For years, small business owners faced possibility of the IRS seizing their money if the business did not act in accordance with a law enacted in 1970.  Once seized, recuperation of financial assets was an expensive, uphill battle. A new law may reduce that effect for small business owners.


What is the Bank Secrecy Act of 1970?

The Bank Secrecy Act of 1970 allowed the IRS to seize a business owner’s money without filing formal charges against the business owner. Under that act, banks were required to report to the IRS transactions of $10,000 or greater to allow proper taxation and prevent falsification of tax documents. Under the Bank Secrecy Act of 1970, the IRS could seize funds from business owners who frequently made multiple transactions under $10,000. Why? Because, according to the IRS, businesses making frequent multiple transactions under $10,000 may be guilty of a crime called structuring.

Structuring is the intentional deposit of money in increments of less than $10,000 for the sole purpose of keeping those transactions from being reported; thereby allowing the business to hide money from the IRS. How many business owners are actually guilty of this offense? Surprisingly few. In a study conducted by the Treasury Inspector General for Tax Administration in 2017, 278 cases of structuring were investigated and 91 percent were found innocent of the charges. Though the Banks Secrecy Act of 1970 may have been beneficial when created, it has since become outdated and is now used as a means of seizing money to which the IRS is not necessarily entitled.

New Legislation: Taxpayer First Act

New legislation is set to change the way that the IRS approaches seizures and to restructure the process by which business owners can seek to recoup sized money. The Taxpayer First Act is designed to expedite the adjudication procedure by which small businesses (that are not involved in nefarious conduct) can get their money back. The Taxpayer First Act also contains the Clyde-Hirsch-Sowers RESPECT Act, named after small business owners who helped highlight abuse of IRS structuring seizures.

In 2012, the IRS seized more than $500,000 from two business owners for structuring. The business owners worked in a high cashflow business that required frequent deposits to sustain the business. The owners went through years of litigation before getting their money back. Between 2005 and 2012, the IRS seized close to $200 million in over 2,000 different cases. The new law prevents the IRS from seizing legally obtained funds and provides business owners with the ability to appeal and get in front of a judge within 30 days.

Laws are always changing.  Keep yourself and your business on top.