Wielding a banking law intended to thwart drug trafficking and money laundering, the IRS has a new target in its sights: a rural convenience store that sells catfish sandwiches.
Lyndon McLellan lost over $107,000 in an IRS raid after the agency seized the bank account belonging to his small business, L&M Convenience Mart in Fairmont, North Carolina. “It took me 13 years to save that much money and it took fewer than 13 seconds for the government to take it away,” he said.
Like thousands of other victims of civil forfeiture, the government never charged Lyndon with a crime. Now, with help from the Institute for Justice, he’s fighting back to regain his hard-earned cash.
For over a decade, Lyndon has run his mart, an unassuming place where locals stock up on soft drinks and cigarettes. But last year, the IRS wiped out the shop’s bank account using the Bank Secrecy Act. Under this law, banks must report all cash transactions over $10,000. Federal law also prohibits “structuring” deposits in amounts under $10,000 to skirt the reporting requirement.
But making frequent cash deposits under $10,000 is only a crime if someone deliberately intends to evade filing those reports. Lyndon had no such intention. According to his niece, who usually made deposits, a bank teller told her that depositing less than $10,000 would avoid burdensome paperwork. Moreover, forfeiting Lyndon’s cash would violate his constitutional right to due process and the Eighth Amendment’s protection against “excessive fines.”
Lyndon McLellan outside of his small business, L&M Convenience Mart in Fairmont, North Carolina.
This travesty of justice should not have happened. Last October, after The New York Times ran a front-page feature on unjust structuring seizures, the IRS announced it “will no longer pursue the seizure and forfeiture of funds associated solely with ‘legal source’ structuring cases.” In other words, Americans who earned their money lawfully would not be targeted. The U.S. Department of Justice made a similar shift in late March.
During a congressional hearing in February, IRS Commissioner John Koskinen personally apologized to victims of IRS seizures, offering his condolences to “anyone who got caught up in this.” Koskinen even alluded to Lyndon’s case, noting, “Somebody’s not following the policy.”
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Prosecutors may have missed that memo. Less than two months after the IRS publically announced its new policy, the federal government filed a civil forfeiture complaint to take Lyndon’s cash.
The IRS policy change was supposed to end a long trail of similar abuses. A grocery store in Michigan had their entire bank account seized by the IRS for suspected structuring. That same fate befell the owners of a restaurant in rural Iowa and a convenience-store distribution business in Long Island. Like Lyndon, none of these entrepreneurs were ever charged with a crime. Thankfully, after the Institute for Justice launched litigation, these individuals recovered their property.
Others were not so fortunate. According to a recent IJ report, between 2005 and 2012, the IRS seized over $242 million from 2,500 cases for alleged structuring violations. In a third of these cases, only making transactions under $10,000 prompted a seizure—the government did not accuse the owner of any other wrongdoing. Among all structuring forfeitures, the median taken was under $28,000. That’s far removed from cracking down on the nation’s Bernie Madoffs and Saul Goodmans.
“All I want is the government to follow the new rules in this case,” Lyndon said. “Nobody is above the law—not even the federal government. If they’re wrong, they’re wrong.”
