[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]

                              IRS ABUSE



                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES


                             FIRST SESSION


                           FEBRUARY 11, 2015


                            Serial 114-OS01


         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                     PAUL RYAN, Wisconsin, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan,
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
DEVIN NUNES, California              JIM MCDERMOTT, Washington
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois            LLOYD DOGGETT, Texas
TOM PRICE, Georgia                   MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
AARON SCHOCK, Illinois               RON KIND, Wisconsin
LYNN JENKINS, Kansas                 BILL PASCRELL, JR., New Jersey
ERIK PAULSEN, Minnesota              JOSEPH CROWLEY, New York
KENNY MARCHANT, Texas                DANNY DAVIS, Illinois
DIANE BLACK, Tennessee               LINDA SANCHEZ, California
TOM REED, New York
MIKE KELLY, Pennsylvania
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina

                       Joyce Myer, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director


                       SUBCOMMITTEE ON OVERSIGHT

                  PETER J. ROSKAM, Illinois, Chairman

KENNY MARCHANT, Texas                JOHN LEWIS, Georgia,
MIKE KELLY, Pennsylvania             JOSEPH CROWLEY, New York
PAT MEEHAN, Pennsylvania             CHARLES B. RANGEL, New York
GEORGE HOLDING, North Carolina       LLOYD DOGGETT, Texas
KRISTI NOEM, South Dakota

                            C O N T E N T S


Advisory of February 11, 2015 announcing the hearing.............     2


Panel one
The Honorable John Koskinen, Commissioner, Internal Revenue 
  Service........................................................     8
Panel two
Andrew Clyde, CEO, Clyde Armory..................................    52
Jeff Hirsch, Owner, Bi-Country For Justice.......................    41
Robert Johnson, Attorney, Institute for Justice..................    72
Randy Sowers, Owner, South Mountain Creamery.....................    38

                       PROTECTING SMALL BUSINESS
                             FROM IRS ABUSE


                      WEDNESDAY, FEBRUARY 11, 2015

                  House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
Room B-318, Rayburn House Office Building, the Honorable Peter 
Roskam [chairman of the subcommittee] presiding.
    [The advisory announcing the hearing follows:]


    Chairman ROSKAM. Good morning, the hearing will come to 
order. Welcome to the Oversight Subcommittee hearing on 
protecting small businesses from IRS abuse with IRS 
Commissioner John Koskinen on the first panel. And on the 
second panel, we will hear from Mr. Sowers, Mr. Hirsch, and Mr. 
Clyde, all small business owners who have had their assets 
seized by the IRS. In addition, we will hear from Mr. Johnson, 
a resident expert in this area of the law.
    We are here to examine the IRS's use and abuse of its civil 
asset forfeiture authority. What is civil asset forfeiture 
exactly? Under current law, federal agencies like the IRS can 
seize people's assets without any proof of wrongdoing. This law 
was supposed to stop criminal enterprises and recover ill-
gotten gains, but the IRS has used it to seize the bank 
accounts of people suspected of structuring, that is, of making 
cash deposits worth less than $10,000 to avoid reporting 
    This is a crime that most folks have never heard of. The 
small business people will tell you it casts a pretty wide net 
and it is catching a lot of innocent people. It is catching a 
Mexican restaurant owner, a gas station owner, and dairy 
farmers. Many small business people then have had to fight 
expensive court battles to get even a portion of their money 
back, even though they did nothing wrong.
    These small businesses keep getting caught in the snares 
largely because they are just that, small. They do a lot of 
transactions in cash because, believe it or not, we are still a 
very cash-driven economy. In a typical year, American consumers 
do more than a trillion dollars in cash transactions, and under 
the Bank Secrecy Act, it is illegal to structure or split up 
transactions in order to avoid a requirement to report those 
worth more than $10,000. To be clear, it makes it a crime to 
fail to file a report on certain transactions.
    Take an example: Say I am a restaurant owner and I take 
$8,000 to the bank on Friday and $2,000 on Monday simply 
because I don't like to keep a lot of cash in my register. I am 
not structuring. However, if I do it because the bank teller 
says I can avoid filling out forms if deposits are smaller than 
$10,000, then I am guilty even if I don't know it is a crime. 
In either case, it may look like I am trying to avoid the 
reporting requirement, and that is enough for the bank to file 
a Suspicious Activity Report.
    At that point, the IRS can file a warrant and say it has 
probable cause to believe that assets are involved in a crime 
and then it can seize the account. That is it. The IRS doesn't 
have to give notice to the account holder for seizing the 
assets, and the IRS doesn't have to prove that the person is 
actually guilty of anything, just that the account probably is 
involved in structuring.
    After the IRS seizes the assets, the account holder isn't 
entitled to any sort of expedited hearing. So even if he did 
absolutely nothing wrong, it can literally take years of legal 
proceedings for the account holder to get some or all of his 
assets back, and many people simply can't afford a long, drawn-
out fight. So what do they do? They settle, handing over 
thousands of fairly earned dollars to the IRS all without 
having done anything wrong.
    We are going to hear from some of those victims today, and 
I know that there are many others out there who wanted to be 
here, like Carole Hinders, a restaurant owner in Iowa, Mark 
Zaniewski, a gas station owner in Michigan, but they couldn't 
take time away because of family and business needs. We have 
received their statements for the record.
    We also learned yesterday that the Treasury Inspector 
General for Tax Administration has planned an audit of the IRS' 
practices in this area, so that inquiry will be forthcoming.
    And for the witnesses who traveled here to tell your 
stories, thank you for your time. We know that as small 
business owners you are not drawing a salary while you testify 
here today.
    We are also looking forward to hearing from Commissioner 
Koskinen who I hope will be able to explain how this has been 
going on and what the IRS is doing to stop it.
    With that, I would like to yield to the ranking member for 
his opening statement.
    Mr. LEWIS. Thank you very much, Mr. Chairman, for holding 
this hearing on the Internal Revenue Service. I am very pleased 
that we have the Commissioner with us today. I also thank the 
witnesses on the second panel for testifying today. The 
practice of the agency seizing the assets of taxpayers came to 
our attention through press reports at the end of last year. We 
were concerned that in many of the press reports the taxpayers 
were small businesses that made cash deposits from daily 
operations. We also were concerned that these taxpayers did not 
have a right to request a hearing in court within a reasonable 
period of time after their assets were seized.
    I am glad that the agency took action last October. The new 
IRS policy only allows the agents to seize assets in certain 
cases. I look forward to hearing more about this change today.
    In closing, Mr. Chairman, I would like to state that I am 
very concerned about the full effect of the agency's budget 
cuts on taxpayer service and enforcement. I think that we can 
all agree that American taxpayers deserve the best possible 
assistance. In the last year, the agency's funding was reduced 
by nearly $350 million. It is now at the lowest level of 
funding since fiscal year 2008. The growing gap between the 
agency's increased workload and the shrinking budget has led 
the National Taxpayer Advocate to state that the declining 
quality of taxpayer service is the most serious problem facing 
the agency.
    Mr. Chairman, I said in the past and I say it again today, 
it is impossible to get blood from a turnip. We can do better 
and we must do better. Thank you. And I yield back.
    Chairman ROSKAM. Thank you, Mr. Lewis.
    Commissioner Koskinen, thank you for your time today and 
for joining us. The committee has received your written 
statement and it will be made part of the formal hearing 
record. You have 5 minutes to deliver your remarks, and you may 
begin whenever you are ready.


    Mr. KOSKINEN. Thank you, Chairman Roskam, Ranking Member 
Lewis, and Members of the Subcommittee. Thank you for the 
opportunity to testify here today about an important subject.
    Chairman ROSKAM. Commissioner, could you pull the mic a 
little closer to you?
    Mr. KOSKINEN. Sure. How is that?
    The IRS has sole jurisdiction to investigate criminal 
violations related to federal tax crimes. In addition, the IRS 
works together with various federal law enforcement agencies to 
combat other serious financial crimes, including money 
laundering, Bank Secrecy Act violations, and terrorist 
financing. In these efforts, we strive for a balanced approach 
that takes into account the need for fairness and respect for 
the rights of individuals under the law.
    The ongoing battle against financial crimes has been helped 
by passage of laws that provide law enforcement with tools to 
uncover hidden criminal activities. One of the most significant 
laws is the Bank Secrecy Act of 1970 which, as the chairman 
noted, requires financial institutions to report on individuals 
who engage in cash transactions exceeding $10,000. These and 
other similar reports constitute a robust set of data widely 
used by law enforcement agencies to uncover illegal activities 
both domestically and around the world.
    To circumvent these reporting requirements, individuals 
sometimes engage in structuring where they intentionally 
manipulate cash transactions to fall below the $10,000 
reporting threshold. Structuring may occur for any number of 
reasons. Individuals may want to conceal cash generated from 
illegal activities, such as drug dealing. Or the cash may come 
from legal sources, but the person is trying to hide it to 
evade taxes. Whatever the reason, the law is clear; it is a 
crime to structure cash transactions for the purpose of evading 
the reporting requirement.
    Under the law, the IRS has the authority in structuring 
cases to investigate criminally and seize the assets involved 
in the structuring. However, the law also includes procedures 
we must follow to safeguard the rights of individuals and 
ensure the seizure action is appropriate. Before an action can 
go forward, IRS agents must first prepare a seizure warrant 
affidavit that is reviewed by the appropriate U.S. attorney's 
office. The warrant then is presented to a federal judge who 
approves or denies it. If the judge authorizes the warrant, 
only then can the seizure and forfeiture proceedings take 
    After reviewing our activities last year, the IRS announced 
in October that it would focus resources on cases that are more 
closely aligned with our strategic priorities. Specifically, 
the IRS will no longer pursue the seizure and forfeiture of 
funds associated solely with legal structuring cases or legal 
source structuring cases unless there are exceptional 
circumstances justifying the seizure and forfeiture and the 
case has been approved beyond the approvals from the U.S. 
attorney and the judge by a senior headquarter's executive at 
the IRS.
    While the act of structuring, whether the funds are from a 
legal or illegal source, is against the law, IRS special 
agents, henceforth, will view the act as simply an indicator of 
whether more serious crimes may be occurring. This ensures that 
the IRS continues to focus its limited investigative resources 
on identifying and investigating tax violations within its 
jurisdictions that closely align with the IRS missions and key 
    No one should conclude from this change that the IRS is 
backing away from enforcing the laws written by Congress by 
appropriately investigating both the source of funds and the 
purpose of the structuring when these cases arise. When the 
evidence indicates criminal wrongdoing has occurred, 
structuring will still be investigated and prosecuted where 
appropriate, often together with other crimes, such as tax 
evasion and money laundering.
    We recognize that seizure and forfeiture are powerful law 
enforcement tools and must be administered in a fair and 
appropriate manner. The IRS understands and embraces the fact 
that we have a duty not only to uphold the law, but to protect 
the rights of individuals as well. We believe that our policy 
change will help ensure consistency in how IRS structuring 
investigations and related seizures are conducted and will also 
ensure fairness for taxpayers. In short, if a taxpayers is not 
violating the law and engaged in illegal sourcing, they have 
nothing to fear with regard to the seizure of their assets.
    This concludes my statement. I would be happy to take your 
    [The prepared statement of Mr. Koskinen follows:]

    Chairman ROSKAM. Thank you, Commissioner.
    I will first recognize Mr. Marchant on the majority side, 
and I intend to ask my questions at the end.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    Welcome, Commissioner. On Monday, I was in my district and 
held a meeting of about 50 people and I thought we were going 
to have a very nice lunch. As it turns out, I was the lunch.
    Mr. KOSKINEN. I know that feeling.
    Mr. MARCHANT. As much as I tried to talk about any other 
subject that we are working on in Congress, this group wanted 
to talk about the IRS. So as much as we may have thought the 
whole Lois Lerner event and the events of last year have 
passed, they have not in the minds of our constituents.
    Today we are here to talk about what we feel like is an 
abuse of small business owners. Last year, a woman from Iowa, 
Sue Martinek, came to our committee and reported to us that the 
IRS had targeted her pro-life group for extra scrutiny before 
it got its tax-exempt status. She even told us that her group 
was asked to tell the IRS about what they prayed about at their 
prayer meetings before the meeting.
    Now we hear about another Iowa woman who has been targeted 
by the IRS for doing nothing wrong. Unfortunately, Carole 
Hinders can't be with us today. She has an adult child that is 
sick and requires that she be with her, and she did not have 
the money to travel here from Iowa to tell her story. But she 
would like to tell it, so this is Carole on the screen. She 
owns a Mexican food restaurant. I guess with all the Texans 
coming up here for the presidential election that Mexican food 
is a popular item in Iowa.
    Carole has owned her small business for 38 years, and for 
38 years, she has only accepted cash payments. Accordingly, for 
38 years, she has regularly gone to the bank and made deposits 
so that she did not keep large amounts of cash on hand.
    In August of 2013, with no warning, no letter, no 
prompting, her bank account containing $33,000 was frozen, and 
the IRS informed her that she was being suspected of 
structuring. It took her almost a year and a half to get her 
money back. Even so, she had to close her restaurant because 
she could not afford to continue operating.
    Why would it take a year and a half to get her money back, 
    Mr. KOSKINEN. It shouldn't take a year and a half. There is 
a limited, unfortunately, I think, too limited period of time 
for anyone whose assets have been seized to come directly to 
the U.S. attorney and the IRS and administratively make a 
claim. That timeframe is less than 45 days. So what happens 
generally is people make their claim in the legal proceedings, 
at which point we lose control of it, it becomes a legal case. 
In the courts, it takes much longer than it would otherwise, 
but there is no reason----
    Mr. MARCHANT. Once they seize that account, does the IRS 
have any burden of proof that they must provide to the person 
the money has been seized, or his or her attorney or 
accountant, is there any burden of proof that the IRS has to 
immediately provide to the taxpayer to justify the account 
being frozen?
    Mr. KOSKINEN. As noted earlier, we have to, an IRS agent 
has to have the matter reviewed by the U.S. attorney's office 
and a judge has to find that there is probable cause that there 
has been a criminal violation before the seizure takes place. 
Once the asset is seized, if it goes into the judicial 
proceeding--which I say takes place very quickly, there is a 
limited time in which you can do that and most people simply go 
to court--once there, then the government, represented by the 
Justice Department, has to prove by a preponderance of the 
evidence that the seizure was appropriate, that it was, in 
fact, the result of a violation of the criminal law.
    Mr. MARCHANT. So when does the burden to determine whether 
the money was seized lawfully, I mean whether the money seized 
was lawfully earned or not, when does that burden of proof have 
to be shown? Does it have to be shown to the judge before the 
money is seized or is it proved in a court case afterwards?
    Mr. KOSKINEN. We have to show probable cause to a judge 
before the seizure. And then in the court case, the government 
has to prove by a preponderance of the evidence that, in fact, 
the seizure was appropriate.
    Mr. MARCHANT. Thank you, Mr. Commissioner.
    Thank you.
    Chairman ROSKAM. Mr. Lewis is recognized.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Mr. Commissioner, thank you for being here today, and thank 
you for your great and good work. Can you tell us, when did the 
new policy come into place?
    Mr. KOSKINEN. Pardon?
    Mr. LEWIS. When did the new policy----
    Mr. KOSKINEN. The new policy, we reviewed the matter during 
last year. And in October, we instituted the new policy that if 
there was not evidence of illegal sourcing for the funding, 
forfeiture would not be taken.
    Mr. LEWIS. Why did the IRS change its policy?
    Mr. KOSKINEN. We started looking at it earlier last year 
because it turned out there was no uniform policy across the 
country. Different U.S. attorney's offices had different 
proceedings and different judges responded differently. In some 
cases, if there was not illegal sourcing, a seizure would not 
be allowed. In other cases, if there was no evidence of illegal 
sourcing, the seizure could still go forward. And after 
reviewing it, we decided the better policy, to some extent 
making sure that taxpayers get appropriately protected, the 
better policy if we are going to have a standard would be that 
we would only have asset seizures when there was evidence of 
criminal sourcing, a source of criminality for the funds 
themselves. The review took several months. In October, we made 
that policy announcement.
    Mr. LEWIS. Could you list for us some of the examples of 
exceptional circumstances?
    Mr. KOSKINEN. An exceptional circumstance would be, without 
illegal sourcing, would be large volumes of transactions. The 
case of $8,000 on a Friday and $2,000 on a Monday would not be 
that. But if every day someone was magically showing up with 
$8,000 or $9,000 regularly during the course of a week and that 
took place----
    Mr. LEWIS. So if there is some pattern?
    Mr. KOSKINEN. If there is some long-term pattern. And, 
again, I would stress that that will not be a decision made by 
an agent in the field. That will only be a decision made by a 
senior executive at the IRS in our Criminal Investigation 
    We do not expect that to happen often. But it would be 
where there is a unique circumstance, where there is a regular 
pattern of violations and it is clear that while we can't tell 
initially what the source of those fundings is, whether it is 
illegal or not, the fact that it is occurring every day over a 
period of time would be a significant change and an exceptional 
circumstance from the cases that we are talking about here 
    Mr. LEWIS. Mr. Commissioner, you heard me say that I am 
deeply concerned about how the budget cuts have affected the 
IRS in this filing season. Will you tell us what impact the 
budget cuts are having?
    Mr. KOSKINEN. Well, the impact is of great concern to us, 
is on both sides of what I call the compliance coin. On the one 
hand, we now have 5,000 fewer revenue agents, officers, and 
criminal investigators. So our enforcement of many crimes, tax 
evasion, collection is down.
    But equally significant and important to overall compliance 
rates is that because we have 13,000 fewer people, headed 
towards having 15,000 or 16,000 fewer, we simply don't have 
enough people to answer the phone. So our level of customer 
service in this, a very complicated filing season is the worst 
it has been in years. And the people who care most about that 
are the IRS employees who want to provide information and 
support to taxpayers.
    But the level of our service in this filing season, which 
is going very well, I am delighted to report, thanks to the 
good work of our employees, the level of service is still below 
50 percent. That means your chances of getting through to a 
live assister are less than 50 percent. And that is just a 
miserable level of service and one that we don't think 
taxpayers deserve.
    And there is nothing we can do. We have been as efficient 
as we can. We have moved as many people to the Web site as we 
can. We have apps if you want to know about your refund, if you 
want to get transcripts, if you want to actually make a 
payment, you can do that all online. We are trying to be as 
efficient as we can and move as many people there as we can, 
but the net result is we still have far more people calling 
than we are able to handle appropriately.
    Mr. LEWIS. Thank you, Mr. Commissioner.
    And I yield back, Mr. Chairman.
    Chairman ROSKAM. Thank you, Mr. Lewis.
    Mr. Kelly is recognized.
    Mr. KELLY. Thank you, Mr. Chairman.
    Mr. Koskinen, good to see you.
    You know, in my life, running a small business and then 
trying to comply with everything that we have to do, one of the 
things that I have always worried about is--and you made 
reference to your working with less money and it is making it 
harder for you to serve people. The fact that the Tax Code is 
so big requires having more people to try to help people 
navigate it.
    We talked a little bit about Ms. Hinder, $33,000 was seized 
from her. Maybe that is not that much to the IRS, but there is 
another person that will appear on the panel who had $900,000 
seized from them.
    In my business, having access to capital is critical, so 
when somebody can seize those assets based on their 
interpretation or their belief that you have been helping 
somebody launder money, there can be a devastating effect. I 
have always related having cash in my store to having blood in 
my body. Without that cash, you are dead.
    So when the IRS takes action, whether it is a seizure or an 
audit, but when you can seize somebody's assets based on 
somebody saying, ``you know what, I think these people are 
involved in something,'' you can kill them as a person, as an 
entity, as a business. Is that not true?
    Mr. KOSKINEN. That is true. But we don't do it just 
thinking about it.
    Mr. KELLY. No, no, no. The issue is solely, you are the 
judge and the jury when you decide to go after these folks.
    Mr. KOSKINEN. That is not true.
    Mr. KELLY. It is true.
    Mr. KOSKINEN. No, it isn't.
    Mr. KELLY. Mr. Commissioner, you and I have met before, and 
you told me at one time there are two types of people you look 
at when it comes to taxpayers, those that want to pay tax and 
those who do not want to pay tax. I would tell you that in the 
private sector there is nothing more chilling than any kind of 
communication from the IRS.
    First of all, we don't have access to capital. Once you 
seize those accounts, how would I go to my lender and say, 
``you know what, they seized my bank accounts, I still want to 
keep my business open, I haven't been found guilty of anything 
but it is under suspicion.''
    Now, I understand you walked us through how that works. 
However, the reality of it is, for Carole Hinders, who is she 
going to get to fight that battle for her? How is she going to 
stay open when you have seized her accounts? These are the 
exact people that we need to keep the country going forward. 
These are the people that supply all the coal for the furnace 
that heats the whole country.
    I don't understand this. How can you be guilty on a 
suspicion? This flies in the face of everything we are as a 
country. Have you ever been in that position where somebody 
could come in and seize your assets? It is a yes or no. If it 
hasn't happened to you, it hasn't happened to you.
    Mr. KOSKINEN. I am sure we are all in that position.
    Mr. KELLY. Have you actually been in it where somebody 
seized your assets because they think you may have been guilty 
of some wrongdoing?
    Mr. KOSKINEN. No.
    Mr. KELLY. Okay. Do you think it would be an overreach if 
somebody had that ability to do that to you?
    Mr. KOSKINEN. If they could do it on their own and without 
any evidence that I had done anything wrong, I think it would 
    Mr. KELLY. That is not the question. They haven't been 
found guilty of anything yet. This is only on the suspicion 
they may have done something wrong.
    Mr. KOSKINEN. As you say, I think it is important for the 
record to know we don't make that decision by ourselves. It 
takes the U.S. attorney and a federal judge to agree that there 
is probable cause.
    Mr. KELLY. I understand, but this is not the due process of 
law that we have. As individuals in this country, citizens are 
protected from an overreach by a government that can find them 
guilty without due process. The suspicion of guilt is one 
thing. The ability to shut down a business or a person, limits 
their access to capital, and put them in a bad position is 
another. If you have ever had to sit across from a lender and 
try to explain who you are and where you are and why you need 
them, they say, ``all your assets have been seized,'' is that 
correct? And you say, ``yes, they have, but.'' ``No buts, we 
can't help you.''
    Mr. KOSKINEN. Right. And I think it is an important issue.
    Mr. KELLY. It is not only important. I have got to tell you 
it is far beyond important. Important is dismissive. It is 
critical. We are killing these people and their businesses on a 
suspicion that they may have done something wrong. This flies 
in the face of everything this country was built on from day 
one. If you are going to sit there and tell me that somehow you 
went through a process that allowed you to seize assets of 
people who are getting up every morning, putting their feet out 
over the bed, going to work to put a roof over the heads of 
their children, food on the table, clothes on their backs, and 
getting ready for the future, but that is okay because we went 
through a process that allowed us to seize those assets. So we 
are going to find out if they are guilty or not.
    How long does that process take? How long would it take 
before I would find out if I am still allowed to be in business 
because the IRS says, ``you may be guilty of something, I am 
going to shut you down.'' What is the average time?
    Mr. KOSKINEN. I don't know what the average time is.
    Mr. KELLY. Okay. I will tell you what you would do if you 
were in business and somebody did that to you. I got to tell 
you, access to capital, access to cash, is the same as having 
access to keep your body running when you run out of blood. It 
is incredible that this organization can do that on a suspicion 
of wrongdoing, shut somebody down, seize their assets, and put 
them in a position where they can't possibly survive. You talk 
about waterboarding, this is waterboarding at its worst.
    Thank you. And I yield back.
    Chairman ROSKAM. Mr. Rangel is recognized.
    Mr. RANGEL. May the record indicate that I have the same 
amount of emotion that Mr. Kelly does if certainly something 
like this has happened. Let's see whether I can defend our 
country and the agency in any way possible.
    First of all, under this new policy change, nothing like 
this could probably happen again?
    Mr. KOSKINEN. Our hope is and our plan is and our 
expectation thus far is that nothing will happen like this.
    Mr. RANGEL. Second, under the existing law, there is 
nothing in the existing law that says there has to be criminal 
intent, the law?
    Mr. KOSKINEN. Actually the law passed by the Congress says 
that you don't have to have a criminal intent to violate the 
law. You simply have to be not providing information as 
required by the law.
    Mr. RANGEL. And so the judges and the assistant U.S. 
attorney said that if taxpayers, if there is no evidence of 
illegal sources or anything, still they would go through the 
process merely because the law said it was before you changed 
the policy?
    Mr. KOSKINEN. The policy was that it is a violation of the 
law to structure your assets and your deposits. And if you have 
structured your deposits under the law, it is a violation.
    Mr. RANGEL. And structured means that a consistency that is 
below $10,000?
    Mr. KOSKINEN. Correct.
    Mr. RANGEL. And from that, you infer that you can seize 
someone's property without showing any evidence that they 
intended to violate the law, that was the policy?
    Mr. KOSKINEN. That was the policy. That is the law 
actually. You have to have an intent to avoid the reporting 
requirements. You don't necessarily have to have an intent to--
    Mr. RANGEL. So you are trying to say that it is the 
Congress that enacted this law. That just doesn't make any 
sense at all that you should do this to anybody, anybody that 
has no criminal intent and for whatever reason wants to 
structure their deposits in a bank and there is no evidence of 
wrongdoing. That law to me is unconstitutional, unreasonable, 
and stupid. So the only way that you can do this is by having 
tax reform, I would think. Do you have any other ways to change 
this besides changing the policy?
    Mr. KOSKINEN. Well, as I say, we have changed the policy 
from our standpoint. Historically only in a third of the cases 
of investigations were there ever seizures to begin with, and 
the average of those seizures was well over $100,000. But the 
policy would say and does say and has been in effect since last 
fall that if there is no evidence of criminal sourcing----
    Mr. RANGEL. That is good and it makes me feel good. I hope 
it makes Mr. Kelly feel a little better.
    This never should have happened in the first place is what 
I am saying. And I hope you would agree that whether or not it 
was within the law or not, it is wrong without any criminal 
evidence to seize somebody's property merely because it falls 
within the four corners of the law because the law doesn't make 
any sense, there is nothing wrong in doing this. I am a former 
assistant U.S. attorney. Every case I have seen is people 
buying luxury cars, expensive jewelry, and a vendor putting in 
deposits of over $9,900 dollars, a bunch of crooks.
    Mr. KOSKINEN. Yes.
    Mr. RANGEL. Now we find a bunch of innocent people doing 
the same thing for non-illegal purposes and you are enforcing 
bad law.
    Mr. KOSKINEN. And we are actually making it clear that if 
you haven't done anything illegal----
    Mr. RANGEL. Well, you are making it clear now, 
Commissioner. But common sense and decency would say when the 
Congress screws up, we expect you people to come back to us and 
say this is not working. You have done this in policy. And 
there has to be some way that we can tell the people that have 
been victims of poor judgment that we regret that this 
happened. So let's move on and agree that we should reform the 
tax system.
    Thank you. I yield back the balance of my time.
    Chairman ROSKAM. Thank you, Mr. Rangel.
    Mr. Meehan is recognized.
    Mr. MEEHAN. Thank you, Chairman. Thank you, Mr. 
Commissioner, for being here today.
    You identified that you spoke to The New York Times and 
changed this policy publicly. What were the reasons for the 
changing of the policy?
    Mr. KOSKINEN. The changing of the policy, as I noted, 
earlier last year, as we began to look into the situation, it 
was clear that there was no single policy and that if we were 
presenting evidence in some jurisdictions to U.S. attorneys and 
courts there would be a seizure, in other jurisdictions, there 
wouldn't. So we looked at the entire question of how this law 
is applied and came up with the decision that the right balance 
between law enforcement and trying to protect taxpayers was 
when there was no evidence that the funds were from illegal 
sources there would be no seizure.
    Mr. MEEHAN. So that is the inconsistency you are trying to 
say that existed?
    Mr. KOSKINEN. We decided we needed to have a standard 
policy at the IRS in when we would request seizures, and the 
policy would be we would not request a seizure if there was no 
evidence of criminal sourcing.
    Mr. MEEHAN. Do you think there were abuses of this policy 
in the cases that you oversaw?
    Mr. KOSKINEN. I am not familiar with individual cases, but 
I take Mr. Kelly's and everybody's concern that if a business 
has legitimate reasons for depositing cash regularly in amounts 
that avoid otherwise the Bank Secrecy Act, if they have got 
legitimate reasons for that, then they should not be subject to 
seizures. And that is our policy.
    Mr. MEEHAN. I can see the value in a program like this as a 
former prosecutor. But you can also see the ease with which 
this can be manipulated to get ends that are desired--because 
it is an easier way to go.
    Probable cause, you mentioned this issue a couple of times, 
what is the underlying probable cause that is required to be 
shown before assets can be seized?
    Mr. KOSKINEN. The underlying probable cause at this point 
would be we have evidence that there is criminal sourcing 
    Mr. MEEHAN. So now it is going to be criminal sourcing. 
What was the standard of probable cause before this new policy 
was put in place?
    Mr. KOSKINEN. Probable cause before would have been----
    Mr. MEEHAN. Just the simple act of structuring?
    Mr. KOSKINEN. Structuring, exactly.
    Mr. MEEHAN. Okay, structuring alone. So this does not tie 
back. Now we are going to make sure that it is a two-step 
process; that it includes at the initial determination that 
there has to be some kind of evidence of criminal sourcing 
presented to the judge by the U.S. attorney before a seizure 
that will be initiated?
    Mr. KOSKINEN. That is correct.
    Mr. MEEHAN. Okay. Are you aware that in 2012--for the 
statistics that I have seen--statistics show there have been 
five times as many structuring-related seizures as there were 
in 2005, five times as many. Half of the total were for less 
than $34,000. Does that look to you like the kind of drug-
related or terrorist-related incidents that we are trying to 
    Mr. KOSKINEN. The average of the seizures in the evidence, 
the data I have, the average is well over $100,000.
    Mr. MEEHAN. That is the average because you have some big 
seizures, but half the cases involve less than $34,000.
    Mr. KOSKINEN. And under this policy, if that $34,000 had no 
indication it was coming from criminal violations, there would 
be no seizure.
    I would note for the record, 60 percent of the cases when 
there is a seizure nobody shows up. Which means that in 60 
percent of the cases there are criminals who don't even want to 
see the light of day and are happy to give up the money. And 
part of the reason for the seizure is to try to, in effect, 
undercut the ability of organized crime, drug dealers and 
    Mr. MEEHAN. Weren't 80 percent of these cases civil cases? 
They weren't criminal, 80 percent were civil.
    Mr. KOSKINEN. Yes, because to have a criminal case, you 
have to have a criminal defendant. And, as you know, in drug 
cases, in terrorist financing cases and other times, oftentimes 
we can't get the individual. So we are stuck with the civil 
procedure and forfeiture, which is against the asset.
    Mr. MEEHAN. What do you mean we can't get the guy so we are 
stuck with the civil? I mean, this is due process. This is 
    Mr. KOSKINEN. We will seize the asset in many cases and the 
owner of that asset will disappear, will not show up. Sixty 
percent of the cases, the owner of the asset does not show up. 
That means in 60 percent of the cases one could surmise that 
they had a good reason for not showing up, that they, in fact, 
did not want to subject themselves to further legal 
    Mr. MEEHAN. We are going to hear from Mr. Clyde later. I 
went through some of his testimony. In the course of it, he 
showed numerous times that they were being leveraged, a 
$900,000 seizure of his business was negotiated down numerous 
times, which by the final time the IRS came to him and said you 
will settle for $109,000.
    Mr. KOSKINEN. The IRS did not do that. The negotiations on 
settlement, once it goes to court, are within the realm of the 
Justice Department and the U.S. attorney. The only time we 
settle is if in that window of administrative proceedings, 
before you have to go to court, you come to see us, you will 
settle with us. And it is a handful of cases.
    Mr. MEEHAN. So you are putting this on the U.S. attorney. 
That may be. Here is my problem with this because, again, we 
are using the system. And this is going to be his testimony. I 
read the testimony. He said they came back and they offered to 
settle for only $109,000, and they reminded him this case could 
easily become a criminal case against him personally during 
    Now, you know it is unethical to leverage a civil case by 
threatening a criminal prosecution.
    Mr. KOSKINEN. That is correct.
    Mr. MEEHAN. That is correct.
    Mr. KOSKINEN. And I don't think that is an IRS agent that 
did that.
    Mr. MEEHAN. Is Mr. Clyde lying when he is testifying that 
this happened to him?
    Mr. KOSKINEN. Does he specify that it was an IRS agent that 
told him that?
    Mr. MEEHAN. He specifies that he was leveraged that if he 
did not settle for $109,000 this could be a criminal case.
    Mr. KOSKINEN. It is exactly as you say. We would not 
threaten him. And I don't think that is an IRS agent.
    Mr. MEEHAN. Thank you, Mr. Koskinen. I appreciate it.
    Chairman ROSKAM. Mr. Crowley is recognized.
    Mr. CROWLEY. I think the big distinction then, 
Commissioner, would be whether it was the prosecutor or the IRS 
agent, agent of the IRS who was making that innuendo, which is, 
I think, a very valid point.
    Commissioner, welcome. But I think you recognize by the 
angst on both sides of the aisle that this is a bipartisan 
issue of concern of overreach by the IRS. And while we haven't 
officially heard from the witnesses on panel two, I have read 
their testimony, it is horrifying to me as an American.
    I think most Americans, if not all Americans, who read 
those stories about the IRS, as well as the U.S. attorney and 
federal judges who have the ability to seize Americans' bank 
assets for no legitimate reason, all the while never charging 
them with a crime. That policy robbed hard-working people of 
their cash without any proof of crime. And whether you are 
Democrat or Republican, green, purple, red, or blue, it is 
    The people before us on panel two are victims. They are not 
criminals. We all recognize the IRS is a powerful agency. And 
at times, that power is justified to crack down on what Mr. 
Meehan was speaking about in terms of terror financing or drug 
laundering or tax evasion itself. But that power must be 
measured and used appropriately to get to criminals and not 
trap innocent American citizens.
    That is why I hope that these civil asset forfeitures 
against people who committed no crime appears to be something 
of the past. Could you explain the changes you undertook as 
Commissioner on civil asset forfeiture?
    Mr. KOSKINEN. As I noted, the changes since I have been 
there, we looked at reports that had come in about varying 
policies across the country, reviewed the entire policy, and 
decided that the appropriate policy was if we didn't have 
evidence of criminal sourcing for the funding there would not 
be a seizure. And there have been cases, some jurisdictions 
where that was already the policy. Other jurisdictions, it was 
not the policy and there were seizures. And I am sure some of 
the people you will hear from were in those jurisdictions.
    We decided the right policy was to have a uniform policy 
and not have seizures unless there is evidence that you, in 
fact, were involved in criminal activities. We will continue to 
investigate, as we will, evidence, but we will actually 
proceed, and in some cases it has turned out to be a very good 
development of the policy because instead of simply relying on 
a seizure to begin with, we have actually uncovered with 
further investigation more criminal activity.
    So the policy decision was to have a uniform policy and to 
make this decision that it would be uniform, that if you 
weren't engaged and there was no evidence you were engaged in 
criminal activities and the source of funds was from criminal 
activities, you would not be at risk of a forfeiture.
    Mr. CROWLEY. I do hope that that policy, as you said, is 
effective. And if not, I think the Congress will continue, we 
will continue to have oversight regardless.
    I would like to get your thoughts on the bipartisan 
legislation written by Sandy Levin, the ranking member of the 
committee, to allow effected taxpayers the right to a probable 
cause hearing within 14 days or have the IRS return the seized 
funds. What are your thoughts on that?
    Mr. KOSKINEN. As I say, I think the ability to come in, in 
an administrative way, without having to hire a lawyer and go 
to court, that timeframe under the law is in the range of 30 
days. And I think that is too short. I think that we ought to 
give people the chance to come in, before they have to hire a 
lawyer and go to court, to make their case. As I say, hopefully 
we won't have these cases going forward. And so I have no 
problem as a general matter with making sure people----
    Mr. CROWLEY. More a matter of time.
    Mr. KOSKINEN. My concern is whether 14 days is going to be 
too short even for the taxpayer. But if it were some reasonably 
short period of time, I think that taxpayers ought to have a 
chance to show up. As I say, 60 percent of them historically, 
even under the old policy, didn't show up, but that was an 
indicator of what they were about. But I agree totally that 
these are important matters. It is important to make sure that 
innocent taxpayers are not dragged into a system inadvertently. 
And if they, even with our policy, if they think they have been 
wrongly included, they should have a prompt way to be able to 
raise that issue.
    Mr. CROWLEY. I appreciate it, Mr. Chairman. I have limited 
    Like many of my constituents, I read with disgust and shock 
the stories reporting the IRS rehired a number of former 
employees who had troubling work records during their previous 
stint at the IRS. Please tell me that these stories are 
incorrect, that they have not been rehired.
    Mr. KOSKINEN. Historically, in the 2009 to 2012 area, there 
were a handful of people with prior employment problems, 
primarily seasonal employees--we hire 8,000 to 10,000 seasonals 
a year--who had prior issues. We have agreed with the IG's 
report on this, and I have had meetings in the last few weeks 
to make sure that we look at very carefully, particularly those 
who have been willful violators of the Tax Code, to ensure that 
we consider that before any hiring decision is made. And so the 
handful of cases the IG found I think will not occur. And those 
were a handful out of the 73,000 hired over those several 
    Mr. CROWLEY. Mr. Chairman, let me just say for the record 
that I appreciate the response by the Commissioner. But I do 
think that more investigation of this is warranted. And I would 
associate myself with your letter dated February 6 asking about 
current hiring practices at the IRS. And with that, I yield 
back the balance of my time.
    Mr. KOSKINEN. And we are responding and we will respond 
promptly to that letter.
    Mr. CROWLEY. Thank you, Mr. Commissioner.
    Chairman ROSKAM. Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman.
    I have a few specific questions about the new policy. The 
new policy that is dated October of 2014?
    Mr. KOSKINEN. October, yeah, 2014.
    Mr. HOLDING. October 17.
    Mr. KOSKINEN. The date is actually October 17, yes.
    Mr. HOLDING. Okay. Is it retroactive to cases that were in 
the works pending beforehand?
    Mr. KOSKINEN. No. It is not retroactive in the sense that 
if there are cases before that, they are in the judicial 
process, and they will be resolved however the judicial process 
would resolve them.
    Mr. HOLDING. Right. So there could be plenty of legally-
sourced structuring cases prior to the date of your new policy. 
Do you think it is fair that people who are prior to your 
policy are being treated differently to folks subsequent to 
your policy?
    Mr. KOSKINEN. Well, I think that, as I say, our hope is 
going forward no one runs into this problem.
    Mr. HOLDING. But is it fair to the people who happen to 
have been caught in the web before you changed the policy?
    Mr. KOSKINEN. Well, as I say, at this point, they are, as 
noted, and it is unfortunate if it takes that long, but they 
are in a process that allows them through the courts to raise 
their challenges and their defenses.
    Mr. HOLDING. The U.S. attorney could step in and withdraw 
the case.
    Mr. KOSKINEN. They could do that.
    Mr. HOLDING. There is plenty of precedent for that. The 
crack resentencing guidelines for example, they decided, on a 
department basis to apply these things retroactively. Would you 
advocate applying your policy retroactively.
    Mr. KOSKINEN. I always try to be careful not to tell 
another agency what their policy ought to be. But it is, I 
think, appropriate for the Justice Department to consider that.
    Mr. HOLDING. Well, you are telling them what their policy 
ought to be with your new policy.
    Mr. KOSKINEN. I was going to make that point earlier. I 
should stress there are a wide range of federal agencies, the 
Drug Enforcement Agency, the Justice Department, the FBI, and 
others who have seizure authority. Our policy, all we can do is 
make a policy for the Internal Revenue Service. My 
understanding is the Justice Department is looking at our 
policy in terms of applying it itself in other cases. But I 
can't tell you that our policy will be the policy other 
agencies follow. It is just the policy we think is right, that 
draws the right balance.
    Mr. HOLDING. To follow up on one of your answers to Mr. 
Meehan, are you saying that under the new policy that you have 
to aver that we have probable cause to believe that an illegal 
act is taking place other than simply the act of structuring?
    Mr. KOSKINEN. Yes.
    Mr. HOLDING. Okay. You are sure about that?
    Mr. KOSKINEN. That is what I am advised by the people who 
run the Criminal Investigation Division.
    Mr. HOLDING. I have taken a look, at a case from North 
Carolina, from my former prosecutorial district, after your 
policy change. I have read through the affidavit and the 
associated documents. There is no allegation of illegal 
activity other than the act of structuring. I believe if you 
looked at cases, there has been no change in practice that 
would require the allegation of some illegal act.
    Mr. KOSKINEN. If that case exists, then it is not following 
the policy I have been advised. I had lengthy meetings with the 
senior leadership of our Criminal Investigation Division which 
handles this and have been assured that that is the policy, 
that people have been trained and advised about it. So if 
somebody is not following the policy----
    Mr. HOLDING. Do you know how your policy----
    Mr. KOSKINEN. Pardon?
    Mr. HOLDING. Do you know how your policy is being 
communicated to the U.S. attorney's offices?
    Mr. KOSKINEN. The U.S. attorney isn't the one that is 
making the decision for us. We present the case----
    Mr. HOLDING. Well, the U.S. attorney is the one who takes 
it to court for you. I mean, that is your gatekeeper to getting 
due process.
    Mr. KOSKINEN. Right, and so what we have done is had the 
policy--it has been a public policy--people, we have announced 
it, it has been in the press. We would not go to the U.S. 
attorney under this policy unless we had the case that fit the 
    Mr. HOLDING. So do you think that your new policy creates a 
situation where if I am a claimant, I am reading through the 
affidavit against the sum of money, and it does not aver a 
criminal act on my part, that I can then go to the judge and 
say this is an insufficient affidavit here because it doesn't 
allege any criminal activity other than the act of structuring?
    Mr. KOSKINEN. My understanding is that private citizens 
should have the ability to do that. Our policy is that we would 
    Mr. HOLDING. So you have created a defense, your policy 
creates a defense, is what you are saying?
    Mr. KOSKINEN. Yes.
    Mr. HOLDING. How do you anticipate that the----
    Mr. KOSKINEN. I guess I should answer to be careful. If you 
are structuring to avoid the reporting requirement, it is still 
a crime.
    Mr. HOLDING. I understand that, but what you are saying, 
under your new policy----
    Mr. KOSKINEN. Under our policy, we are not going to seize--
    Mr. HOLDING [continuing]. I have a defense.
    Mr. KOSKINEN. To the seizure----
    Mr. HOLDING [continuing]. To that seizure----
    Mr. KOSKINEN [continuing]. That we have not provided any 
    Mr. HOLDING [continuing]. By saying that you haven't 
alleged, you haven't presented any probable cause that there is 
an underlying criminal act on my part other than structuring.
    Mr. KOSKINEN. Structuring, that is correct. That is our 
    Mr. HOLDING. All right. Mr, Chairman, I yield back.
    Chairman ROSKAM. Mr. Smith is recognized.
    Mr. SMITH. Thank you, Mr. Chairman.
    Commissioner, I would like to start out reading the IRS 
mission statement. It says that the IRS' mission is to provide 
America's taxpayers top-quality service by helping them 
understand and meet their tax responsibilities and enforce the 
law with integrity and fairness to all. Your mission is not to 
enforce all laws, it is to enforce tax laws, correct?
    Mr. KOSKINEN. Correct. Although we do cooperate on task 
forces with drug dealing and others at the request of other 
    Mr. SMITH. You don't enforce drug laws, you cooperate.
    Mr. KOSKINEN. We cooperate.
    Mr. SMITH. You enforce tax laws.
    Mr. KOSKINEN. We enforce tax laws.
    Mr. SMITH. Not banking laws?
    Mr. KOSKINEN. Banking laws to the extent that bank 
security, if there are laws that provide us or require us to, 
in fact, be aware of violations of the law. But basically our 
primary function, as I said, we are the only agency----
    Mr. SMITH. What does that mean?
    Mr. KOSKINEN [continuing]. That enforces tax laws.
    Mr. SMITH. So you don't enforce banking laws? You just look 
at banking laws?
    Mr. KOSKINEN. Yes. We are aware of banking laws. We are on 
task forces because we are a law enforcement agency. We have 
law enforcement powers. And we participate in joint task forces 
at the request of other agencies because our agents are very 
good at tracking money.
    Mr. SMITH. Okay.
    Mr. KOSKINEN. We probably are the best people to deal with 
complicated financial structures of anybody in the government.
    Mr. SMITH. All right.
    Mr. KOSKINEN. So U.S. attorneys are forever asking us to be 
involved in cases.
    Mr. SMITH. I get it.
    I have looked at the Treasury Forfeiture Fund 
Accountability Report for 2013, and it appears that the IRS 
cases that the report touts are some that are related to your 
mission, such as tax evasion and unlawful tax shelter cases. 
But structuring payments is not a tax crime, it is a banking 
law, correct?
    Mr. KOSKINEN. It is a banking law, the Bank Secrecy Act, 
    Mr. SMITH. Okay. So how often do you find tax evasion cases 
from structuring cases?
    Mr. KOSKINEN. I can't give you a number. But any number of 
people are in business structuring their deposits so we don't 
get reports of how much cash they have. The highest level of 
underreporting in the tax gap, which I will testify about this 
afternoon, is small and medium-sized businesses where we have 
no other third-party reporting historically.
    Mr. SMITH. So you have no number?
    Mr. KOSKINEN. I have no numbers about what percentage of 
the cases we are dealing with are tax evasion, other than that 
is the primary purpose of our activities.
    Mr. SMITH. So the primary purpose of your activities is 
looking at structuring to find tax evasion, but you have no 
idea of what amount or number of those cases are, is that what 
you are saying?
    Mr. KOSKINEN. Which ones turns out to be tax evasion cases 
as opposed to drug cases or terrorism cases, no, because we 
actually are involved in those cases as well. But I can find 
out if we can get you that data, and we would be happy to 
provide it.
    Mr. SMITH. I think that would be data the committee would 
    Mr. KOSKINEN. We would be delighted to get you the data 
about how the cases break down.
    Mr. SMITH. Okay. So is the IRS devoting any time to 
enforcing banking laws at all?
    Mr. KOSKINEN. Yes. As I say, we participate at the request 
particularly of U.S. attorneys and the Tax Division of the 
Justice Department and others in a range of cases. We are 
involved in money laundering cases, we have been involved in 
drug cases, we have been involved in terrorist financing cases 
at the request of various agencies because we have a very 
skillful and qualified set of criminal investigators.
    Mr. SMITH. So you have been involved in some drug cases?
    Mr. KOSKINEN. Yes.
    Mr. SMITH. What is your involvement in any structuring 
cases in the State of Colorado?
    Mr. KOSKINEN. I don't have that data.
    Mr. SMITH. I would be very interested and I think the 
committee would be interested to see if the federal law is 
being enforced under the structuring in the IRS Code.
    Mr. KOSKINEN. I would be happy to. Again, the data would 
show last year we had 146, the last fiscal year, 146 seizures. 
So it is not as if we have thousands of these cases. But I 
would be delighted to get you the data to the extent we have it 
on Colorado.
    Mr. SMITH. Out of those 146 cases, were any in the State of 
    Mr. KOSKINEN. That I don't know. But I will get you the 
    Mr. SMITH. I would like to have that.
    Thank you, Mr. Chairman.
    Chairman ROSKAM. Representative Noem.
    Mrs. NOEM. Commissioner, it is important to set goals for 
an agency. I believe that it is important. Do you believe that 
that is important, to have goals as well?
    Mr. KOSKINEN. Yes.
    Mrs. NOEM. I have been reading through your Forfeiture Fund 
annual report, and it is interesting to me that the IRS has set 
its goals based on the number of seizures, based on the size of 
seizures, and based on the amount of money in seizures.
    Mr. KOSKINEN. That is not a goal of the IRS. In fact, the 
law prohibits us to have goals tied to actually collections. So 
none of our employees are measured by the dollars they collect.
    Mrs. NOEM. Well, that is the concern that I have, because 
based on my evaluation of the report and the fund is that that 
is what the goals of the IRS are based upon, and that concerns 
me if you are going to be basing it on those metrics.
    Mr. KOSKINEN. That is a report from the Treasury 
Department. That is not an IRS fund. We do not control that 
    Mrs. NOEM. But the data would be the same. I mean, the data 
    Mr. KOSKINEN. We have volumes of data, some of which I am 
going to provide to this committee, about the number of cases, 
the amount of seizures. But those are not goals that are 
measured for performance of our agents. Those are the results 
of our activities.
    Mrs. NOEM. So could you clarify for me then does the IRS 
have any goals that would indicate it is going after lawfully 
earned money?
    Mr. KOSKINEN. We have no goals at all that would tie 
anybody's performance, including the agency's performance, to 
collections under any of those activities.
    Mrs. NOEM. Are your agents motivated at all by goals set by 
the agency to put points on the board?
    Mr. KOSKINEN. None at all. It is illegal for us to have 
goals that cause any agent and any IRS employee anywhere in the 
organization to have a goal tied to collections.
    Mrs. NOEM. Is part of their evaluation for doing their job 
based on any kind of dollars of seizures that they have 
produced, by seizures that they have been a part of, or the 
size of those seizures? Is that a part of their evaluation as 
their work as an agent?
    Mr. KOSKINEN. That is a very important question. I am glad 
you asked it. It is never a part of their evaluation. We are 
across the board prohibited from, whether it is a revenue 
agent, a collection agent, somebody sending you a notice, we 
are prohibited from having anybody rewarded on the basis of the 
dollars they collect. That is important for taxpayers to 
    Mrs. NOEM. So even if an agent is in a situation where they 
have seized an amount of dollars but yet they settled for less, 
that is not going to be a part of their evaluation as to doing 
their job duties?
    Mr. KOSKINEN. A, that settlement is not an IRS settlement. 
B, even if it were, it would not be part of their evaluation.
    Mrs. NOEM. Okay.
    Mr. KOSKINEN. We settle cases. We have revenue agents 
negotiating with taxpayers across the country. What their 
settlements are is never toted up in terms of performance and 
never measured in terms of performance.
    Mrs. NOEM. Your Criminal Investigation Division has field 
offices, correct?
    Mr. KOSKINEN. Across the country.
    Mrs. NOEM. Are they evaluated based on what kind of 
seizures they have participated in and investigated in?
    Mr. KOSKINEN. Absolutely not.
    Mrs. NOEM. How are they evaluated?
    Mr. KOSKINEN. They are evaluated on a set of normal 
performance measures in terms of their activities.
    Mrs. NOEM. So if they are not performing well and they are 
not getting very many seizures or aren't producing very many 
seizures, is that reflective on the work that they are doing 
and are they then motivated to go after easy cases or easy 
    Mr. KOSKINEN. You have to understand the seizure 
investigations are about 5 percent of the work of the Criminal 
Investigation Division and about a third of those result in 
seizures. So in two-thirds of our investigations there is no 
seizure. And the investigations totally are about 5 percent of 
their activity.
    So we are involved with identity theft, tracing criminals. 
We have thrown 2,000 people in jail for, thanks to cooperation 
with the Justice Department who prosecutes those cases, for 
identity theft. So the vast majority of their time is not spent 
on seizures or on those investigations.
    Mrs. NOEM. See, what concerns me about your new policy is 
it says that there could be exceptional circumstances that 
would change the policy if that was necessary. So if they are 
short on goals, if there are not many seizures happening, it 
could easily be declared that there are exceptional 
circumstances that could be utilized to raise those number of 
seizures and the amount of dollars that would be captured.
    Mr. KOSKINEN. The number of seizures is not a performance 
goal. So they have no incentive to do that. The second point to 
remember is no agent and no field office has the ability to 
make that determination. It is made by a senior executive at 
headquarters in the Criminal Investigation Division to make 
sure that they really are exceptional circumstances to change 
the policy.
    Mrs. NOEM. And is that written policy that every agent and 
every member of the Criminal Investigation Division team would 
know and be very clear of?
    Mr. KOSKINEN. Every agent has been advised about that, it 
is being put into our Revenue Manual that everybody follows. 
Once that policy was initiated last fall, it was distributed 
and shared throughout the agency. Every agent should be aware 
of that policy.
    Mrs. NOEM. So to your knowledge, there has been no 
evaluation processes that have been gone through where seizures 
were discussed or talked about or even the settlements that 
resulted from those seizures.
    Mr. KOSKINEN. Settlements and dollar. As I say, it is 
illegal and I think it is appropriately illegal for us to 
measure anybody's performance by their collection activity.
    Mrs. NOEM. Thank you, Mr. Commissioner.
    I yield back.
    I yield back.
    Chairman ROSKAM. Mr. Johnson is recognized.
    Mr. JOHNSON of Texas. Thank you, Mr. Chairman.
    Thank you for letting me join you today.
    Mr. Commissioner, welcome. I am here to try to give voice 
to my constituents, who are angry over the President's 
unconstitutional Executive amnesty. Here is the truth of the 
matter: President Obama's Executive amnesty isn't just about 
immigration; it is about taxes also. That is what I want to ask 
you about today.
    This is what the President had to say back in November when 
he announced his Executive amnesty: Quote, ``Now, here is the 
thing, we expect people who live in this country to play by the 
    The President later on said that among the requirements for 
getting amnesty is, quote, ``you are willing to pay your fair 
share of taxes.''
    Mr. Commissioner, I have some questions regarding the 
Earned Income Tax Credit, a refundable tax credit that can 
result in thousands of dollars in cash back from the IRS. First 
question, isn't it true that in order to claim the EITC, the 
tax filer, along with the dependents, must provide a Social 
Security number, yes or no?
    Mr. KOSKINEN. That is correct.
    Mr. JOHNSON of Texas. So, in other words, no number, no 
    Mr. KOSKINEN. That is also correct.
    Mr. JOHNSON of Texas. Just to confirm, if you are here 
illegally in the United States, you can't get a Social Security 
number; is that true or false?
    Mr. KOSKINEN. That is also true, but you can file taxes, 
which hundreds of thousands of illegal immigrants do.
    Mr. JOHNSON of Texas. Isn't it another requirement of the 
EITC that income must be earned, yes or no?
    Mr. KOSKINEN. Yes.
    Mr. JOHNSON of Texas. So, in other words, one needs to work 
in order to be eligible for EITC. So I think we have made it 
clear that the EITC is only for those who can legally work in 
the United States. However, isn't it true that President 
Obama's Executive amnesty will allow some who have been here 
illegally to get Social Security numbers? Yes or no?
    Mr. KOSKINEN. They can do that, but the law--EITC and the 
law in general about working is we encourage--the law 
encourages and our process encourages illegal immigrants to pay 
taxes. And as I say, we have almost 700,000 ITINs, as they are 
called, out there, and people illegally in the country have 
been paying taxes for some time.
    Mr. JOHNSON of Texas. But with the Social Security number, 
they can claim EITC?
    Mr. KOSKINEN. That is correct.
    Mr. JOHNSON of Texas. Okay. I heard you say last week that 
an illegal immigrant who gets a Social Security number, thanks 
to President Obama's Executive amnesty, can actually claim EITC 
for years in which he was illegally working in the United 
States by filing amended returns. Is that correct?
    Mr. KOSKINEN. That is correct. They would have to have been 
working in those years. As you noted, you can only get the EITC 
if you are working. The law doesn't say ``legally working.'' 
The law simply says it is tied to people working. So if you 
have not worked in the past, you won't be eligible for EITC, 
whether you got a Social Security number or not.
    Mr. JOHNSON of Texas. Well, say such an individual gets a 
Social Security number in February of this year, what is the 
maximum Earned Income Tax Credit that this individual can get 
if he files his return, including amended returns, as per the 
statute of limitations, by April 15?
    Mr. KOSKINEN. If you are a single person, the maximum you 
can get is in the range of about $600. The maximum you can get 
if you are a family with three children or more is close to 
$6,000. So if you are an individual worker, you would get $600 
this year. And if you had worked for the previous 3 years, you 
could file an amended return and get another $1,800.
    Mr. JOHNSON of Texas. The Joint Tax Committee tells us that 
individuals could get a total of $23,800 for the years 2012 
through 2014.
    Mr. KOSKINEN. You would have to be married, have more than 
three children. And if you were filing an amended return and 
had worked for those 3 years, you would be able to get that 
    Mr. JOHNSON of Texas. Well, the truth is, I say thanks to 
President Obama's amnesty, illegals will be getting thousands 
of dollars from the IRS. I feel like that is outrageous, and it 
is wrong. It is not fair. It is not right.
    So let me make it clear, I represent hardworking, law-
abiding Texas taxpayers in my district. I took an oath to 
support and defend the Constitution, and I think these amnesty 
rewards--and that is what they are--need to be stopped.
    Thank you, Mr. Chairman.
    Mr. KOSKINEN. Thank you.
    Chairman ROSKAM. Commissioner, you mentioned to Mr. Holding 
that the new policy involved a defense. Did you mean a legal 
defense when you said that?
    Mr. KOSKINEN. Well, what I meant was--you know, I am not a 
practicing lawyer; I haven't been for some time--is that our 
policy is that if there is not evidence of illegal sourcing, we 
cannot establish, will not try to establish probable cause. So 
    Chairman ROSKAM. I understand that, but just to be clear, 
that gives the IRS all the ability to take the initiative. In 
other words, a defendant is not, based on that policy 
statement, able to come in and assert, ``Hey, the New York 
Times reported that the IRS isn't going to do this anymore.'' 
Do you follow me? So it is not an actual defense. It is a 
    Mr. KOSKINEN. That is a good point. And as I tried to make 
clear as well, if the structuring has taken place, it is a 
violation of the law. We are simply saying that we are not 
going to go after an asset seizure if there is no indication of 
illegal activity. But the law still says that if you are 
consciously trying to avoid having a bank file above $10,000, 
what is called an currency transaction report, if you are 
trying to avoid that, that is a violation of the law that 
Congress has passed. We are simply saying, if there is no legal 
activities, we are not seizing your assets in that case.
    Chairman ROSKAM. So will you be amending the Internal 
Revenue Manual to reflect that?
    Mr. KOSKINEN. Yes, we have already instructed the agents, 
but we are going to change the Internal Revenue Manual and try 
to make sure across the country that that is a uniform policy 
and uniformly applied.
    Chairman ROSKAM. What is the timing on that, on the change 
to the Internal Revenue Manual?
    Mr. KOSKINEN. I saw some place an expectation that it is 
going to take years. I mean, it takes us--in fact, if it is not 
in the IRM, it will be there very quickly. Changing the manual, 
it does not take forever.
    Chairman ROSKAM. Okay. So you would expect that done in 
2015, for example?
    Mr. KOSKINEN. Certainly, well before the end of this 
quarter, if it isn't already done.
    Chairman ROSKAM. Excellent.
    One of the things that I think Mr. Weber said at the time 
for the change was an argument about an allocation of 
resources. So, theoretically, if the IRS were to get all the 
resources that it was requesting, that suggests that they could 
maybe go back to the legal source structuring. Can you assure 
us that that is not going to happen?
    Mr. KOSKINEN. I can assure that we have no intention of 
going back to seizing assets where there is legal source 
    Chairman ROSKAM. Okay. I want to contrast, to follow up on 
Mr. Kelly's line of inquiry a little bit, and that is to really 
highlight this power relationship and how it is unique in the 
seizure situation and contrast it with an audit, for example. 
You know, if a taxpayer gets notice from the IRS that there is 
an audit, it is a different process. Can you walk through the 
taxpayer protections that someone has for an audit that they 
don't have in a seizure, for example?
    Mr. KOSKINEN. Well, as I say, in the seizure, we should not 
forget, while it takes too long sometimes, there is a court 
process that is available to a taxpayer immediately. So they 
have the protections of the legal protection of the legal 
service and the court process. The fact, in some cases, it may 
take too long, I think, is an appropriate concern, but it is 
not as if they are out there without the ability to immediately 
go to court and make their case.
    But in the audit, to get to your point, we will send you a 
notice if we find there is a problem. I would stress that we do 
that on the basis of computerized analysis and matchings. We 
will send you a notice and say, Hey, we think there is an issue 
here. You then can write us back and say, yep, I agree and here 
and it is over, or you will say, nope, that is fine, and we 
will then get two or three correspondences by letter.
    As I said, if you hear from us for the first time by phone, 
you are not hearing from us. The phone scams going on and 
people making threats over the phone from the IRS are just 
that, scams.
    Chairman ROSKAM. But to that point, I mean, the audit is 
for a discrete period of time, isn't it?
    Mr. KOSKINEN. It is usually for a given year, and it is 
about a specific issue. We will then, if we can't by 
correspondence do that, we will then have a Revenue agent or 
officer will show up and set a meeting with you.
    Chairman ROSKAM. My point is, there is a lot more certainty 
with an audit. There is certainty as it relates to: What is the 
subject of this inquiry? What is the duration of the inquiry? 
The taxpayer can prepare for this, the taxpayer in this case 
would still have access to all their resources and everything 
until it is ultimately disposed of.
    Mr. KOSKINEN. Exactly. And if they disagree with us when we 
come to a final assessment, they can go through our appeals 
process and then they can go to court. So there are----
    Chairman ROSKAM. So you can understand then how somebody 
feels fundamentally different about an IRS inquiry that looks 
and feels different. The seizure is fundamentally different. 
All the power is with the IRS. All the power to come in and 
say, ``There is something going on.''
    And I think part of what I want to draw your attention to--
and it was in your own testimony. In your written testimony, 
you said the purpose of these sorts of efforts is to disrupt 
and dismantle criminal enterprises. I mean----
    Mr. KOSKINEN. Correct.
    Chairman ROSKAM [continuing]. Without any question, there 
is nobody on this panel that is going to quarrel with the use 
of government power to disrupt criminal enterprises. Yet, the 
witnesses that are going to speak after you today are not 
criminals. They didn't do anything remotely related to the type 
of enterprise that you were citing in your testimony.
    I am going to read to you from congressional testimony from 
the Department of Justice Head of Asset Forfeiture, the Asset 
Forfeiture Fund. He said this about the forfeiture law: 
``Forfeiture undeniably provides both a deterrent against crime 
and a measure of punishment for the criminal. Many criminals 
fear the loss of their vacation homes, fancy cars, businesses, 
and bloated bank accounts far more than the prospect of a jail 
    But take, you know, Mrs. Hinder's story. There is nothing 
remotely related to that type of criminal activity in Mrs. 
Hinder's story, or in the witnesses that we are going to hear 
from today, Mr. Clyde or Mr. Hirsch or Mr. Sowers. So you have 
an opportunity here before these people, would you, on behalf 
of the IRS, be willing to apologize to them for the way in 
which they have been treated and working forward, even re-
engaging with Mr. Holding's inquiry about doing your best to 
influence the U.S. attorneys in these cases? Would you be 
willing to apologize to these people on behalf of the IRS?
    Mr. KOSKINEN. Well, I am not allowed to know any of the 
details of individual cases, which is appropriate, so I can't 
talk about individual cases. I can assure you----
    Chairman ROSKAM. But you have notice about who our 
witnesses are. So I am not asking you to disclose anything, but 
you know their stories are public and they have been aggrieved. 
There is no question, right?
    Mr. KOSKINEN. There is no doubt about that, and I regret--
we take, as the mission statement says, very seriously our 
responsibility to taxpayers. The IRS does have a lot of 
enforcement powers. Even when you get a letter from us, it is 
not a fun day in your life, and we try to take and balance that 
as much as we can. We pulled together early last year a 
taxpayer bill of rights to try to let taxpayers know----
    Chairman ROSKAM. But, I mean, just so we are clear----
    Mr. KOSKINEN. So my sense is, going forward under this 
policy, we should not people in the circumstances of the 
witnesses following us. And that is the goal for the policy. To 
the extent that people have gotten wrapped up in this system 
and it has taken too long to resolve it, I regret that. That is 
a problem with the system. The question was asked, shouldn't 
there be a way for people to beable, however they got there, to 
come in quickly? Fourteen days may be a little short, but there 
ought to be a way efficiently for people to be able to come in 
and make their claim.
    As I say, 60 percent of the people just disappear who are 
the criminal types who we are chasing. But even with the 
policy, I do think that we ought to make sure that there is a 
way for people efficiently and quickly to be able to say, Well, 
okay, there is an allegation of criminal issues or, in fact, if 
some agent doesn't follow the policy, to be able to come in in 
a reasonable period of time and be able to make their case 
without hiring lawyers, without waiting for a year or 2----
    Chairman ROSKAM. Mr. Commissioner----
    Mr. KOSKINEN [continuing]. Are out of the question.
    Chairman ROSKAM. The IRS grabbed these taxpayers by their 
throat and squeezed them and squeezed them and squeezed them 
without mercy and nearly ruined them and made their lives 
miserable. Would you be willing today on behalf of the IRS to 
apologize to those taxpayers who were so abused?
    Mr. KOSKINEN. Anyone who actually was not engaged in 
structuring, was not engaged in processing and laundering 
illegally gained funds who ended up stuck in the system, some 
of it beyond our control, I think, deserve an apology.
    Chairman ROSKAM. And would that apology to them come today 
from you, the Commissioner of the IRS?
    Mr. KOSKINEN. I would apologize for anyone--not just in 
this area--anyone who is not treated fairly under the Code; I 
apologize to. Our goal is to make sure that taxpayers in all 
circumstances are treated fairly; they are treated the same 
way. It goes back to the issues about determinations for (c)4 
cases. I have said from the start, I apologized there for 
anybody who got caught up in those delays.
    Taxpayers have to be comfortable they are all going to get 
treated fairly, the same way as anybody else, no matter who 
they are, what organization they belong to, who they voted for 
in the last election. If you hear from us or if you are dealing 
with us, you should be comfortable you are going to be treated 
the same way and fairly as everybody else.
    And to the extent that the system makes mistakes, we should 
recognize those. And I am sorry the mistakes happened, if they 
happened, and I am happy to apologize to say if taxpayers have 
gotten themselves into a situation that is not their fault, 
they are not consciously structuring and avoiding taxes--there 
are a lot of people out there structuring to avoid letting us 
know what they earned. If they paid their taxes, they weren't 
doing anything consciously illegal and they got wrapped up in 
the system, that was a mistake and I apologize for that.
    Chairman ROSKAM. So, to be clear, it is your intention to 
have the new policy reduced to writing and part of the manual 
within the next quarter?
    Mr. KOSKINEN. It will be by the end of this quarter, and as 
I say, we have instructed agents already. This is a policy that 
has not been under--you know, quietly done. It has been in the 
press. We have talked to our offices. Again, with Congressman 
Holding, if somebody is not following that policy, that is a 
mistake. And while we don't hold people and measure their 
progress by how much they collect, we do measure their progress 
by following our policies. We have terminated a large number of 
employees every year who don't follow the policies and 
procedures because we take them very seriously.
    Chairman ROSKAM. Once it is in the manual, the new policy, 
for example, would it be within the discretion of the next IRS 
Commissioner? Let's say that person had a different disposition 
than you, would they have the authority to go back and revisit 
that and say, ``Look, we are going to move back into this 
legal-source approach?''
    Mr. KOSKINEN. You could do that.
    Chairman ROSKAM. So that would require a change in the 
statute to remedy against that?
    Mr. KOSKINEN. You have got me for the next 3 years, and 
then, thereafter, you might need to deal with the statute.
    Chairman ROSKAM. I just want to follow up on one thing that 
you mentioned to Mr. Meehan, and that was, you said that we 
don't settle. We, the IRS, are not involved in the settlement 
    Mr. KOSKINEN. Unless you come in in that short 
administrative period.
    Chairman ROSKAM. So what is that time period?
    Mr. KOSKINEN. Somebody will tell me, but it is about 30 or 
35 days. The statute is set up so you can come in 
administratively to the U.S. attorney and the IRS. Otherwise, 
it goes--you file a claim in court. A large number of people go 
straight to the court if they are going to do that.
    The number of cases in 3 years, I asked about that, I think 
we have had seven who showed up in that timeframe making the 
case. And, in fact, in five of them, it turned out there was 
evidence that there was a criminal violation, and so there was 
no settlement. So the discussions about people settling their 
cases and giving up large amounts are discussions that don't 
take place with the IRS as a general matter.
    Chairman ROSKAM. Commissioner, I think you have heard from 
both sides of the aisle here and you have heard a great deal of 
concern. The stories that we are going to hear in the 
subsequent panel--and I know you have another commitment and 
you are not able to stay--but I would recommend you to have 
your staff summarize those stories in their actual accounts, 
because the agency that you are now tasked with leading, has 
basically come off like Inspector Javert--you know what I 
mean--with very little flexibility, very little concern and, as 
Mr. Rangel said, looking within the four corners of the 
document without looking at the totality of the situation.
    So I appreciate the exchange today and your willingness to 
come and spend time with the subcommittee, and we look forward 
to continuing a dialogue with you in the future.
    Mr. KOSKINEN. Well, I appreciate it, and I appreciate the 
discussion. As I said, this is an important matter. We take it 
seriously. I think the concerns are legitimate and appropriate. 
It is part of what drove us to the policy that we will continue 
to follow and deal with. And I think taxpayers, as I say, 
again, your point is they need to feel they are going to get 
treated fairly and appropriately.
    And somebody early on noted, I do distinguish--and we do as 
an agency--if you are trying to become compliant, across the 
board, we are anxious to work with you. You don't have to hire 
somebody off late-night TV. We are going to try to work with 
you. It is the people who are consciously deciding they are 
going to cheat, they are going to avoid taxes, they are going 
to participate in criminal ventures that we should be applying 
our resources against, and we are trying to make sure that that 
is the division that is made.
    And so we are, as I say, we have a taxpayer bill of rights 
we went out of our way to provide to taxpayers to make sure 
that they understand that they are an important part of our 
process and we take their rights very seriously.
    So I appreciate the discussion and the conversation.
    Chairman ROSKAM. Thank you, Commissioner, for appearing 
before us today.
    Members are advised that they may submit written questions 
to be answered later in writing.
    Those questions and your answers would be made part of the 
formal record of today's hearing, Commissioner.
    And as the Commissioner knows, I wrote seeking information 
about the IRS' contract with CGI. Thanks for the response we 
received on Monday, and I note that there are a number of items 
that are missing, including the documents requested. Would you 
and your staff be willing to work with us to satisfy the 
document request?
    Mr. KOSKINEN. Yes, in fact, we hope to satisfy without any 
further work. It just takes a little longer. And I wanted to 
get a response back to you quickly. And we will get you all of 
those documents, and we will make sure that your staff are 
comfortable that they have got everything you asked for.
    Chairman ROSKAM. Thank you.
    We will now turn to our second panel.
    Thank you, Commissioner.
    Mr. KOSKINEN. Thank you.
    Mr. RANGEL. I want to thank you so much for bringing up 
these things that happen to innocent people. It seems as though 
that Congress gave them the authority to do these vicious 
things against people who never intended to violate the law. 
So, even though your question is, could another Commissioner 
change it, I think maybe on the suspension calendar, we could 
correct this and make certain that nobody without criminal 
intent be subject to this type of behavior. But I want to 
congratulate you for bringing it up.
    Chairman ROSKAM. Thank you. I think that there is a lot of 
interest, Mr. Rangel, on this issue across the spectrum. And I 
am committed to working with you and others to make this right.
    Mr. Sowers, Mr. Hirsch, Mr. Clyde, and Mr. Johnson, thank 
you for your time today. The committee has received your 
written statement and it will be made part of the formal 
hearing record. You will be recognized in sequential order, and 
you have 5 minutes to deliver your oral remarks.
    Mr. Sowers, you may begin when you are ready.

                      MIDDLETOWN, MARYLAND

    Mr. SOWERS. Good morning, Mr. Chairman, Members of the 
    Chairman ROSKAM. Mr. Sowers, why don't you pull that mike a 
little bit closer to you. And is the light on down below?
    Mr. SOWERS. Okay. It is on.
    Good morning, Mr. Chairman, Members of the Committee, and 
thank you for inviting me this morning to testify. It gets me 
out of the cold. Two months working in the cold, it is kind of 
nice being warm a little bit.
    My name is Randy Sowers, and I am a dairy farmer by trade. 
My wife of 40 years is here with me today. We started farming 
in 1981. Our parents weren't farmers. We started on our own. We 
had one--or two children. One of them is still on the farm with 
    We did rent a farm in Frederick County and, later on, in 
1987, got to buy that farm. Farming is a tough business to be 
in and many a time almost to the verge of not being able to 
make it. But we are here. Twenty years after we started, we 
invested $1 million and built a processing plant. We process 
milk and home deliver it to more than 8,000 customers in the 
Greater Washington area.
    So that brings us to why we had this cash we were 
depositing, because to promote ourselves, we would do farmers 
markets. That got us out there, give people samples, sold them 
our products, told them who we were. And we got a lot of cash 
at the time. We were doing five or six markets a week. In the 
beginning, the cash just got deposited kind of with the rest of 
the income from our business.
    This year--it was 4 years ago, I think, I am not sure about 
the date, but--and we are vertically integrated. We do 
everything from start to finish. All of our animals we raise 
ourselves. We produce all of the milk, the meat, beef, pork, 
whatever we sell, and distribute to the people. But this year--
or 4 years ago, my wife went to the bank one day, and she had 
$12,000 in cash because we do a festival. So we had a little 
bit of extra cash that week. And when she went to deposit it, 
the teller told her, Well, next time, just keep it under 
$10,000, and I don't have to fill out a form. So that is what 
she did. Not that it was normally more than 10. I mean, it was 
in that neighborhood, but she has to keep cash on hand for 
those five markets to have, you know, money to give people when 
we make change. So that is why it didn't all get deposited, and 
most of the time, it wouldn't have been over $10,000.
    But the markets we do now, we leave at 3 in the morning and 
go, but that is actually a late time for us because we usually 
get up 12:30 every morning and milk. And we have both been up 
milking cows every day since the 1st of November. So a 12-hour 
day for us is a short day. Anyway, we had the Treasury 
Department show up one day. And I thought one of these days, 
they would probably show up and want to know where I was 
getting the cash.
    I never thought about it. Our lawyer was there, and he had 
just left. I tried to call him back, and he didn't come back. 
So I didn't think it was a problem, and I just talked to these 
people. And they did ask me questions. The two agents were 
pretty good. I didn't have a problem with those guys. I think 
they saw right away we weren't criminals, and they pretty much 
said that.
    But he said, you know, we took your money. I said, what? 
Yeah. We seized your money. And, you know, I was really taken 
aback by that. I couldn't believe, you know, they would just 
come in and take my money with no prior notice. And we thought 
it was going to be easy to remedy this thing because we gave 
them what they needed. I mean, my wife wrote down every week 
what we got from the farmers markets, and that is how we 
reported it. And we turned that in. That is what they wanted. 
They wanted some other things, and we turned it in right away.
    But it seemed like when my lawyer talked to the Justice 
Department that they thought, too, it wouldn't be a big 
problem, that we would settle this thing and, you know, he 
would throw a number out and we would throw a number out. And I 
was down at my neighbor's doing a job one day, and I got a call 
from a guy from Baltimore City Paper. And he wanted to ask me 
questions about this case because he saw it come out of the 
docks in Baltimore.
    And I said, Well, my lawyer don't want me to talk to 
anybody about this. But he said, Well, I am going to do the 
story. It don't look good on your part, so it is up to you 
whether you want to tell me the story. I was itching to tell 
somebody the story anyway. So I told him the whole thing, and 
he did a beautiful job in the paper of explaining what had 
    Well, it seemed to be after that that my lawyer was talking 
to the guy from the Justice Department and things had changed 
then. He said since, you know, I went to the press, then we 
were different than most people, and he was going to, you 
know--we were going to have to pay what he wanted, and there 
wasn't going to be any question about that.
    So we finally settled for $29,000. I mean, they took 
$66,000, and actually they took some more they weren't supposed 
to take, but that is where it ended. And we thought it was 
done. But after that, they did send IRS out to talk to my 
accountant, asking him different questions that we didn't, you 
know, understand. And my accountant said that they told him 
that he shouldn't tell me that they had contacted him.
    So I thought the government was supposed to protect me. I 
didn't think they were supposed to come out and try to put me 
out of business, because that is what they could have done easy 
enough. And we are just hardworking farmers. I mean, we don't 
have time to be criminals. We have got a thousand animals to 
take care of. And, you know, we have to take care of them. And 
that is what we do. And we love doing it. That is why we do it. 
We wouldn't do it if we didn't love it. It is too tough a job.
    So I think the Government ought to give my money back. And 
I want to thank my lawyers that did help and took a little bit 
of the pain away. I mean, it was kind of tough sometimes 
getting some sleep when you know they could charge you with a 
felon--as felons, and some people have been charged with that 
when they fault them.
    [The prepared statement of Mr. Sowers follows:]


    Chairman ROSKAM. Well, thank you, Mr. Sowers. That is very, 
very helpful and we appreciate it. And I know that our members 
will have a number of questions for you and further inquire.
    Mr. SOWERS. Thanks a lot.
    Chairman ROSKAM. Mr. Hirsch.

                      RONKONKOMA, NEW YORK

    Mr. HIRSCH. Good morning, Chairman, and Members of the 
Committee. My name is Jeff Hirsch, and I am the owner of with 
Bi-County Distributors with two of my brothers. We sell candy, 
tobacco goods, and paper goods. On May 2012, we went to the 
bank that morning, and the teller said that our account was 
frozen. Me and my two brothers didn't know what was going on. 
We made phone calls. And, finally, we got a letter later that 
day stating our account was seized by the IRS.
    So we made phone calls and we called this Detective Kearns 
that was on the letter, and we asked him, What is going on? We 
are doing nothing wrong. And he said to contact an attorney 
because I asked him to come on down, take a look at my 
operation. And he wouldn't come down to take a look. So we 
contacted an attorney in New York City, and Mr. Potashnik, and 
he was working on the case for 2 years.
    And he was getting frustrated because he kept making phone 
calls. They gave him the runaround. We met with them twice with 
this district attorney. And it just looked like they were 
fishing for anything they could. And there was nothing there. 
So he advised me to hire a forensic accountant. So we did. We 
hired Baker Tilly in New York City, and they did our books for 
2011 and half of 2012. And they came back with the clean bill 
of health. It was a 40-page report. And still they wouldn't 
give us back our money.
    It was getting very frustrating. It has been 2 years and 9 
months. We finally settled with them--with the IRS--January 20 
of 2015. They are giving us back all our money. And, as of 
today, we haven't received it in the bank account. So we are 
still waiting.
    But, in the meantime, they were just, in the 2 years 9 
months, just giving us the runaround. And after 2 years, Mr. 
Potashnik just didn't know what to do anymore. And we found the 
Institute for Justice. And they handled our case.
    It is an embarrassing moment when you have got to go to 
your vendors, and you ask them to extend you more credit for 
the week. And I have been in the business 27 years. So they all 
know me. They know what type of business we are running. They 
know we are honest people. So a couple of them have been 
helping us out for the 2 years and 9 months. And we still owe 
these people money. So the money that we are receiving from the 
Government will be going back to these vendors.
    So I just hope that nobody in this country or person has to 
go through something like this. It is embarrassing. You really 
can't put a word for it. It has just been a long 2 years, 
almost 3. Thank you.
    [The prepared statement of Mr. Hirsch follows:]

    Chairman ROSKAM. Thank you, Mr. Hirsch.
    Mr. Clyde.


    Mr. CLYDE. Thank you, Chairman, Honorable Members of 
Congress, thank you for the invitation to tell my story. I am 
Andrew Clyde. I own Clyde Armory, which is a small Federally 
licensed firearms store owned in Athens, Georgia. On Friday, 
April 12, 2013, two IRS agents showed up at my door and served 
me with a seizure warrant saying that they had already taken 
$940,313 from my company's bank account that morning, which was 
most of what I had.
    I started Clyde Armory in my home in 1991. I worked hard 
and put in long hours to grow the company. I hired my first 
employee in 2002, and today we have 25 employees. I have been 
blessed to live the American dream. In 2003, I made my first 
combat deployment to Iraq as a Navy Reserve, and those 
employees carried the business while I served.
    In 2004, I obtained my first insurance policy. That policy 
had a $10,000 cap for covering my loss of cash outside the 
business. To date, my insurance policy has the same $10,000 
cap. To reduce risk, my company policy on carrying cash to the 
bank mirrors my insurance policy.
    In late 2012, the President proposed new gun laws. During 
the following 5 months, we experienced incredible sales with 
much of it being in cash. That meant we took in over $1 million 
in cash. We also helped my company policy of not depositing 
more than $10,000 in cash in the bank at any one time. At the 
IRS agent's deposition, he acknowledged that there was no floor 
for a structured transaction. That meant any deposit under 
$10,000 could be considered structuring. For us, it was as low 
as $1,628.
    When the agents visited me, I had no idea what the term 
``structuring'' even meant, and I had no knowledge that there 
was a law that prohibited structuring. The agents educated me 
on structuring and also told me that it was a felony--a felony. 
Yet, if they were right, I would lose everything I had worked 
for because you cannot have a gun business and have a felony.
    The seizure had the potential to devastate me. The timing 
was 3 days before April 15, when my 2012 taxes and 2013 
estimated taxes were due. After I had paid both tax bills and 
my next employee payroll, I had no money left to run my 
business. By the grace of Almighty God, I was able to borrow 
$80,000 from my banker at Wells Fargo to keep my business 
alive. I immediately canceled the product orders that I could 
and also canceled our new computer system. If the business did 
not survive, then neither would my employee's jobs. And they 
had families too.
    At the initial meeting with the Government, which was 6 
days later, my accountant and attorney showed them that this 
was all legal money and properly reported. But the Government 
already knew the money was clean, but that didn't matter 
because in their interpretation of the law, it makes no 
distinction between legal or illegal cash. And the Government 
wasn't going to give it back, not at least without their cut.
    On May 7, in an email to my attorney, the Government said, 
and I quote, ``I have authority to resolve this case by 
forfeiting $325,000 to the United States and returning the 
balance to your client. This offer to resolve the matter 
already takes into consideration Mr. Clyde's contention that 
the cash was legitimately earned and that appropriate 
withholdings were made, two matters that we will not 
    Despite acknowledging in writing the cash was legitimate, 
the Government still attempted coercive tactics saying that I 
could be criminally prosecuted for the misdeed. They also said 
that if a suit was filed, it could ruin my reputation in the 
community; and that if anything was found out during discovery, 
it could easily change to a personal criminal case against me. 
The clear intent was to force me to cave, and I refused.
    Again, by the grace of God, we got a hearing on July 22, 
and the judge exercised creativity to force the Government to 
return $440,000 of my funds. While the amount allowed me to 
immediately buy inventory for the hunting season, it was not a 
long-term fix. I needed the remaining $500,000; 3 days before 
the trial, I forfeited $50,000 to settle the case. It was my 
tactical retreat so I could live to fight another day.
    I did not serve three combat tours in Iraq only to come 
home and be extorted by my Government's use of civil forfeiture 
laws, but that is what I feel they have done to me and I need 
you to stop it from happening to anyone else. When I asked the 
U.S. attorney why he was doing this, his response was, I am 
just following the law. So he laid the responsibility right at 
the feet of Congress. So I am here to ask you to change the law 
and prevent them from ever going after legal-source money again 
and then restore those of us who have been abused.
    Honorable Members of Congress, you are our last remaining 
line of battle. Thank you for the invitation to tell my story.
    [The prepared statement of Mr. Clyde follows:]
    Chairman ROSKAM. Thank you, Mr. Clyde.
    Mr. Johnson.

                      ARLINGTON, VIRGINIA

    Mr. JOHNSON. Thank you, Chairman Roskam, Ranking Member 
Lewis, and Members of the Subcommittee. Thank you for inviting 
me to testify today about the IRS' use of civil forfeiture to 
take money from honest, hardworking, small-business owners. 
Nothing I can say can speak as powerfully as the stories of the 
other members of the panel, but I want to begin by putting 
their stories in some context based on information that we 
received from the IRS through a Freedom of Information Act 
    Between 2005 and 2012, the IRS seized money under the 
structuring laws in 2,500 cases. The IRS seized $242 million 
from Americans under the structuring laws. And a third of 
cases, the IRS reported that it suspected no criminal activity 
other than the mere act of making sub-$10,000 cash 
    Now, the Commissioner referred, in his testimony, to 
protections that are available by law, but those protections 
are less robust in practice than the Commissioner may believe. 
It is true that before money can be seized, it is necessary for 
a law enforcement officer to fill out an affidavit. And this 
affidavit is often filled out by local law enforcement officers 
working as part of joint task forces with the IRS. They are 
exercising Federal law enforcement activity, a law enforcement 
authority that has been delegated to them by the IRS, but these 
are local police officers filling out these affidavits.
    And what they will allege in the affidavit is a mere 
pattern of sub-$10,000 deposits, and that is the only 
information that is in the affidavit. The mere fact that there 
is a pattern of sub-$10,000 deposits over a period of time. 
Before bringing that affidavit to court to seize property, they 
give no warning to the property owner. There is no notice that 
the property may be seized. And there is no meaningful 
investigation that is conducted to determine if there might be 
some legitimate business practice explaining that pattern of 
sub-$10,000 deposits.
    Now, when that warrant application was brought to a 
magistrate judge, that is an ex parte proceeding, meaning that 
there is no opportunity for the property owner to present a 
defense to explain why they might be depositing money in the 
bank in amounts under $10,000. In many cases, people have all 
kinds of reasons that they are depositing money in the bank in 
those small amounts.
    It may be the case that there is an insurance policy that 
only covers up to $10,000. Or, in many cases, people simply are 
told by their own banks that sub-$10,000 deposits are easier 
for the bank; they avoid paperwork burdens. Banks may even 
close people's accounts if they make frequent deposits over 
$10,000 because that creates a burden for the bank. So there is 
no serious investigation to determine whether those 
explanations may be present, and there is no opportunity to 
present that defense at the hearing before the seizure.
    Finally, once the seizure has happened, property owners 
simply must wait. The law does establish deadlines: 30 days--60 
days to file an administrative hearing, and then 30 days after 
that, you can file a claim. However, those deadlines are 
routinely disregarded because the law provides no meaningful 
enforcement mechanism to ensure that they are actually 
followed, because if the Government doesn't follow them, 
although it is required to return the property debts without 
prejudice to take in property again at a later time.
    The reality, as a result of this, is that property owners 
simply are forced to settle. Some statistics that underlie 
those facts. Of the $242 million seized between 2005 and 2012, 
$116 million of that was not forfeited by the IRS. What that 
means is that the IRS is seizing substantial amounts of money 
that it ultimately cannot justify keeping.
    The Commissioner also mentioned the policy change. I think 
it is important to underscore that that policy change includes 
this loophole for exceptional circumstances. And the 
Commissioner made clear that it will be considered exceptional 
if there is a pattern of deposits over a long period of time. 
And that is something that we see in almost all of these cases. 
So almost every case here today, I think every case here today 
would qualify as exceptional under that new policy.
    I thank you for inviting me to testify and welcome your 
    [The prepared statement of Mr. Johnson follows:]

    Chairman ROSKAM. Thank you, Mr. Johnson.
    On the majority side, we will go to Mr. Marchant.
    Mr. MARCHANT. Thank you, and thank you for traveling to 
Washington today and sharing your story, each one of you.
    I think what I would like to do, many of you have already 
discussed some of these facts in your opening statement, but if 
you would go down the line, starting with Mr. Clyde, and answer 
the following questions: How much money did the IRS take from 
you? How much did you get back? How long did it take you to get 
it back? How much money did you spend on lawyers and 
    Mr. CLYDE. Okay, sir, they took $940,313 from me. It took 
me right at 5 months to finally get it back. At the 4-month 
mark, we had a judicial hearing, and I got $440,000 back. And 
then, right before the trial, because the judge gave me an 
expedited trial because that was the only way he could get me 
money back was through an expedited trial, 3 days before the 
trial I gave up $50,000 to get my other $450,000 back. It cost 
me, including the forfeiture, the $50,000 forfeiture, in pre-
tax income, it cost me $149,336 to defend myself.
    Mr. MARCHANT. Okay. Thank you.
    Mr. Hirsch.
    Mr. HIRSCH. They took $446,000 out of the bank. It took us 
2 years, 9 months to get it back, and we are still waiting to 
get it back. We settled with them. We didn't have to give them 
anything because we did nothing wrong. We proved that.
    And what was the last?
    Mr. CROWLEY. How much did it cost you?
    Mr. HIRSCH. It cost us, between accounting and lawyer fees, 
about $60,000 and also we had to break a $50,000 CD to keep the 
business running, and we had to lower our inventory so we could 
keep this business still going.
    Mr. MARCHANT. Thank you.
    Mr. Sowers.
    Mr. SOWERS. They took around $62,000, but at the time, they 
told me that I could use that account and nothing would happen 
to it. But my wife had made another deposit of $5,000 after 
that, and the bank sent that to them too, so I guess it was 
actually $67,000. I don't think it took much more than 4 or 5 
months to get it back. I don't remember. It has been 4 years 
    At that time of year, our sales are down in our home 
delivery businesses and we are putting out crops. So it was 
kind of tough not having it. But people know me. In farming, 
sometimes they will hold off for their money. So we did all 
right on that one.
    My lawyer I have on a retainer anyway. So he pretty much 
had to do the work because we already paid him. Anyway, our 
accountant, I am sure he charged me for what he did, which 
wasn't much because we had the information they needed to show 
what cash we actually were taking and we weren't evading taxes 
or anything like that.
    Mr. MARCHANT. To help understand the mechanics of this, did 
you then have to go set up another operating bank account in 
your bank, or could you continue to operate that bank account? 
Did they close your physical bank account down or just take the 
money out of it?
    Mr. CLYDE. They just took the money, sir.
    Mr. MARCHANT. So you could immediately go back to that same 
account and continue to do business out of that same account?
    Mr. CLYDE. That is correct, we could.
    Mr. MARCHANT. And the same with all of you?
    Mr. HIRSCH. Same.
    Mr. SOWERS. Actually, the account we were depositing money 
in was in a different bank than we normally use, and for some 
reason, that summer, it seemed like we were doing a little bit 
better. And we were trying to put some money back. So we were 
putting it in that account trying to, you know, hide it a 
little bit. So it wasn't our main account. If it would have 
been, we would have been out of business because there was 
probably $168,000 to $200,000 on that account, which we pay 
employees and everything else out of it. So it actually was 
good that they----
    Mr. MARCHANT. Were you given assurances by the IRS that you 
could go back and continue to make deposits and they would not 
be back a week later or a month later to do exactly the same 
    Mr. CLYDE. No, sir, I had no assurances of that. In fact, I 
asked them that that exact question: What prevents you from 
doing this? Nothing.
    Mr. MARCHANT. So it was very disruptive to your business--
    Mr. CLYDE. Incredibly.
    Mr. MARCHANT [continuing]. To your psyche, to know that 
    Mr. CLYDE. Yes, sir.
    Mr. MARCHANT. In fact, a lot of people would respond 
exactly the opposite and then try to arrange things where they 
could not find the money and seize it, which seems to be very 
    Mr. CLYDE. Uh-huh.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    Chairman ROSKAM. With leave of Mr. Lewis, we will go to Mr. 
    Mr. CROWLEY. Thank you, Mr. Chairman.
    Thank you, Mr. Lewis.
    Firstly, let me say that I have great empathy for all of 
you and what you have gone through.
    And, Mr. Hirsch, I was going to offer to interpret for you 
for my colleagues, given that wonderful New York accent. You 
seemed to have pulled it off on your own.
    In your testimony, you made reference to the fact that the 
IRS began an auditing of your business in the middle of your 
dispute with the IRS. Is that correct?
    Mr. HIRSCH. Yes. When we were trying to settle this, the 
2011 case, in July 2014, they decided to audit my 2012 books, 
which they already knew that half the year was already done 
through the forensic accountant that came out with the clean 
bill of health. So it is like a little salt in the wound. And 
we are still going through that today, and everything looks 
like it is going good on it.
    Mr. CROWLEY. So the audit is continuing? In other words, 
the IRS continues to audit you----
    Mr. HIRSCH. Yes.
    Mr. CROWLEY [continuing]. Even though they have come to 
settle with you, they indicated to you they are going to return 
to you the moneys that they took from you, correct?
    Mr. HIRSCH. Right. So they are auditing the next year, so 
it was 2011, they took, you know, the money they took. So 2012 
is the audit right now.
    Mr. CROWLEY. I thought it was an interesting question what 
my colleague asked, and I had a similar question, that was the 
expense that it cost you. In other words, you said it was about 
    Mr. HIRSCH. Yes.
    Mr. CROWLEY. Overall, including in terms of the CD lost and 
the penalties paid and the attorneys' fees?
    Mr. HIRSCH. That was without CD.
    Mr. CROWLEY. Attorneys' fees?
    Mr. HIRSCH. The attorneys' fees and the accountant feeds 
came to about $60,000. And then there was the loss of the CD, 
which was $50,000.
    Mr. CROWLEY. And you had to lower your inventory, and that 
had an effect on your business itself?
    Mr. HIRSCH. Yes, it made it work a little harder. We put in 
a 12-hour day right now. So instead of 12 hours----
    Mr. CROWLEY. It affected your profits and your ability to 
employ people?
    Mr. HIRSCH. Yes. We have a part-timer. So it is me, my two 
brothers, and a part-timer, four of us.
    Mr. CROWLEY. In regards to what you said the IRS took and 
what they have agreed to repay you, you have yet to receive 
that money back. Is that correct?
    Mr. HIRSCH. Right.
    Mr. CROWLEY. Have they given you any indication of what 
date you ought to expect receiving that money back?
    Mr. HIRSCH. No, not----
    Mr. CROWLEY. So really, in theory, they have indicated they 
are going to give you money back, but they still hold onto that 
    Mr. HIRSCH. Right.
    Mr. CROWLEY. And you are not receiving any interest, nor is 
the company receiving interest, on the money they are holding 
from you right now?
    Mr. HIRSCH. No, we had to sign an agreement with them that 
we wouldn't collect any interest on it.
    Mr. CROWLEY. Okay. I think that is something of interest as 
well, I think, to the committee as well.
    As I said, I have empathy for you all.
    Mr. Sowers, my in-laws are from Montana. You remind me very 
much of folks, the farming family, the ranching family, you 
remind me very much of those folks as well. You describe the 
work as hard, arduous. It is something you love, and it is what 
keeps you going. So I appreciate what you do, what the American 
farmers do for your country. I don't think you, nor any of the 
gentlemen before us today, deserve to be treated by your 
Government, by the IRS, in the way in which you have been.
    I think, Mr. Chairman, we should also look at the 
possibility of when someone who is innocently accused and 
moneys are wrongfully withheld and it has been adjudicated and 
the IRS has been found without cause to having held their 
resources, that the responsibility ought to be on the 
Government to pay not only back the resources withheld with 
interest but also any legal fees that those individuals went 
through because that in and of itself can decimate a small 
business--as the gentleman, Mr. Clyde from Georgia, had 
mentioned, the ability to make payroll, the ability to do 
everything one has to do to maintain a business. That is 
something I think we should be looking at as well in terms of 
any legislation moving forward. I would be happy to work with 
you on that as well.
    And I thank the gentleman for yielding me the time.
    Thank you, all.
    Chairman ROSKAM. That is a great point, and, you know, the 
irony is the IRS charges interest.
    Mr. Kelly is recognized.
    Mr. KELLY. I thank the chairman.
    I thank you all for appearing.
    Mr. Sowers, you look like a lot of the people I represent 
back in western Pennsylvania.
    And, Mr. Clyde, I hear the way you are talking about what 
happened to you and Mr. Hirsch. There is a family called the 
Logan brothers that did the same type of business in my town. 
They have all passed, but they were very big in our town 
because they just constantly reinvested in the community and 
did a lot of things from a charitable standpoint.
    But I think the real story here today is how it affected 
you as an American citizen. You have been violated by your 
government in something that you have trusted in all your life 
and thought to be true. All of a sudden, you find out that 
those same people are the people now that are coming in and 
committing these acts. I think sometimes the confusion is, who 
do we represent as Congressman? I do not represent the United 
States Government. I represent 705,687 people from 
Pennsylvania's District Three. I don't know if they are 
Republicans, Democrats, independents or people saying, I don't 
care, just leave me alone.
    I have watched you. The Harpster family up near State 
College does what you do. I have got so many people that do 
what you do. I am an automobile guy. And one of the things I 
went through was having a dealership taken from me by the 
Government, not because I couldn't meet the standards, not 
because I didn't have the money, but because they decided to do 
that. They cost me $60,000 and over a year of not being able to 
sleep and then going through Cash for Clunkers while the 
Government was holding $700,000 of my money.
    But they said, ``Well, we will get it to you when we can 
get it to you.'' That was all money that I had to use to pay 
off my lender because the product that I sold was collateral 
and had to be paid in full. Just from your experience, wouldn't 
you like to just sit across from somebody that comes in from 
the Government that talks to you that has actually walked in 
your shoes, as opposed to saying, ``Look, I am just following 
the law?''
    I mean, this is an incredible violation of you as an 
American citizen, and I get tired of people come in from 
Government agencies saying, ``Oh, listen, you don't understand 
how it goes.'' I said, ``I do understand how it goes; you 
    After what you have been through, and you have talked about 
how much money you lost, but what about your loss of faith in 
the Government?
    Mr. SOWERS. Loss of what?
    Mr. KELLY. Faith and belief.
    Mr. SOWERS. I don't deposit cash in the bank anymore. I 
    Mr. KELLY. You, Mr. Sowers, if you came in--people that I 
represent back home, they will come in and buy a car and say, 
you know what, ``Kelly, talked to the wife, we can afford about 
$225, $230 a month. What would I have to put down to keep that 
payment there?'' God help me if I say to them, ``you know what, 
you have got to put down about $12,000 in cash.'' They will 
say, ``so if I put down $12,000, I can save about two and a 
quarter, two and a half?'' Yeah, you can do that.
    You know what I have just helped them do? I am involved in 
a structuring. By you coming to me and telling me what you can 
afford and me telling you, I got to say, ``Hey, listen, you 
know what, Sowers, you kind of do what you want, you know where 
the payment is.'' I can't tell you this at the time. If you 
come in and you give me a check for $10,000 or give me cash for 
$12,000 or whatever it is that you give me and I put it toward 
the deal to structure a deal that makes sense for you and the 
missus, to meet all your obligations, I have got to file this 
form 8300, which is affectionately called--this is incredible--
a suspicious transaction.
    I am going to tell the United States Government, ``I have 
got a dairy farmer who wanted to keep his payment down and I 
didn't really tell him, I told him, you know, at some point, I 
probably have to report this, but I have got almost a year to 
do it. But you go ahead if you want to do it, but I can't say 
that I helped you with it.'' I mean, I don't know that the 
general public understands what it is, and listen, I have been 
in front of Mr. Koskinen before. If you have never been in that 
person's shoes, you have no idea--between sleepless nights and 
wondering about how you are going to meet your obligations.
    Now, you were all able to go to your lenders. Why did they 
extend your credit? Because they knew you. Isn't it amazing 
that the people you do business with every day know you and 
trust you but your own government does not and is willing to 
shut you down because of a suspicious transaction?
    Mr. CLYDE. Yes, sir, that is correct.
    Mr. KELLY. Absolutely incredible. What I go back to is I 
think the main loss here is the loss of faith and trust we have 
in a form of government that is the gold standard for the 
world, yet we are violating our own citizens on an everyday 
basis and asking them to say, ``Hey, listen, still believe in 
me, still believe in me, still believe in me.'' You have got to 
feel like David going against Goliath. And you talk about how--
but you know what, Mr. Goliath, the IRS has unlimited resources 
to fight you.
    Mr. CLYDE. Yes, sir.
    Mr. KELLY. You are limited by what you can do. So when they 
say, ``Listen, we are going to work with you on this''--what 
you had to settle for, you had to give up money to get them off 
your back. You know why? Because as soon as it starts, the 
meter is running. And I have dealt with a lot of great lawyers 
who have helped me through a lot of great problems, but it has 
always been at my expense; their time, my money.
    I applaud you for coming. You know, most people won't do 
what you're doing. In fact, my son is back home running the 
dealership right now. He says, ``For God's sake, Dad, quit 
talking about the IRS. Next thing is they are going to be in 
here.'' And I say, ``Hey, Brendon, if they come in, that is 
okay. We will still fight them tooth and nail.'' I had to fight 
to get the damn dealership back from the Government to begin 
with, and we already were meeting all the expectations.
    So I know what you are doing. I know who you are fighting. 
I know where your hearts are. I thank you for coming here 
today. You are truly brave people, and you are the real 
patriots. Thank you.
    Chairman ROSKAM. Ranking Member Lewis is recognized.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Mr. Chairman, I want to thank all of the witnesses for 
being here today. Thank you, as a previous speaker said, for 
being courageous and being very brave to be here. I know you 
are taking time from your work. You are hard-working and very 
busy people.
    Mr. Clyde, I see that you are from the great State of 
    Mr. CLYDE. Yes, sir.
    Mr. LEWIS. I want to welcome you. You are from a great 
city, Athens, where the University of Georgia is located.
    Mr. Sowers, I know you are a great farmer. I grew up on a 
farm. I am very sympathetic to the predicament you find 
yourself. I grew up on a farm that my father bought in 1944 
when I was only 4 years old, but I remember. They bought 110 
acres of land for $300, and we still own that land today. It 
was very hard work grabbing peanuts, picking cotton, pulling 
corn. And I used to fall behind when I was out there picking 
the cotton and gathering the peanuts. And my mother would have 
said, Boy, you are falling behind. And I would have said, This 
is hard work. And she would have said, Boy, hard work never 
killed anybody. I said, Well, it is about to kill me.
    Now, also, on the farm, it was my responsibility to care 
for the chickens. And I fell in love with raising chickens. And 
as a little boy, I wanted to be a minister. So, from time to 
time, with the help of my brothers and sisters and cousins, we 
would gather all of our chickens together in the chicken yard. 
And my brothers and sisters and cousins would line the outside 
of the chicken yard, and I would start speaking or preaching to 
the chickens.
    And so I am interested in knowing, did you raise any 
    Mr. SOWERS. I have 17,000.
    Mr. LEWIS. My God. That is a very large congregation. I 
know you don't try to baptize any of those.
    Mr. SOWERS. Maybe. Chickens are certified humane, free-
range, everything everybody wants.
    Mr. LEWIS. That is wonderful. And let me just ask you, has 
anyone from the IRS, except for today, has anyone, Mr. Clyde, 
Mr. Hirsch, Mr. Sowers, ever said I'm sorry, we made a mistake, 
we made a blunder?
    Mr. SOWERS. As I said, the two agents that showed up, I 
think they were apologizing a little bit. They knew what was 
coming down the line and even though they knew there was no 
intent. But they said now that it is this far, it has got to go 
the rest of the way. They didn't say they were sorry. But I 
think they were, you know, they knew what I was going to have 
to go through.
    Mr. LEWIS. Mr. Hirsch.
    Mr. HIRSCH. No, no one ever said they were sorry to us.
    Mr. LEWIS. Mr. Clyde.
    Mr. CLYDE. No, sir. No one ever said they were sorry to me.
    Mr. LEWIS. Well, as one Member of Congress and a member of 
this committee, I want to apologize to you for what the, a 
piece of my government, what the IRS did to you. I wish you 
    I don't have any questions, Mr. Chairman.
    Chairman ROSKAM. Thank you.
    Mr. Meehan is recognized.
    Mr. MEEHAN. A new appreciation for the foul conduct of the 
IRS, I guess.
    Mr. Clyde, I was sort of struck by your testimony. You have 
served our Nation in the Armed Forces. You took how many tours 
    Mr. CLYDE. Three combat tours, sir.
    Mr. MEEHAN. Do you have family, Mr. Clyde?
    Mr. CLYDE. I am single. But, yes, I have family, a mom and 
    Mr. MEEHAN. So you left family back here operating the 
business while you were overseas?
    Mr. CLYDE. Actually, it was just my employees that operated 
my business.
    Mr. MEEHAN. When you returned and you took this position 
and then you identified what went on with you, when the IRS 
agents came to speak to you and the U.S. attorney's 
representative came to speak to you, you described that you 
were leveraged in your negotiations.
    Mr. CLYDE. Oh, yes, sir.
    Mr. MEEHAN. Can you explain to me what they said to you?
    Mr. CLYDE. Yes, sir. They told me that--in fact, it is in 
the court transcripts--they said that discovery hadn't been 
made yet. Okay. And if they found anything in discovery, that 
it could easily transition from a civil forfeiture case to a 
criminal case against me. And that came at least twice, after 
the first--well, after each offer actually--the first offer of 
taking only $325,000 as a forfeiture and then the second offer 
after the judge made them, forced them to give back 440 to me--
then the IRS offered to settle now only for $109,000 this 
time--both times the comment was made, And if we find anything 
else in discovery--because discovery hadn't happened yet--that 
we will, we can go against you criminally. Absolutely.
    Mr. MEEHAN. Did you feel like a criminal?
    Mr. CLYDE. They made me feel like a criminal. But there is 
no way I am a criminal.
    Mr. MEEHAN. If you resolved the case, did you have a 
concern that there may have been people that believed you were 
a criminal?
    Mr. CLYDE. Absolutely. Yes, sir.
    Mr. MEEHAN. Did you ever talk to anybody in a supervisory 
capacity when you were being leveraged in that manner in the 
U.S. Attorney's Office about their demands that you consider 
that implication and resolve the case?
    Mr. CLYDE. The only contact we had with the U.S. Attorney's 
Office was through the assistant, one of the assistant or 
really two of the assistant U.S. attorneys.
    Mr. MEEHAN. Well, it is reprehensible activity, Mr. Clyde. 
It is a violation of the code of ethics to be calling you a 
criminal to leverage a civil proceeding. And they did you 
    Mr. Johnson, you have walked through this process with 
numerous of these people. As an attorney who understands the 
process, what needs to be proven in a case like this to suggest 
that somebody has violated the structuring statute?
    Mr. JOHNSON. Well, I think that is an important question 
because the law really does demand something more than a mere 
pattern of deposits. The structuring law applies to people who 
have a purpose of evading the bank reporting requirements 
established by the Bank Secrecy Act. And I don't think anybody 
on this panel had that purpose. I don't think anybody on this 
panel actually violated the law. Yet the IRS is pursuing them 
    It is true that the structuring law contains very few 
protections for property owners and can sweep up people who do 
not know that it is illegal to try to hide something from the 
Government and are hiding something simply because they don't 
    Mr. MEEHAN. So there is no mens rea, so to speak. It is 
just this is a strict construction of the fact that you did 
this act. They don't have to demonstrate that you were trying 
to elude some oversight by virtue of doing it?
    Mr. JOHNSON. The people who get swept up by the structuring 
law who actually may be guilty of structuring but who most 
people would say have done nothing wrong are people who simply 
don't want the Government knowing what they are up to. And most 
people would say that is not a crime. But under the structuring 
law, that actually is a crime. And these people have no idea 
that they are potentially breaking the law. But, again, the 
people on this panel, that is not even their case. These are 
people who literally didn't even want to hide anything from the 
    Mr. MEEHAN. Mr. Chairman, I have just a couple quick 
questions I would like to get a response to just so we can 
create a record. There is something called the Civil Asset 
Forfeiture Reform Act. It requires a response within 60 days. 
From your experience, does that happen?
    Mr. JOHNSON. No. In my experience, the Government routinely 
disregards the deadline set by the Civil Asset Forfeiture 
Reform Act.
    Mr. MEEHAN. Notwithstanding that, there is a law that 
requires a response within 60 days, the enforcement act?
    Mr. JOHNSON. Yes. The problem is that the law simply does 
not provide any penalty for the Government if it disregards 
those deadlines because any penalty that is provided is simply 
    Mr. MEEHAN. The law contemplates hardship hearings in 
circumstances in which it is available to individuals that are 
targeted under certain structuring laws, are those available to 
somebody who deals exclusively in cash?
    Mr. JOHNSON. No.
    Mr. MEEHAN. So you may have a circumstance in which, again, 
the hardship opportunity is not available to you because you 
run a cash business?
    Mr. JOHNSON. Right. That is absolutely right. The hardship 
hearing would be available for any kind of noncash seizure, for 
most kinds of noncash seizures. But the law specifically says 
that there is no hardship hearing available if you are--the 
money, if it was cash that was seized.
    Mr. MEEHAN. Certain procedures here have been identified by 
the IRS Commissioner in which he said he has told prosecutors 
and others that they may not bring these cases. But we have 
seen evidence that affidavits don't necessarily have to come 
exclusively from Federal prosecutors. They may come from State 
police officers. They may come from local police officers, is 
that accurate?
    Mr. JOHNSON. That is accurate. And I think another 
important point to make is that those local, State and local 
officers have a financial incentive in the enforcement of the 
law because under what is called equitable sharing, 80 percent 
of the money that is seized by the Federal Government can be 
returned to local law enforcement agencies.
    Mr. MEEHAN. Do you have to secure a conviction to get the 
    Mr. JOHNSON. No.
    Mr. MEEHAN. Mr. Chairman, thank you.
    Chairman ROSKAM. Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman.
    I want to thank the witnesses for being here to tell their 
stories. It is incredibly important that the people know what 
is happening.
    Mr. Johnson, right now if the IRS seizes your client's 
money, you can't get into court immediately to fight the 
seizure, correct?
    Mr. JOHNSON. That is right. People have to wait months or 
even years. In Jeff's case, the Government held his money for 
over 2 and a half years and never gave him any hearing before 
any judge.
    Mr. HOLDING. I was doing a little calculation, 974 days. 
That is a long time.
    Mr. HIRSCH. A long time.
    Mr. HOLDING. And they still haven't given it back to you?
    Mr. HIRSCH. No, not yet.
    Mr. HOLDING. Last year, former Chairman Camp and Ranking 
Member Levin introduced a bill that would allow people whose 
assets have been seized to contest the seizure on an expedited 
basis within 2 weeks. I am sure the victims here today would 
have wanted to be able to go to court in that expedited manner 
and contest their seizure.
    So you, Mr. Johnson, as an attorney, representing folks who 
are in this predicament, do you think this would be an 
improvement over the current procedure?
    Mr. JOHNSON. I think it would absolutely be a major 
improvement to allow people the opportunity for a prompt 
hearing, both to contest the seizure and also to present 
evidence of hardship.
    Mr. HOLDING. And also, per the Commissioner, perhaps 
evidence that an illegal act hasn't been--a predicate illegal 
act--hadn't been committed under his new policy.
    Mr. JOHNSON. I think it is important that the policy be 
codified into law so that it would actually be a defense in 
such a proceeding. As it stands, as the members of the 
commission have noted, it is simply a discretionary matter with 
the IRS. Also, as I was saying earlier, the exception for 
exceptional cases is so broad that it really makes the policy 
potentially meaningless in practice.
    Mr. HOLDING. So, in addition to codifying that affirmative 
defense, can you think of some other ways that the law should 
be reformed in order to protect against abuses by the IRS of 
folks such as we have here today?
    Mr. JOHNSON. I think one of the most important reforms that 
could be made would be to eliminate the profit motive that is 
inherent in civil forfeiture. When the IRS seizes money, that 
money goes into a dedicated fund that is then available to the 
IRS without any congressional appropriation, to fund law 
enforcement expenses.
    What this means is that the IRS is seizing money from 
innocent Americans and it is using that same money to fund 
additional seizures. This creates a clear incentive for abuse 
by the IRS. And, at the same time, through equitable sharing, 
that money can also go to local and State officers who are 
involved in the seizure, giving those officers a profit 
incentive as well. So I think that eliminating that profit 
incentive would be a major step toward reforming this area of 
the law.
    Mr. HOLDING. We should point out that the majority of 
seizures are from criminals at the end of the day. What we need 
to protect against are these instances when the IRS or another 
form of law enforcement overreaches and ends up catching within 
a web people who haven't done anything wrong.
    Mr. JOHNSON. I think that is true. Although I would again 
emphasize that of the $242 million that was seized by the IRS 
under the structuring law, $116 million--so almost half--was 
never forfeited. And what that suggests is that IRS is seizing 
substantial sums that it ultimately can't justify keeping in a 
court of law.
    Mr. HOLDING. Mr. Chairman, I yield back.
    Chairman ROSKAM. Mr. Smith.
    Mr. SMITH. Mr. Johnson, just real quick, in the Institute 
for Justice report that was released just recently, 59 percent 
of the seizure cases were actually valid I guess. So what I am 
interested in is in the other 41 percent. Do you have 
statistics showing how fast the 41 percent was returned in a 
timeline or anything like that?
    Mr. JOHNSON. We don't have statistics on how long it takes 
for the IRS to give people back their money. But I think that, 
just based on experience, it can take a very long amount of 
time. In cases that we have litigated at the Institute for 
Justice, it took Jeff 32 months to get his property back. 
Carole Hinders, it took 18 months. For Mark Zaniewski, who owns 
a service station in Michigan, it took 8 months. And for Terry 
Dehko, who owns a supermarket, also in Michigan, it took 11 
months. So we are talking about months, if not years, in which 
business owners are forced to go without working the capital 
for their business. These are months or years that people 
simply may not have, which is why so many of these cases end up 
    Mr. SMITH. Could you put a number on how many businesses 
have been shut down because of the IRS' actions?
    Mr. JOHNSON. I just don't have that information. But I 
think that it is probably substantial.
    Mr. SMITH. Thank you, Mr. Chairman.
    Chairman ROSKAM. Ms. Noem.
    Mrs. NOEM. Mr. Sowers, you are a man after my own heart. I 
spent my life in farming. But we did crops and cattle, beef 
cattle. So you work harder than we do, dairy cattle are a lot 
of work. So I appreciate you taking the time to be here, and I 
am glad to see your family is in business with you. I was 
completely formed by all the hours I spent working alongside of 
my dad, and that is a blessing to have.
    But, Mr. Johnson, I just wanted to ask you a couple of 
quick questions. Do you believe that the IRS' new policy is 
good enough?
    Mr. JOHNSON. No. I don't believe that it is good enough. 
And I say that for a number of reasons. One is that the policy 
contains this loophole for exceptional circumstances. And 
previously what I would have said is that is troublingly 
undefined. After the Commissioner's testimony today, I would 
say that the actual meat that he put on the bones of that 
exception is even more troubling. He said that a long-term 
pattern of sub-$10,000 deposits would be considered an 
exceptional circumstance. But that really is the norm in 
structuring cases. When people have reasons to deposit under 
$10,000 because, for instance, they have an insurance policy 
that covers only up to $10,000, that is something that they 
will do over a long period of time. And there is nothing 
exceptional about that.
    I think it is also important to note that the policy only 
covers the IRS. And as the Commissioner stated, there are other 
agencies that enforce the structuring laws. And those agencies 
are not bound. So I think it is very important that that policy 
be codified into law to bind the IRS fully without any 
exception for, quote, ``exceptional cases'' and to bind other 
agencies as well.
    Mrs. NOEM. I agree. Do you believe it should be 
    Mr. JOHNSON. I absolutely believe it should be retroactive, 
    Mrs. NOEM. How far back do you think it should go?
    Mr. JOHNSON. You know, I think it could go back to the 
beginning of these kinds of cases. Forfeiture in structuring 
cases has only existed since 1992. So this has been around 
relatively recent.
    Mrs. NOEM. Thank you.
    I yield back.
    Chairman ROSKAM. Thank you very much.
    Mr. Johnson, Ms. Noem inquired of the Commissioner in the 
earlier testimony regarding the motive of agents and so forth. 
And he was, you know, like, Look, don't worry, they are not 
motivated by some evaluation and so forth. But what you have 
testified to is something far more powerful, far more 
motivating, and far more insidious, that is, a profit motive. 
Could you highlight that?
    Mr. JOHNSON. Absolutely. So when the IRS seizes money, that 
money goes into an account, the Treasury Forfeiture Fund. And 
that money is available to the IRS to fund their law 
enforcement activities by the Federal law. And so the IRS has 
access to this money that otherwise they would have to come to 
Congress and obtain appropriation. They might or might not be 
able to get that. Whereas if they seize the money, they can 
circumvent that entire process and build up their budget 
without having to come to Congress. And, obviously, that is 
incredibly attractive to the IRS. It is also a problem at the 
State and local level because of the equitable sharing process. 
You have local----
    Chairman ROSKAM. How does that work, equitable sharing?
    Mr. JOHNSON. Sure. So what equitable sharing is, it means 
when the Government seizes property and there is participation 
by State and local officers, as there generally is in 
structuring cases because these cases are investigated and 
pursued by joint task forces of State, local and Federal 
officials, then the State agencies that are involved can keep 
up to 80 percent of the money that is seized. And for a State 
and local law enforcement agency that may have difficulty 
otherwise getting access to Federal funds, that is an 
incredibly powerful incentive.
    Chairman ROSKAM. Carole Hinders is one of your clients?
    Mr. JOHNSON. Yes.
    Chairman ROSKAM. I looked at the affidavit that was sworn 
out in her case, and I am amazed at how de minimis these claims 
are. So the person that swore out the affidavit says, I mean, 
they are asserting their expertise: ``My education includes a 
bachelor's degree in sociology from the University of Iowa.'' 
Hey, God bless the sociology majors. But you know what I am 
saying? I mean, there are other things, and I am obviously kind 
of over-characterizing this, but then there are these 
assertions about deposits that don't look nefarious at all. 
They look like this is normal business transactions.
    You are familiar with this document I assume. Can you speak 
to that at all, how do the affidavits strike you that you have 
seen? Then can you give a little more color commentary on the 
ex parte communication? In other words, the defendant in this 
case is not able to assert themselves at any time until there 
is a trial presumably.
    Mr. JOHNSON. Right. So, unfortunately, I don't think that 
Carole Hinders' affidavit is all that unusual. And there are a 
couple things about it that you pointed out that I think are 
pretty common. One is that it is filled out by a member of 
State or local law enforcement, who may have very little real 
background in investigating these kinds of offenses. The 
Commissioner spoke about how the IRSCI is one of the most----
    Chairman ROSKAM. Criminal Investigations.
    Mr. JOHNSON. Right. Is one of the most respected 
investigative branches. But in the structuring area, really 
these cases are being investigated and pursued in most cases by 
State and local officials who may have very little background 
in this.
    And then in terms of the barebones allegations, that is 
very common. What you see in these affidavits that are being 
brought before magistrates to justify the seizure is literally, 
here is my training, here is what the law says, and then here 
is a list of transactions taken from a bank statement, all of 
which are under $10,000, in some amount. And that is considered 
to be sufficient to give rise to probable cause, which is a 
very low standard, to then seize somebody's entire back 
    And, again, as you know, with the ex parte hearings, when 
that warrant is brought before a judge, that affidavit is 
brought before a judge, there is no opportunity for the 
property owner to say, Hey, wait a minute.
    Chairman ROSKAM. There is nobody else there, right?
    Mr. JOHNSON. Yes. There is nobody else there. It is just 
    Chairman ROSKAM. Here is the paper, Your Honor. This is 
what I am asserting. I am a sociology major from Iowa.
    Mr. JOHNSON. Exactly. What would be incredibly valuable, 
obviously, to any property owner would be an opportunity to 
say, Look, sure, there is a bunch of $10,000 deposits. But I 
have got an insurance policy. It only covers up to $10,000. 
Presented with that, what may look suspicious turns out to be 
just business as usual. But there is no opportunity for anybody 
to say that to the judge before the seizure occurs.
    Chairman ROSKAM. In the Commissioner's testimony, Mr. 
Johnson, in his written testimony, he talked about a 93 percent 
conviction rate, which, you know, if you read that, you would 
think, at first blush, that is pretty impressive, 93 percent. 
We are in a 51 percent business as politicians. So 93 percent 
is a big number for us. But that doesn't really tell the whole 
story, does it?
    Mr. JOHNSON. No. It absolutely doesn't. So of the seizures, 
the $242 million that was seized between 2005 and 2012, as I 
mentioned earlier, $116 million was never forfeited. That 
certainly doesn't sound like a 93 percent rate. That is much 
closer to a 50 percent rate. In half of the cases between 2005 
and 2012, some portion of the money ultimately wasn't 
forfeited. So, again, that means you are much closer to a 50 
percent rate. Many of those cases are probably settlements. 
These cases aren't going to trial. So when he refers to the 93 
percent rate, I imagine he is referring to cases that actually 
go to trial. Actually, in a third of all cases where money was 
seized for structuring between 2005 and 2012, none of the money 
was ultimately forfeited. So the IRS took the money, may have 
held it for months, years, and then ultimately determined, as 
they did with Jeff, Look, we don't actually have a real case 
here, we are going to have to give this money back. But, 
meanwhile, they have turned people's lives upside down, made 
their lives incredibly difficult for a long period, maybe even 
put businesses out of business.
    Chairman ROSKAM. Mr. Hirsch, you haven't been able to get 
your money back, right?
    Mr. HIRSCH. Not yet.
    Chairman ROSKAM. Why not?
    Mr. HIRSCH. We are still waiting. We settled with them 
January 20, 2015. And my lawyer right next to me was still--
they said they have up to 60 days to put it back into the 
    Chairman ROSKAM. And now they just happen to have an audit 
interest in you? You are such an interesting person and such an 
interesting business, that of all the fruited plain, of all the 
businesses that are out there, they have said, ``Hey, let's 
sees what those Hirsch brothers are up to,'' is that basically 
what you are dealing with now?
    Mr. HIRSCH. That is what we are dealing with now. And in 
the 27 years that we have been in business, we pay our taxes, 
do the right thing, and we never have been audited before.
    Chairman ROSKAM. Never audited before. Now you have come 
under their scrutiny. You have won basically on this thing. You 
are going to get your money back. And in 27 years of business, 
they have never audited you. And now you are incredibly 
attractive to them. And they are all over you, is that right?
    Mr. HIRSCH. Right.
    Chairman ROSKAM. Mr. Sowers, what happened, how did the 
Government react when you talked to the press?
    Mr. SOWERS. My lawyer talked to the guy from--I guess he is 
a, what do they say, prosecuting these cases, the prosecutor. 
And they gave us the $29,000 settlement number. And then my 
lawyer says, Well, we think that is a little high. We are 
thinking about $5,000. And then he said, Well, you know, that 
is not in the cards anymore because your client talked to the 
press. And now we are going to have to do something different.
    But actually, they told us--and I asked my lawyer about 
that this morning, and I am sure it came up--if we would have 
went to trial, they would have went after the whole $360,000 
that I had deposited in that account over that 32 weeks. So 
that was another scare tactic to say, Okay, you want to go 
against us? We will just take it all and not $29,000.
    Chairman ROSKAM. So they are upping the ante because you 
talked to the press?
    Mr. SOWER. That is what we figured. We do have a----
    Chairman ROSKAM. It is not complicated. I don't think your 
calculation is off.
    Mr. SOWER. We actually have an email from him to my lawyers 
stating that.
    Chairman ROSKAM. Really?
    Mr. SOWERS. Yes.
    Chairman ROSKAM. Who was that from?
    Mr. JOHNSON. I believe it is from Stefan Cassella, that's 
the U.S. attorney.
    Mr. SOWERS. Yes.
    Chairman ROSKAM. And he disclosed? Tell me about the email. 
What was the nature of the email?
    Mr. SOWERS. There should be a copy here of it somewhere.
    Mr. JOHNSON. It is an email from Stefan Cassella, who I 
believe was an assistant U.S. attorney at the time. And there 
is an email below it from David Watt, who was Mr. Sowers' 
attorney, who says that, I think we can still wrap this up 
before you leave on your trip. My client is still troubled by 
the, quote, ``acknowledge language,'' referring to some 
language in the proposed settlement, since he believes he is 
admitting there was reasonable cause to seize the money. In the 
meantime, I have obtained a settlement in the Taylor Produce 
case, which is attached. And it is very similar to Sowers' 
case. And there is no such language in that settlement.
    So he says, We would be satisfied with the exact same 
language from the Taylor case. Why can't we just do what was 
done in the Taylor case?
    And Mr. Cassella's response to that is, Mr. Taylor did not 
give an interview to the press.
    Chairman ROSKAM. I would ask unanimous consent to insert 
that into the record. And can you provide that to the 
    Mr. JOHNSON. Yes.
    [The information follows:]
    Chairman ROSKAM. Mr. Johnson, just quickly, your client 
Mark Zaniewski in Michigan had an experience. Can you just give 
us a nutshell basically summarizing what his journey was 
    Mr. JOHNSON. Absolutely. It is truly shocking what happened 
to him. He had about $30,000 seized by the IRS. He owns a 
service station in Michigan. The IRS seized his money because 
he was depositing it under $10,000 because he simply would 
deposit whenever he got up to an amount that he thought was 
enough cash to deposit. Sometimes he would deposit under. 
Sometimes it was over $10,000.
    The IRS takes his money. He says to them, I have vendors 
who are going to be taking money out of my bank account; what 
do I do to prevent the checks from cashing?
    They said, Well, it is not really our problem. We are not 
closing the account. If you want to keep using it, that is 
    So he says, Okay, well, I am going to put more money in it.
    They said, Okay, that's fine.
    So he goes to his sister-in-law, he gets a 10,000-dollar 
loan from his sister-in-law. He also deposits credit card 
receipts into the account, money that is not even cash 
receipts. He deposits this into the accounts, another $30,000.
    The IRS then comes back and seizes that money as well. And 
what they said to him was, Now that we have all of this money, 
we would be happy to agree to a settlement agreement under 
which we will return the money that we seized the second time 
if you let us keep the money that we seized the first time.
    Chairman ROSKAM. So they are basically saying, Hey, you 
messed up, you trusted us?
    Mr. JOHNSON. And we are going to leverage that to make you 
    Chairman. ROSKAM. And the same thing happened to you, Mr. 
Sowers, wasn't that right? The $62,000 and then the subsequent 
    Mr. SOWER. Yes. And that account had stuff coming off of 
it. And the bank was sending me letters saying or calling me 
and saying, Look, this thing needs money put in it.
    And I said, Well, you know what happened, you all know what 
happened. But it didn't seem like anybody at PNC Bank knew what 
had happened. And I never did find out from PNC. And they 
finally closed the account on their own, not because I wanted 
it closed, but they closed it. So we had to transfer all that 
stuff to other accounts.
    Chairman ROSKAM. I want to thank our second panel.
    For those of you who have walked this journey, we are very 
regretful that we have had to have this hearing. But we are 
glad that we have a forum where we can tell this type of story.
    It is this committee's job on a bipartisan basis to expose 
abuse of the Federal Government. When the Federal Government 
abuses its citizens, that is the interest of this subcommittee 
in particular. You have our commitment on a bipartisan basis to 
do everything that we can to stand up for you.
    I will note that everybody hates lawyers until they need 
lawyers, you know what I am saying? Yet, there is a poignancy, 
and I just want to close with this, we have heard other 
witnesses in the past who have come in and have testified 
before the whole committee on similar situations, not with 
structuring, but where they have been abused.
    I have been inspired by those witnesses. We hear from a lot 
of people. We will hear from think tank people and we will hear 
from professional people and smart people and this people and 
that people. But what really gets my attention and inspires me 
is people who have kept faith in their country when they 
perceive that their country was not keeping faith with them. 
And that is what you have done. You have kept faith with your 
country because you realized this isn't the way this is 
supposed to be. This isn't the way--this isn't why I was 
deployed. This isn't what I was standing up for. This isn't the 
hard work of putting together a family business. This isn't 
working with my wife and creating this business over a period 
of time. It is not supposed to be this way, you were faithful, 
and now what is happening is your country is trying to come 
over the hilltop and try to rescue you and be a part of fixing 
    So your willingness to stand up, your willingness to be 
sophisticated and smart about how you have done it, and your 
willingness to share with us your story means now you are 
handing something off to us. And that responsibility is not 
lost on any member of this committee. I know I speak for my 
friend, the ranking member, Mr. Lewis, you have our assurance 
that we are going to do everything that we can to make sure 
that this is something that we put a stop to and that the 
Internal Revenue Service recognizes that it is a creature of 
Congress and it is responsible to the American public. The 
public delegates their authority to us, and then we delegate 
the authority to the IRS. If they are operating outside of that 
delegated authority, they are going to deal with it.
    So thank you all.
    Members are reminded that they have the requisite period of 
time to supplement the record today.
    With that, the committee is adjourned.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]