EDITORIAL: Beating the IRS

OPINION:

David beats Goliath so rarely that the smart money is always on Goliath, and the tax collector always wins. But not quite always. Two Michigan businessmen have beaten the Internal Revenue Service at its own game. After a wave of bad publicity — and a lawsuit by the Institute for Justice — the IRS agency beat a retreat from using civil forfeiture to seize $70,000 by arbitrarily calling it “suspicious.” It agreed to return the money last week.

That relieves Mark Zaniewski, proprietor of a Metro Marathon gasoline station near Detroit. Mr. Zaniewski, who owns several gasoline stations and convenience stores, is familiar with masked thieves who hit stores like his, but the IRS robbers wore only IRS badges. The officers alleged no crimes. The government asserted only that the way the stores and stations collect and deposit considerable cash over the day looked “suspicious.”

With his capital tied up by the IRS for more than seven months, Mr. Zaniewiski struggled to keep his business alive. He begged and borrowed money from members of his family to pay for weekly gasoline deliveries. The IRS even took some of the borrowed money, forcing him to close his stations for two weeks.

Civil-forfeiture procedures allow mere suspicion to justify such mischief. Under the rules of civil procedure, an accused is presumed guilty and must prove his innocence. These are rules directly opposite from criminal procedures, where the accused is presumed innocent until proved guilty. Constitutional rights, such as the right to due process and a speedy trial, do not apply.

Moreover, police and other law enforcement agencies are offered a cut of whatever proceeds the IRS takes, which makes law-abiding businesses tempting targets. Jesse James and his boys, Willie Sutton, and Bonnie and Clyde never had it as good as this.

Terry Dehko, owner of Schott’s Supermarket in Fraser, Mich., was trapped in this system when the IRS helped itself to $100,000 from the store’s bank account. Under provisions of the Patriot Act, IRS agents were enabled to look through the ledgers for evidence of money laundering. The IRS found “no violations,” but nine months later, the IRS used a secret warrant to empty the bank account because it found frequent cash deposits of less than $10,000. As Mr. Dehko explained in an op-ed column in these pages in September, “My clerks routinely deposited cash earned at Schott’s at a bank right across the street. It’s never a good idea to risk letting too much money accumulate on-site. Like many other small businesses, my store’s insurance policy specifically limits coverage for cash losses to $10,000.”

Hours after a lawsuit was filed in the Michigan cases, the IRS cut its losses and dropped the proceedings against Messrs. Dehko and Zaniewski. The Institute for Justice, however, it not backing down, and says it will push the federal courts to recognize the right to a prompt hearing when the government uses civil procedures to take property.

We wish the institute well, but the courts can’t always be trusted to do the right thing. Congress must step up to recognize that property should be seized only after someone has been convicted of a crime. The rules should be revised so that no man or agency benefits from taking the property of others. Otherwise, the government is little different from the masked men who rob gasoline stations and grocery stores.