Friday, February 13, 2015

The Janet Malone case: why I despise the IRS

Now my advice for those who die
Declare the pennies on your eyes
Cos I'm the taxman, yeah, I'm the taxman

Taxman-The Beatles
My problem with many federal regulatory agencies in general and the IRS in particular is that they tend to operate under Lavrentiy Beria's proscription of "Show me the man and I'll find you the crime". When both by regulation and by law the list of crimes ever expands then everyone, innocent or not, can be found guilty of something. I have read (and experienced?) that if a police officer really wants to stop you he can find a esoteric traffic violation of some sort before you've driven three blocks. The IRS operates under the same principle. When all you have is a hammer, everything looks like a nail. This society is supposed to endorse the principle of innocent until proven guilty. The IRS doesn't really operate under those rules. For too long Congress has given the IRS a free hand to seize people's assets and property before any sort of proceeding has really established guilt. I believe in paying the taxes that I owe and following the law. But I don't believe that Congress (which is to say we the people) should be giving the IRS and other regulatory or law enforcement agencies wide swaths of poorly defined authority, particularly when it comes to putting people in jail and taking their money. Too often such authority is wielded with a vengeance against relatively powerless individuals who don't have the connections or funds to fight back. It's rare that we hear about a banker or other financial big shot going to prison for money laundering in drug or arms dealing crimes. Such banks and individuals are often thought to be too big to fail. No one has gone to prison for the mortgage meltdown that almost destroyed the US economy.
To combat tax evasion, drug trafficking, money laundering, terrorism, and other crimes, the IRS requires your bank or other financial institution to report to the IRS any deposits you make that are over $10,000. 

Once that rule became public knowledge, anyone with a working brain who was engaged in nefarious activities who still nonetheless needed access to the banking system would make deposits that did not exceed the $10,000 threshold and keep it moving. Maybe Monday they would deposit $2000 at ten different branches. Maybe Tuesday five different newly incorporated Bahamian based companies would make thirty deposits at twenty different banks. And so on. Apparently feeling a bit stupid at being so easily foiled Congress/The IRS also made it a crime to break up transactions below the $10,000 threshold. Theoretically this would allow them to go after those supposed super smart bad guys who had learned to count. The problem is this rule also made technical criminals out of virtually everyone else who used the banking system. So if you deposited $5000 today and $5000 next week because you're a small widget company owner who gets paid irregularly, or deposited $3500 in the morning and $6500 in the afternoon because you're a realtor who attended two closings, or deposited $5800 today and $9000 tomorrow because you're a widow who is closing the estate of your late husband the IRS could take your money and threaten to put you in prison.

IOWA CITY, Iowa (AP) — 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. 

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. 

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.
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.
I see this as nothing more than pure bullying. I have more respect for the Mafia thug who forces you to join his local "business association" or the hoodlum who carjacks you. Such criminals are honest at least. Here the government has taken money from an elderly widow and threatened to jail her simply because she deposited her money in her bank. There is no proof of criminal behavior. The same government that can't figure out how to make corporations pay taxes can bring down the hammer on an old woman. Such brave people they are. This kind of Kafkaesque exercise of authority needs to be halted. 


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