Government Sleaze Storm: Man Beat IRS In Court; They Still Wouldn't "Make Him Whole"
This particular case has been resolved -- but it's reflective of the kind of government ours has become -- and it's ugly and disturbing.

The suggested reforms at the bottom of this post are right on, but frankly, it's tragic that they are necessary.

The story inspiring this post is a "civil asset forfeiture" case -- successfully defended by the Institute for Justice.

Lyndon McLellan is the owner of a small convenience store in rural North Carolina, reports George C. Leaf at FEE.org:

In July 2014, IRS agents seized Mr. McLellan's entire bank account, with $107,702.66 in it. The reason for the seizure? The feds thought that his frequent bank transactions involving cash amounts of just under $10,000 looked suspicious; he might be "structuring" his transactions to avoid the requirement of reporting transactions of $10,000.

That was enough for the IRS and, without any effort to find out why McLellan made these transactions or how he derived the funds, it took his money.

Lyndon was not about to just wave goodbye to his life savings, however. He retained an attorney and paid an accountant to try to prove that he had done nothing wrong and should get his money back.

With their help and an enormous pro bono assist from the Institute for Justice, the government has agreed to return all of his money to him. (For more about this outrageous case, see my Forbes article.)

But the government is still trying to avoid making McLellan whole under CAFRA [the Civil Asset Forfeiture Reform Act]. When the US attorney handling the case offered to return the money, he also tried to get him to sign a document waiving his rights to pursue full recompense -- his lost interest and expenses for legal and accounting help. Lyndon declined to sign that document.

So the next day, the US attorney entered a motion in court to dismiss the case (officially named United States of America v. $107,702.66 in United States Currency Seized from Lumbee Guaranty Bank Account No. 82002495) "without prejudice."

When a case is dismissed without prejudice by a court, the government is reserving the right to re-open it at a future time. In other words, it isn't really conceding defeat but declaring that the case is still technically open. Asking that the case be dismissed without prejudice might seem strange here because the government's change in policy last year -- the IRS has officially abandoned the policy of seizing bank accounts unless it has evidence of criminal activity -- forecloses any re-opening of it.

Ah, but there is a method in this madness. In a number of similar cases, the government has argued that because the seizure case was dismissed without prejudice, the plaintiff does not count as the "prevailing party" under CAFRA and therefore is not entitled to full recompense.

They owed McLellan the lost interest on the money plus professional fees he incurred (for a forensic accountant and his lawyer, before the Institute for Justice took the case pro bono). These fees amounted to around $20K.

Every time the government is able to treat a citizen so obscenely, it makes them more able to do it to the next and the next.

Check out the attitude of government official in Leaf's piece on Forbes, where he writes:

You might think that federal officials, after hearing that, would be chastened. Not at all. The United States Attorney heading the forfeiture case against McLellan, Steve West, told his lawyer and accountant that he was "concerned" that the case document had been provided to Congress.

Why should any "civil servant" be upset about facts being disclosed to members of Congress? We aren't supposed to have star chamber proceedings in America.

Furthermore, that attorney went on to say, "Whoever made [the document] public may serve their own interest, but will not help this particular case. Your client needs to resolve this or litigate it. But publicity about it doesn't help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. The offer is good until March 30th COB."

How terribly revealing that is. Whether a legal case proceeds should have nothing whatever to do with the "feelings" of the government officials. And offering to give back half of the man's seized wealth if he will just go away quietly is hardly consistent with concern about justice. It is, however, consistent with the "win no matter what" attitude that infects many prosecutors.

Careerist prosecutors going for the win -- instead of what's just.

This the country you want to be living in?

Good news -- at too high a price. Jacob Sullum, in February, wrote of the outcome in Reason:

This week a federal judge completed McLellan's vindication by dismissing the forfeiture case with prejudice, making him eligible to recover his costs and the interest on his purloined savings under the Civil Asset Forfeiture Reform Act (CAFRA).

More on this obscenity from testimony from this July in Mississippi. These are reforms suggested by the Heritage Foundation's Meese Center that are absolutely right on:

Restore legislative control of forfeiture proceeds by redirecting them to the General Fund. Law enforcement should not be a profit center. Lawmakers should bar law enforcement agencies from retaining the forfeiture funds they generate and mandate that these proceeds go instead to a jurisdiction's General Fund.

Eliminate equitable sharing. The federal government should not be encouraging state and local law enforcement to bypass state and local laws. Equitable Sharing hampers state efforts to protect innocent property owners and reinforces the profit motives at the core of forfeiture abuse. Internal Justice Department policy changes are insufficient; the program should be abolished. Until then, states should consider policy reforms that disallow their law enforcement agencies from bypassing their own laws.

Raise the burden of proof. The government should be required to demonstrate that property is subject to forfeiture by "clear and convincing evidence," a standard significantly higher than the current "preponderance of the evidence."

Reaffirm the presumption of innocence. Property owners should not have to disprove the government's case; rather, the burden should be on prosecutors to demonstrate that owners knew their property was being used in the commission of a crime.

Ban "bartering." Property owners should not be pressured into waiving their rights on the side of a road or in the heat of the moment. All law enforcement agents should be barred from "bartering"--offering to let property owners go if they sign away their property on the spot.

Provide for indigent defense. Forfeiture is a highly complex system that most citizens are ill-prepared to face alone. Because of its quasi-criminal nature, claimants who cannot afford counsel should be able to petition a court for the appointment of counsel at the government's expense, and victorious property owners who retained counsel should be afforded a chance to recoup their attorney's fees.

Protect property owners' rights in administrative forfeitures. Most federal civil forfeiture cases begin and end in the bowels of a federal agency. Agencies should be required to reform their internal procedures to make the process fairer and more transparent, clearly advising potential claimants about their rights to contest a seizure and to legal representation. Property owners should also be afforded the right to a prompt pre-seizure or immediate post-seizure hearing before a judge.

Ensure transparency through reporting requirements. Law enforcement agencies involved in civil forfeiture cases should be required to record the details of their seizures and forfeitures. These reports should specify what was seized, the amount or value of the seized goods, the alleged criminal conduct giving rise to the forfeiture, whether anyone was ever arrested for, or convicted of, said criminal conduct, whether the forfeiture action was challenged, the final disposition of the property or currency, and how forfeiture funds have been spent.

Provide for review of forfeiture settlements. Given the complexity of forfeiture law and the tremendous pressure that property owners face to settle forfeiture cases (sometimes because they are threatened with criminal charges if they continue to contest the forfeiture), in cases in which a claimant is not represented by counsel, any proposed settlement should be reviewed by a neutral third party, preferably a judge.

These reforms have been endorsed by 15 bipartisan national organizations, from the American Civil Liberties Union to the Institute for Justice.