Imagine one day that you wake-up, get your coffee, and check your bank account to discover that the balance has vanished.  Imagine also that, upon further investigation, you discover that the IRS has swept in during the night and seized your account, not because you have evaded taxes, but on the basis that you have "structured" some of your deposits.

Federal banking regulations require that any deposit in excess of $10,000 be accompanied with identifying paperwork supplied by your bank and submitted to the U.S. Treasury.  Making a series of deposits purposely under the $10k threshold is called "structuring" and it is illegal.

This is the realm of a little known but powerful unit within the IRS: the Criminal Investigations unit.  A federal law designed to catch major drug dealers and terrorists based on their financial activity has apparently, according to Sunday's NYT, devastated some small business owners and ordinary folks over the past 18-months.

Unlike other crimes that involve forfeiture, however, the law empowering the IRS to seize your funds does not require the IRS, or the Department of Justice, to charge you with a specific crime.  As for getting your funds returned; best of luck to you.  Be prepared to hire specialized legal counsel.

The NYT article detailed at least three examples of regular ordinary folks that, for legitimate reasons, made a series of deposits just under the $10,000 threshold, only to have their accounts seized and not returned; at all.  When some of the data was shown to CI's chief, Richard Weber, he agreed to curtail the IRS seizures by focusing only on those cases involving criminal acquisition of the deposited cash, issuing a written statement:

This policy update will ensure that C.I. continues to focus our limited investigative resources on identifying and investigating violations within our jurisdiction that closely align with C.I.'s mission and key priorities.

Cases involving "exceptional circumstances" will also continue to be targeted, as before.  So, per usual, the power remains in the hands of the IRS.

We here at the Law Blogger are never comfortable with statutes designed to catch one type of criminal -in this case, folks purposely attempting to evade federal detection of their ill-gotten gains- but which sweeps up law abiding hard-working individuals in its net.  Also, laws that allow government seizures without bringing a formally charged crime to which people can assert valid defenses are always suspect due to their potential for misapplication, as in the cases detailed in the NYT.

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By: Timothy P. Flynn

Yesterday, in the wake of the momentous SCOTUS decision in June striking down DOMA as unconstitutional, the all-powerful Internal Revenue Service formally announced recognition of same-sex marriages for all income, gift and estate tax purposes.  While same-sex couples must be legally married, they do not need to reside in a state that recognizes such marriages at the time of the tax filing.

In announcing the new IRS ruling, the Department of Treasury stated:

Under the ruling, same sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, and claiming the earned income tax credit or child tax credit.

The IRS also made clear, however, that same-sex unions, domestic partnerships, or other similar formal relationships will not be recognized for tax purposes.

One immediate benefit of the new policy is that legally married same-sex couples can seek tax refunds by filing amended returns for the years 2010, 2011, and 2012.  Additionally, empolyees who are in a legally recognized same-sex marriage that purchased spousal health insurance coverage from their employers can now exclude the insurance premiums from their taxable income.

The policy ruling certainly provides clarity on fiscal issues that have plagued same-sex marriages for decades. Treasury's press release provides coherent tax filing guidance for contributing tax payers that happen to be in same-sex marriages; now such couples can attain the benefits and protections to which every tax-paying citizen is entitled.

To date, 12 states recognize such marriages with several more that appear to be on the way.  While most state legislatures are getting around to addressing the issue of same-sex marriage, either through constitutional amendments banning such marriages, or through legislation recognizing them, New Mexico is addressing the issue through its judges on a county-by-county basis.  This will be the topic of the next Law Blogger post.

Refunds:
If you wish to apply for an income tax refund, use IRS Form 1040X Amended Individual Income Tax Return; refunds from estate or gift tax payments; use Form 843 Claim for Refund and Request for Abatement.  Good luck.

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