DESCRIPTION OF H.R. 5523,

THE “CLYDE-HIRSCH-SOWERS RESPECT ACT”

Scheduled for Markup

by the

HOUSE COMMITTEE ON WAYS AND MEANS

on July 7, 2016

Prepared by the Staff

of the

JOINT COMMITTEE ON TAXATION

July 6, 2016

JCX-63-16
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1

A. Internal Revenue Service Seizure Requirements with Respect to Structuring

Transactions........................................................................................................................ 2

B. Estimated Revenue Effect of the Proposal.......................................................................... 5
1

INTRODUCTION

The House Committee on Ways and Means has scheduled a committee markup of 

H.R. 5523, the “Clyde-Hirsch-Sowers RESPECT Act,” on July 7, 2016. This document,1

prepared by the staff of the Joint Committee on Taxation, provides a description of the bill.

 

1

 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 5523, the 

“Clyde-Hirsch-Sowers RESPECT Act” (JCX-63-16), July 6, 2016. This document can also be found on the Joint 

Committee on Taxation website at www.jct.gov. All section references herein are to the Internal Revenue Code of 

1986, as amended (herein “Code”), unless otherwise stated.
2

A. Internal Revenue Service Seizure Requirements with Respect

to Structuring Transactions

Present Law

The Bank Secrecy Act (“BSA”) mandates a reporting and recordkeeping system that 

assists Federal law enforcement and regulatory agencies in the detection, monitoring, and tracing 

of certain monetary transactions.2 The reporting requirements are imposed on individuals, 

financial institutions, and non-financial trades and businesses relative to monetary transactions 

and banking relationships. The requirements include reporting currency transactions exceeding 

$10,000. 

To circumvent these reporting requirements, persons sometimes structure cash 

transactions to fall below the $10,000 reporting threshold (referred to as “structuring”). In other 

words, instead of conducting a single transaction in currency in an amount that would require a 

report to be filed or record made by a financial institution, an individual conducts a series of 

currency transactions, willfully keeping each individual transaction at an amount below 

applicable thresholds to evade reporting or recording. Structuring can be used to conceal illegal 

cash-generating activities, such as the selling of narcotics, and to conceal income earned legally 

in order to evade the payment of taxes. Structuring (or attempts to structure) for the purpose of 

evading the reporting and record keeping requirements

3

is subject to both civil and criminal 

penalties.

4

 

Current law authorizes forfeiture of property involved in transactions or attempted 

transactions5in violation of these rules in accordance with the procedures governing civil 

forfeitures in money laundering cases.

6

The Secretary of the Treasury has delegated responsibility for implementing and 

enforcing the BSA to the Director, Financial Crimes Enforcement (“FinCEN”), who in turn redelegated responsibility for civil compliance with the law to various Federal agencies including 

the Internal Revenue Service (“IRS”).

7

 The scope of that delegation of authority was expanded 

 

2

 The Bank Secrecy Act, 31 U.S.C. secs. 5311-5332 (“BSA”).

3

 31 U.S.C. secs. 5313(a), 5324(a).

4 A person who willfully violates the law is subject to a fine of not more than $250,000, or imprisonment 

for not more than five years, or both. 31 U.S.C. sec. 5324(a); 31 U.S.C. sec. 5322.

5 31 U.S.C. sec. 5317(c)(2).

6

 See 18 U.S.C. sec. 981.

7 Treasury Directive 15–41 (December 1, 1992). At the time of the initial delegation, FinCEN was an 

entity created by regulatory action, but has since been explicitly authorized by statute. 31 U.S.C. sec. 310. 
3

subsequently, after enactment of the USA PATRIOT Act of 2001,

8

and includes authority to 

determine and enforce civil penalties.9 The IRS administers its delegated authority under the 

BSA through the IRS Small Business/Self-Employed Division, with assistance from the IRS 

Criminal Investigation Division (“IRS-CID”). 

If a person whose property was subject to forfeiture prevails in a civil forfeiture 

proceeding involving seizure of currency, the United States may be liable for reasonable attorney 

fees and other litigation costs reasonably incurred by the claimant; post-judgment interest; and 

interest actually paid to the United States from the date of seizure or arrest of the property that 

resulted from the investment of the property in an interest-bearing account or instrument as well 

as imputed interest for the period for which no interest was paid.10 The interest paid is 

includable in gross income, under section 61. 

Prior to October 2014, the IRS provided partial relief in structuring cases involving a first 

offense, a legitimate funding source, and no criminal conviction. The IRS procedures also 

required its criminal investigation division to consider additional mitigating or aggravating 

factors. On October 17, 2014, IRS-CID issued guidance on how it will conduct seizures and 

forfeitures in its structuring cases.

11

 Pursuant to this guidance, the IRS will not pursue seizure 

and forfeiture of funds associated only with so-called "legal source" structuring unless: (1) there 

 

8

 Treasury Order 180-01, https://www.treasury.gov/about/role-of-treasury/orders-directives/Pages/to180-

01.aspx, delegating authority to FinCEN. For a discussion of the relationship between FinCEN and the agencies to 

which it re-delegated authority, see, Office of Inspector General, “TERRORIST FINANCING/MONEY 

LAUNDERING: Responsibility for Bank Secrecy Act Is Spread Across Many Organizations,” OIG-08-030 (April 9, 

2008), available at https://www.treasury.gov/about/organizational-structure/ig/Documents/oig08030.pdf.

9

 A penalty may be assessed before the end of the six-year period beginning on the date of the transaction 

with respect to which the penalty is assessed. 31 U.S.C. sec. 5321(b)(1). A civil action for collection may be 

commenced within two years of the later of the date of assessment and the date a judgment becomes final in any a 

related criminal action. 31 U.S.C. sec. 5321(b)(2).

10 28 U.S.C. sec. 2465(b)(1). The imputed interest that may be paid under that section is the amount that 

such currency, instruments, or proceeds would have earned at the rate applicable to the 30-day Treasury Bill, for any 

period for which no interest was paid (not including any period when the property reasonably was in use as evidence 

in an official proceeding or in conducting scientific tests for the purpose of collecting evidence), commencing 15

days after the property was seized by a Federal law enforcement agency, or was turned over to a Federal law 

enforcement agency by a State or local law enforcement agency.

11

 Memorandum for Special Agents in Charge Criminal Investigation, October 17, 2014, available at 

http://ij.org/wp-content/uploads/2015/07/IJ068495.pdf; Written Testimony of John A. Koskinen and Richard Weber, 

House Committee on Ways and Means Subcommittee on Oversight on “Financial Transaction Structuring,” May 25, 

2016, available at https://www.irs.gov/uac/newsroom/written-testimony-of-john-a-koskinen-and-richard-weberbefore-the-house-committee-on-ways-and-means-subcommittee-on-oversight-on-financial-transaction-structuringmay-25-2016; New IRS Special Procedure to Allow Property Owners to Request Return of Property, Funds in 

Specific Structuring Cases, June 16, 2016, available at https://www.irs.gov/uac/newsroom/new-irs-specialprocedure-to-allow-property-owners-to-request-return-of-property-funds-in-specific-structuring-cases; Letter to 

Chairman Roskam and Ranking Member Lewis summarizing planned actions, June 10, 2016, available at 

http://waysandmeans.house.gov/wp-content/uploads/2016/06/6.9-Roskam-Lewis-Response-Letter-andEnclosure.pdf.
4

are exceptional circumstances justifying the seizure and forfeiture and (2) the case is approved 

by the Director of Field Operations.

Nothing in the BSA or the administrative guidance issued by the IRS affects the Federal 

tax treatment of the interest that may be paid to the successful litigant in civil asset forfeiture 

proceedings. The Code provides no specific exclusion from gross income (or deduction from 

adjusted gross income) for amounts received pursuant to an action to recover property seized by 

the IRS pursuant to the BSA.

Description of Proposal

In cases in which a civil asset forfeiture is conducted by the IRS on the basis of a 

structuring violation, either the property to be seized must be derived from an illegal source or 

the structuring must be done for the purpose of concealing a violation of a criminal law or 

regulation other than structuring.

The proposal establishes notice and post-seizure review procedures for IRS seizures 

based on structuring violations. The IRS must, within 30 days, make a good faith effort to find 

the owner of the property seized and inform him or her of certain post-seizure hearing rights 

provided under the proposal. This 30-day notice requirement may be extended if the IRS can 

establish probable cause of an imminent threat to national security or personal safety. If a notice 

recipient requests a court hearing within 30 days of the notice, the property is required to be 

returned unless the court finds that there is probable cause to believe that the property to be 

seized was derived from an illegal source or the funds were structured for the purpose of 

concealing the violation of a criminal law or regulation other than the structuring provisions of 

the BSA.

The proposal also amends the Code to exclude from gross income any interest received 

from the Federal Government in connection with an action to recover property seized by the IRS 

pursuant to a claimed violation of the structuring provisions of BSA.

Effective Date

The proposal concerning IRS seizure requirements with respect to structuring 

transactions is effective on the date of enactment. The proposal concerning the exclusion of 

interest applies to interest received on or after the date of enactment.
5

B. Estimated Revenue Effect of the Proposal 

The proposal is estimated to reduce Federal fiscal year budget receipts by less than 

$500,000 for the period 2017 through 2026.