Ortiz.