Gone in 13 Days: IJ Holds IRS Accountable in North Carolina

This article was supposed to introduce IJ’s latest civil forfeiture case, involving a North Carolina convenience store owner named Lyndon McLellan who had his entire bank account—more than $107,000—seized because, according to the IRS, he made cash bank deposits in the “wrong” amounts. But before we could get the article to print, and as a result of our litigation effort and media blitz against the government agency, the IRS agreed to give back Lyndon’s money.

This is hardly the first time the government has admitted defeat in an IJ civil forfeiture case, but it sets a new record for speed. From the day the Institute for Justice entered the case, it took the government only 13 days to decide it would not take Lyndon’s money after all. During those 13 days, the case received intense public attention—including an article in The New York Times and a segment on Fox News.
The IRS targeted Lyndon under so-called “structuring” laws, which were designed to go after drug dealers, money launderers and others seeking to evade bank reporting requirements, but which sweep up small business owners guilty of nothing more than depositing their hard-earned money in the bank.
Cases like this were supposed to be a thing of the past. In October 2014, The New York Times published a front-page story featuring IJ clients Carole Hinders and Jeff Hirsch, who also had their money seized under the structuring laws. The IRS responded by announcing it would henceforth limit its application of the structuring laws to real criminals.

Lyndon is exactly the kind of person the IRS policy change was supposed to protect from its often abusive practices. Lyndon built his business through tireless work—manning the register, sweeping the floors, working the grill and hardly ever taking a vacation for more than a decade. He runs a store where you can buy a catfish sandwich for $2.75, where the same regulars come every day for breakfast and where practically every customer knows Lyndon by name.

But, policy or no, the government was determined to take Lyndon’s bank account because they saw it as easy pickings. The government filed its forfeiture complaint in December 2014, two months after the IRS announced its policy change. And, in March 2015, the prosecutor handling Lyndon’s case sent an email offering to settle for 50 percent of the money. In other words, although the case never should have been brought, the prosecutor demanded half of Lyndon’s money in order to go away. The same prosecutor warned Lyndon to be quiet about what the government was doing, writing “publicity about it doesn’t help. It just ratchets up feelings in the agency.”

Instead of remaining silent and losing all he earned, Lyndon joined with IJ to fight the government’s civil forfeiture action. And, as soon as the government realized it faced a real opposition, it turned tail and dropped the case. Now we will continue our effort to help Lyndon recover the fees and expenses he endured as a result of this misadventure.

The government’s about-face confirms an ugly truth: The government uses civil forfeiture to prey on those who it does not think will fight back. Civil forfeiture thrives outside the light of public attention, where government can coerce property owners without having to justify its actions. IJ is shining a light on civil forfeiture—and not just in Lyndon’s case. The government is going to have no choice but to change. Perhaps not in 13 days, but perhaps sooner than anyone thinks.

Robert Everett Johnson is an IJ attorney and the Elfie Gallun Fellow in Freedom and the Constitution.