Farmer Refuses to Roll, Rips Lid Off IRS Behavior

05:54AM Feb 10, 2020
RANDY SOWERS LEAD
“What was I going do when I felt like somebody was threatening my wife with jail and my livelihood? I was never, never going to give up,” says Randy Sowers.
( Photo courtesy of Institute for Justice )

Strapped with pistols and carrying government IDs, two Treasury agents walked onto a Maryland farm on a cold winter morning in 2012, and asked for the owner - Randy Sowers. It was a blur of badges and questions, but Sowers’ four-year legal nightmare was only just beginning. “My story could belong to any farmer or business owner,” Sowers says. “People have almost no idea what the feds will do when they want to hurt you. What kind of power-hungry bureaucrats do we have when guilt or innocence plays no role in the system?”

Sowers was caught in the hooks of a law intended to capture crime lords and money launderers, and tagged with a bank deposit breach—a paperwork infraction with a sledgehammer penalty. Although the Frederick County producer wasn’t suspected of drug dealing, tax evasion, or criminal enterprise, Internal Revenue Service investigators wedged Sowers into a legal vise with almost no chance of escape. Sowers’ wife had made a series of bank deposits—all less than $10,000 cash and gleaned from farmers’ markets—and in response, IRS was baying for proverbial blood. “They seized almost $70,000 of our money, had us scared and thinking we were going to prison, and maybe losing all we’d worked for,” Sowers explains. “Roll over and shut up—that’s the game I was supposed to play.”

Instead, Sowers spoke to the press, raised Cain and refused to dance to the federal tune, and his actions eventually helped rip the lid off IRS’ “seize first, question later” tactics involving millions of dollars in private property grabs across the U.S. Within three years of the Treasury agents’ visit, Sowers would walk up Capitol steps and testify before House and Ways Committee members disgusted by IRS behavior, regain his money, and become a key catalyst for the passage of 2019 legislation limiting federal power. In short, Sowers became the dairy farmer who dared: “What was I going do when I felt like somebody was threatening my wife with jail and my livelihood? I was never, never going to give up.”

Upside Down

Sowers and his wife, Karen, are the owners of South Mountain Creamery in Middletown, Md., roughly 60 miles northwest of Washington, D.C. In 2012, Sowers had 320 dairy cows and grew 2,000 acres of corn and soybeans on the flat ground of a valley floor, consistently logging 16-hour workdays: “When things got tight, I’d work up to 20 hours a day, but I’m not complaining—I did it because I loved it. We were like a lot of Americans, working hard and grateful for what we had.”

In 2011, the Sowers set up shop at farmers’ markets or festival venues, dealt on a cash-only basis, and backed each sale with notation on a yellow legal pad. Every Monday, like clockwork, Karen entered a branch of Columbia Bank and deposited the cash proceeds, typically around $10,000. After a particularly large special event, Karen arrived at Columbia the following Monday with approximately $12,000, a bit more green than usual, and received a request from the bank teller, according to Sowers: “The teller asked Karen for a favor and said, ‘Make your deposit less than $10,000 and no paperwork is required.’ That was it. We did it because we were asked to do it. For 34 weeks, Karen deposited about $9,500 each time. I’m not saying it didn’t look a little odd, but there was a reason—we’d been asked,” Sowers says. “There was no tax evasion, no laundered money, and no drug money.”

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Technically, by depositing the cash in increments less than $10,000, the Sowers were committing a crime. The Bank Secrecy Act of 1970 required all U.S. banks to notify the feds of any transactions above $10,000. Essentially, the act allowed the government to place tighter crosshairs on drug operations, crime organizations and money launderers by tracking the movement of large piles of cash. By the letter of the law, the Sowers were guilty of “structuring” cash deposits to keep totals below reporting requirements and off the government’s radar. (The pursuit of Sowers was backed by then Maryland U.S. Attorney Rod Rosenstein, who would go on to serve as U.S. Deputy Attorney General and resign in 2019, following a controversial tenure.)

“We’d never even heard of the Bank Secrecy Act and didn’t mean to break any laws. I had no idea our lives were about to go upside down,” Sowers describes. “They were about to take our money and run, threaten us with jail, and then expect us not to make a sound. Combine all that with 16 hours a day of work on a farm and watch what happens to your life. Karen’s parents, my parents, and so many people we know assumed we must have done at least some bad stuff because otherwise the government would never, never bother us. That’s a heavy thing around your neck when everyone believes you’ve done wrong.”

Walter White

Close to 10 a.m., on a February morning in 2012, the government came knocking at South Mountain Creamery’s on-farm store, when two Treasury agents asked Sowers if was willing to answer questions. Sowers attempted to telephone his lawyer, got no answer, and agreed to speak with the agents in a back office. “They had badges and were armed, so I assumed they were the real deal and I didn’t have a problem talking. I answered all kinds of questions about my business, and I didn’t know if they were recording and I didn’t care.”

“They worked their way to a final question I remember very well: ‘Where did the cash come from?’ I told them the truth about farmers’ markets and special events, and that sometimes the amounts were $10,000-plus and we deposited the money on Mondays. That was it; the questions pretty much stopped, and they had what they wanted.”

Sowers’ realized his words were tantamount to a confession in the eyes of IRS, but he wasn’t aware the ax had already fallen: A grand jury date had been set. “They were going to get me to settle before the court date or indict me,” he notes. In addition, IRS already had seized Sowers’ bank account and grabbed roughly $63,000 through civil asset forfeiture. The chance of Sowers regaining all of his money was miniscule: Civil asset forfeiture enables IRS to take cash or assets without criminal charges or conviction, and take property owners into the deep water of expensive, long-term litigation.

“Forget innocent until proven guilty or reasonable explanations, the wheels were already in motion,” he says. “They’re making me think I was on the road to a grand jury and a felony charge. Yes, I was scared in that moment, but I kept asking myself, ‘How many other people has this happened to?’”

Turns out, Sowers’ scenario had played out with an alarmingly high number of U.S. citizens. Sowers was not an exception, because IRS structuring charges were levied in a scattergun approach across multiple states, often without merit. Drug dealers, crime bosses, tax skirters, or Walter White types? Not exactly.

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According to data collated by the Institute for Justice (IJ), a national libertarian law firm and legal advocacy group representing clients pro bono, IRS grabbed over $242 million in 2,500 suspected structuring cases from 2005-2012. Significantly, at least a third of the 2,500 cases were triggered by cash deposits below $10,000, and contained no other criminal allegations.

The examples are not isolated:

—Terry Dehko, and daughter, Sandy, owned Schott’s Supermarket, outside Detroit, Mich., and made frequent sub-$10,000 deposits from the store registers to a bank account, partly because their insurance policy only covered losses up to $10,000. In January 2013, IRS and DOJ drained the Dehko account—$35,000-plus.

—Calvin Taylor, and wife, Debora, grew sweet corn and raised poultry at C.W. Taylor Farms in Preston, Md., on the Eastern Shore, and operated multiple farm stands. In 2013, IRS plucked $90,175 from the Taylors’ business account, due to structuring.

—Andrew Clyde ran a highly successful gun store in Athens, Ga., Clyde Armory, and made 100 deposits (all below $10,000) into a bank account to navigate around limited insurance coverage. In April 2013, Clyde, a military veteran with three tours in Iraq, got a visit from Treasury agents: IRS seized $950,000 from the account.

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—Jeff Hirsch owned Bi-County Distributors in Long Island, N.Y., and provided goods to convenience stores—a cash intensive business. Hirsch took an accountant’s advice and kept bank deposits below $10,000, in order to avoid paperwork. In March 2012, IRS grabbed $446,651 of Hirsch’s money.

—Carole Hinders had roughly $33,000 seized by IRS in 2014. She owned a small, cash-only restaurant in Spirit Lake, Iowa, and caught IRS attention after making sub-$10,000 deposits.

Ironically, structuring offenses were sometimes ignored in high-profile cases, such as the infamous prostitution scandal of Eliot Spitzer, former governor and attorney general of New York. In 2008, IRS investigators were alerted to odd cash transactions—structuring—in Spitzer’s bank records, ultimately directly connected to prostitution payments. After Spitzer resigned, and an investigation was completed by IRS and FBI, the DOJ walked away and declined to prosecute. Nothing to see, move along.

Shakedown

Most of the dubious structuring cases followed a similar path: no formal charges and no convictions. From its elevated pedestal at the Treasury Department, using the long arm of the Bank Secrecy Act, IRS was able to reach down and take possession of money from ordinary citizens, and then pull up the rope ladder and refuse to descend from the heights. In most of the seizure instances, the only option offered by IRS was settlement, i.e., a split of the sum. In the aforementioned cases of Dehko, Taylor, Clyde and Hirsch, settlement offers were the rule. Taylor, for example, settled and lost $41,790; Clyde settled and gave up $50,000.  

“That’s how almost all of these end—with a settlement,” Sowers says. “If you want any of your money back, you have to settle. Most people are too scared, frustrated, tired, or financially wasted to do anything else. Maybe get half your money back or go to court and lose it all? Call it what you want, but most people recognize that as a shakedown.”

In total, Sowers was offered a settlement whereby IRS would pocket almost $30,000 of his dairy dollars. A fight in court could cost Sowers the grand total deposited in the account for an entire year: $360,000, along with lawyer and litigation fees. “I settled because I had no choice and that’s how they rigged the whole thing. Rosenstein should have been the one threatened with prison; not me.”

However, IRS hadn’t reckoned on Sowers’ bulldog nature or his willingness to wade toward controversy. (Sowers was involved in a 2000 egg-dumping protest, and is currently confronting skim milk regulations.) “Even at farmers’ markets, I told everyone what Rosenstein and the IRS had done. Anybody who would listen, I tried to tell them the story. I spoke to the press and I did my best to get people to hear. By this time, I knew this could happen to anyone, and no way was I going to lick my wounds and shut up.”

As concrete settlement terms came into view, a City Paper reporter called Sowers and asked for comment on the pending negotiation. “He said he was gonna write the story whether I talked or not, but that it wouldn’t look very good if I didn’t give my side,” Sowers recalls. “I told him my story and he did a great job.”

However, when DOJ officials read the City Paper article and realized Sowers had granted an interview, their reaction was swift, according to Sowers. “Rosenstein changed the settlement to where I had to admit guilt. I was the only case required to do that and I wanted to know why. Basically, Rosenstein said they were being harder on me than anyone else because we spoke to press. Unbelievable.”

Mr. Sowers Goes to Washington

As Sowers struggled with the settlement grind, the Institute for Justice (IJ) was at the frontlines of civil forfeiture opposition, and took a head-on approach to IRS behavior, representing 12 clients in six structuring-related cases. Dan Alban, senior attorney with IJ, says IRS actions were incentivized by money and a numbers game: “Both IRS and DOJ get up to 100% of proceeds from forfeitures and they had a strong interested to vacuum as much cash as possible. The cash goes to a forfeitures fund of the Treasury and DOJ, really a slush fund that can only be spent by law enforcement.”

“The structuring cases also boost IRS numbers as well,” Alban continues. “They don’t even have to look for criminals, but instead look for frequent cash deposits. Instead of real investigations, they can troll bank accounts and then squeeze people by making them prove their innocence which is so hard to do. The IRS knows when people have payroll, rent or mortgages to keep up, they’ll take a bad deal to keep their business open. No other choice sometimes.”

Essentially, as IJ trained a public spotlight on structuring/civil forfeiture, IRS conveniently amended its policy in 2014. “We brought half-a-dozen or more cases and elevated them to high profile status. While the final case was pending and we prepared to file on behalf of Carole Hinders, the New York Times contacted IRS and asked what was going on. IRS stalled for several weeks, and then announced it was changing its policy and would no longer conduct seizures without underlying evidence of criminality.”

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Although not codified, IRS ended structuring seizures except when related to illegal activity. (In 2015, DOJ also changed its structuring policy.) IJ’s efforts gained congressional attention, and the House Ways and Means Committee began an investigation, and asked Sowers to testify, in tandem with Hirsch and Taylor. In the early hours of a February 2015 morning, Sowers finished dairy work, grabbed a clean shirt, jumped in a truck alongside Karen, drove southeast to D.C. in order to avoid work-hour traffic, grabbed an IHOP breakfast, and then slept in the IJ parking lot. Within hours of milking his cows, Sowers was fielding questions from a phalanx of suits and ties on Capitol Hill. “The congressmen were disgusted from the first minute, but not by us,” Sowers recalls. “They were hitting the IRS guys with all kinds of questions. The IRS officials dodged and ducked, and nobody took blame. When the facts were out there for everyone to see, the committee seemed pretty upset because they hadn’t realized the extent of IRS’ actions.”

In July 2015, IJ petitioned DOJ and IRS, asking for a return of Sowers’ money. Roughly one year later, IRS returned Sower’s settlement sum: $29,500. The bureaucratic levee had broken, and according to IJ, IRS returned approximately $43 million from 618 structuring cases dated from 2007 to 2013.

Further, a 2017 Treasury Inspector General report published March 30, 2017, dug deeper into IRS behavior and ran a sample audit of 278 structuring cases, and found that IRS officials sometimes ignored legitimate explanations for deposits. Taken alone, the IG report’s title is alarmingly blunt: Criminal Investigation Enforced Structuring Laws Primarily Against Legal Source Funds and Compromised the Rights of Some Individuals and Businesses. In 91% (252) of the cases sampled, the inspector general “did not find evidence that the structured funds came from an illegal source or involved any other illegal activity.” (Of the 252 legal source cases cited, 210 were businesses and 42 were individuals.)

RESPECT

Sowers played an emblematic role in pressuring IRS to rein in civil forfeiture, but he insists IJ is due full credit: “They gave me power and charged me nothing. Institute for Justice is the finest outfit and they do it all through donations, all to help protect our freedoms. I can’t say enough about the incredible job they did battling for real changes from the IRS.”

Indeed, IJ was at the forefront of civil forfeiture opposition, and played the central role in exposing IRS actions in the court of law and court of public opinion. Alban says Sowers’ case, and others handled by IJ, showcase the abusive potential of civil forfeiture laws: “This is how bad government officials can act when given the wrong incentives. This area is still rife with federal abuse from people driving down the road with money to pay for a car, or house or equipment, or people flying across the country with money for a similar purpose. It happens all over the country.”

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“Unfortunately, civil forfeiture exists outside of structuring, and we’re trying to put an end to it in all contexts, so that the government can no longer forfeit any money without convicting someone of a crime, because no one should have to prove their innocence,” Alban adds.

In July 2019, seven years after Treasury agents first visited South Mountain Creamery, President Trump signed the Taxpayer First Act (after unanimous congressional approval)—a significant package of IRS reform legislation, which included the Clyde-Hirsch-Sowers RESPECT Act (eponymously named for Andrew Clyde, Jeff Hirsch and Randy Sowers). The RESPECT Act officially restricts forfeiture to currency structuring instances involving illegal activity.

Despite passage of the RESPECT Act and restitution of settlement money, Sowers says the families in each case dealt with strain never imagined by the public or noted by the courts. “Even today, some people still think we did wrong. Nobody can understand the stress until they’ve been through it. The despair of having to deal with people who aren’t elected, aren’t answerable to anyone, and keep their jobs forever, is hard to describe.”

Despite his frustration during the overall affair, Sowers contends he never felt alone. “I’m not anyone special or different than anyone else, and I can’t do anything without God looking after me,” Sowers says, as he tears up and pauses several seconds before continuing. “The Bible tells me in Psalm 23 that God prepares a table for me in the presence of my enemies. In the end, I know that’s why I’m not afraid.”

What advice does Sowers have for business owners or farmers snagged by similar circumstances? “Never give up, speak out and find help. Not so long ago, if I found out the government was after your farm or business, then I’d have thought you must have done something wrong,” Sowers concludes, “but now I know different. Now I know that’s not true.”

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