The IRS Stole Money and Kept the Details Hidden for Years.


The Internal Revenue Service requires audit agents to be transparent. They examine receipts, ledgers, and bank statements. However, its appetite for disclosure vanishes when the roles are reversed.

When our public interest law firm, the Institute for Justice, requested access to the IRS’s forfeiture database, the IRS resisted for over six years. Initially, the IRS demanded $750,000 in fees before granting the request, which was an unreasonable demand that would have rendered the Freedom of Information Act ineffective for all but the wealthiest citizens.




The IRS attempted a bait-and-switch once in court. Instead of providing the actual data, a summary report with 99 percent redactions was released. The company then declared that it had exceeded the legal requirements. In 2019, the U.S. Court of Appeals for the D.C. Circuit ruled against the agency, despite the fact that the ruse workedștiin districtștiin court. In April 2022, following a second trip to the district court, the IRS finally turned over the entire database.

The IRS has a clear message for those without a law degree or the financial means to endure a lengthy legal battle: Do not attempt this at home. Accountability is beneficial for taxpayers but detrimental for tax collectors.

Lyndon McLellan, a client of the Institute for Justice, witnessed the double standard firsthand in 2014, when IRS agents accessed his bank account without warning and seized his life savings. McLellan purchased a small gas station on the side of the road in Fairmont, North Carolina, in 2001 and spent thirteen years building the business. Over time, he added a restaurant and lunch counter to the business.

McLellan worked extensive hours and took few vacations. Moreover, he operated an honest business. However, federal agents accused him of violating so-called structuring laws because his company frequently deposited less than $10,000 in the bank.

A person engages in structuring, a form of money laundering, when they divide cash in order to evade bank reporting requirements. There is no evidence that McLellan ever did this, but the IRS seized over $107,000 regardless.

“It took me thirteen years to save up that amount of money,” he says. It took less than thirteen seconds for the government to confiscate it.

McLellan was never charged with a crime, but the government attempted to permanently seize his assets through a legal mechanism known as civil forfeiture. This scheme does not require a conviction or an arrest; vague accusations will suffice. And once the process concludes, Congress permits federal agencies to retain 100 percent of the proceeds.

The perverse incentive encourages abuse, and the IRS became avaricious. The Institute for Justice represented small business owners in Iowa, Maryland, Michigan, New York, and North Carolina between 2013 and 2015. The same thing happened to all of the targets: one day they had money in their bank accounts, and the next day they didn’t.

When in Doubt, Choke Him Out Eventually, lawmakers clamped down on the abuse of structuring laws, and all of the clients of the Institute for Justice received their money back. But uncertainties remained. How many innocents had been harmed? What was the annual income generated by the scheme? How did government agencies spend their illicit gains?

The Institute for Justice hired outside counsel to file a lawsuit against the IRS in an effort to obtain information. The database is extensive, and it will take time to sort through the raw data. However, once results are available, they will be disseminated. Government efforts to conceal forfeiture data will unfortunately continue, and not just at the federal level. Numerous state and local agencies withhold information, making oversight challenging.

The Institute for Justice’s “Policing for Profit” report for 2020 is the largest and most comprehensive forfeiture study ever attempted. Still, gaps remain.

Some states mandate that law enforcement agencies report only aggregated data, allowing them to omit the necessary details to detect abuse. Other states have no reporting requirements. Because no records are ever created, public disclosure is not possible. Alaska, Delaware, Louisiana, and Montana are the worst offenders, according to a transparency report card included in “Policing for Profit.”

The best policy solution is straightforward: lawmakers should end civil forfeiture, an inherently corrupt practice, as New Mexico has done. In the absence of this, lawmakers should increase transparency.

Auditors from the IRS do not request information politely. Neither do law enforcement officers who serve a warrant. They force open doors, rifle through closets, and scrutinize computer files. If they find money along the way, they pocket it. The government could at least provide detailed accounts of each seizure and track the money as it moves through the system.


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The information is publicly available regardless. The more the public learns about civil forfeiture, the less favorable they become towards it. Because the IRS and other agencies are aware of the situation, they prefer secrecy.

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