POLITICS
05/25/2016 10:32 am ET Updated May 25, 2016

IRS Returns Bakery's Money After 3 Years. Now It Wants To Put The Owners In Prison.

Another small business gets chewed up and spit out by the civil asset forfeiture machine.

In May 2013, David Vocatura watched $68,000 disappear.

He was at his family's bakery in Norwich, Connecticut, when a squad of armed IRS agents filed into the store. The agents wanted to know if Vocatura and his brother Larry were trafficking drugs or running a prostitution ring. The brothers had no idea what they were talking about.

Vocatura's Bakery has been doing business for nearly a century. The brothers operate a restaurant that serves up pizza and sandwiches -- which, until a few years back, only accepted cash -- as well as a commercial bakery that delivers fresh Italian bread throughout the region.

Their grandfather Frank founded Vocatura's in Rhode Island in 1919, before the family moved it to Norwich in the 1950s. They're probably best known for their Italian grinder -- a sandwich packed with salami, capicola, ham, cheese, lettuce and tomato, on a soft, slightly chewy sub roll that's "as big as your forearm."

But the IRS refused to believe Vocatura's Bakery was operating on the up and up. Agents said the business raised red flags because of a series of cash deposits in sums under $10,000, the amount at which banks are required to report transactions to the federal government. They said this behavior was consistent with a crime known as structuring, which the IRS defines as making calculated financial transactions in order to skirt reporting requirements. The agents had no evidence of other wrongdoing, but thanks to a controversial law enforcement tool known as civil asset forfeiture, they didn't need any to seize every penny in the Vocaturas' bank account: $68,382.22.

Under the practice of civil forfeiture, authorities can move to permanently take property they suspect of being linked to criminal activity, without obtaining a conviction -- and, in cases like the Vocaturas', without even charging the owner with a crime. 

For the past three years, the brothers have been fighting to get their money back, maintaining they'd done nothing wrong. The IRS has responded by subjecting David, 53, and his brother Larry, 69, to a series of increasingly aggressive legal maneuvers -- including threats of significant prison time and additional fines -- in an attempt to strong-arm them into permanently forfeiting their assets.

On Tuesday, the Institute for Justice, a libertarian public interest law firm, filed a lawsuit in U.S. District Court for the District of Connecticut on behalf of Vocatura’s Bakery, demanding that the IRS promptly return their money. The suit argued that the Vocaturas were just the latest example of the government hastily seizing property, and then going to extreme and even unconstitutional lengths to justify it after the fact.

Hours after the suit was filed, the IRS said it would finally give the Vocaturas their money back. But the prosecutor didn't drop the case. Instead, he now plans to mount an expansive investigation into the bakery's finances, looking for a reason to bring criminal charges against the brothers.

It was just the latest twist in a protracted legal battle that has called into question some of the government's favorite -- and most problematic --methods of taking people's money.

David Vocatura stands in front of his family business, Vocatura's Bakery. For over three years, he fought with the&
Institute for Justice
David Vocatura stands in front of his family business, Vocatura's Bakery. For over three years, he fought with the IRS to recover assets the agency seized over allegations that he'd been making illegally structured bank deposits. Now they want to put him in jail.

Structuring laws were initially designed to keep drug kingpins, terrorists and money launderers from evading detection, but the IRS expanded their enforcement efforts in the past decade, and ensnared small business owners along the way.

At issue in the Vocaturas' case are hundreds of deposits between March 2007 and April 2013 that ranged from $7,000 to $9,900 -- a total of around $2.8 million. The Vocaturas say the deposited money was from the bakery's sales, as they were doing mainly cash business at the time, and they have a less suspicious explanation for why the deposits were so close to the reporting limit. David Vocatura says a representative from their local bank told him that an employee had to fill out forms each time they brought in more than $10,000, so he decided to make life easier for the bank attendants by making smaller, more frequent deposits.

"I didn't know what structuring was that day, until the agent explained to me what it was," he told The Huffington Post. "We're good, hardworking people and we run a clean, legitimate business."

If the IRS has proof that the Vocaturas were deliberately structuring payments or hiding illicit proceeds, it hasn't provided it.

"We gave them all kinds of records, we've cooperated with them since Day One, personal and business information, anything they've wanted," said David Vocatura. "They checked us out."

Earlier this month, Peter S. Jongbloed, assistant U.S. attorney for the District of Connecticut, served the Vocaturas a grand jury subpoena calling for them to turn over every financial record from the six years between March 2007 and April 2013, so the agency could finally begin investigating the business’s tax and regulatory compliance. At the time, it was the latest reminder that the government was intent on taking the brothers' assets, even if it had to change its approach three years after the fact.

On Tuesday, Jongbloed said he was proceeding with the probe ahead of possible criminal prosecution for structuring. A spokesman for the U.S. attorney's office declined further comment. The IRS did not respond to a request for comment on the case.

The Institute for Justice argues that the subpoena is an attempt to retroactively justify an improper seizure and punish the Vocaturas for not rolling over.

"At this point, the government is in so deep, they've put these guys through three years of hell -- and held onto their money for three years -- and so they feel like they need to justify it," said Robert Everett Johnson, an attorney for the Institute for Justice who is representing the Vocaturas. "So now they're going to conduct this investigation into the bakery in some effort to try to find something that will make it look like they were doing the right thing all along."

A photo of Vocatura's Bakery, shortly after it moved from Rhode Island to its current home in Norwich, Connecticut.
Institute for Justice
A photo of Vocatura's Bakery, shortly after it moved from Rhode Island to its current home in Norwich, Connecticut.

The government's seizure of the Vocaturas' account is part of a broader pattern of concerns about the use of civil asset forfeiture, a practice that brings in billions of dollars each year to federal, state and local law enforcement agencies.

Critics say each step of the process is ripe for abuse. Authorities frequently base seizures on weak circumstantial evidence. In some of the most publicized civil asset forfeiture cases, the mere presence of cash has constituted enough probable cause to justify a seizure. In cases like the Vocaturas', the act of depositing cash isn't necessarily illegal on its own, but authorities are quick to treat anyone who does it like a criminal.

Once the government seizes property, it's difficult to get back. Unlike in criminal trials, where suspects are considered innocent until proven guilty, property owners must often prove their innocence in civil forfeiture cases.

And those legal proceedings often become a battle of pocketbooks and willpower. Many people can't afford representation -- especially if they're small business owners who are unable to tap into the very finances seized by the agency they're fighting. Many people choose not to contest the seizures. Others eventually give up, worn down by well-equipped prosecutors.

Once someone’s assets are forfeited, those proceeds go to the agency that made the seizure -- and there is very little oversight of how that money can be used. Critics of civil asset forfeiture say this dynamic incentivizes law enforcement officials to bring in as much money as possible, creating a motive to "police for profit" rather than for public interest or safety.

The IRS has used structuring allegations to seize hundreds of millions of dollars through civil asset forfeiture in recent years, some of which has been funneled directly into the agency's coffers. A report from the Institute for Justice put the total value of forfeitures -- money the government kept in IRS structuring cases -- at nearly $125 million between 2006 and 2013.

Of the more than 2,500 seizures in the report, at least one-third involved no claims of criminal activity beyond the cash transactions themselves. Only 1 in 5 were ultimately prosecuted as a criminal structuring case. The numbers also show that the IRS failed to keep seized money in many cases, which could be a troubling sign of over-prosecution.

The Vocaturas' home state of Connecticut is a hotbed for structuring-based seizures, according to IRS data provided to the Institute for Justice through a public records request. Among states with a single U.S. attorney, Connecticut ranks third worst for these sorts of seizures. Between 2005 and 2013, federal prosecutors in the state approved 9.2 seizures for suspected structuring for every 10,000 businesses in the state -- a rate that the Institute for Justice says is dramatically higher than other states.

The IRS has attracted public scrutiny over its use of structuring laws to target small businesses accused of nothing more tha
Bloomberg via Getty Images
The IRS has attracted public scrutiny over its use of structuring laws to target small businesses accused of nothing more than making cash deposits in amounts under $10,000.

Civil forfeiture has long been an issue among activists who see it as a violation of property owners' rights. But criticism of its use in structuring cases briefly entered mainstream discussion following an October 2014 New York Times story on Carole Hinders, a 67-year-old Iowa restaurateur battling the IRS over $33,000 seized in response to allegations of structured payments. Like the Vocaturas, she said she was unaware of the law, and had been keeping her deposits under $10,000 to save the bank the extra paperwork.

The scrutiny surrounding Hinders' case and others led the IRS to announce last year that it would limit structuring seizures to individuals believed to be involved in other illegal activity. The agency said the adjustment would not be retroactive -- meaning the change wouldn't necessarily apply to the Vocaturas, whose assets were already in IRS possession.

The Department of Justice followed suit in 2015, saying it would restrict "seizures for structuring until after a defendant has been criminally charged or has been found to have engaged in additional criminal activity, in most cases."

Months after the Times article, the IRS reluctantly agreed to give Hinders all of her money back. Most victims aren't so lucky, even in cases in which they successfully challenge a seizure.

Despite that policy change, the IRS continued to pursue forfeiture actions against the Vocaturas and other small business owners -- even as the agency lost in court. In 2015, North Carolina convenience store owner Lyndon McLellan and the Institute for Justice triumphed over the federal government, winning back the more than $100,000 the IRS had seized from his bank account over allegations of structuring.

While similar cases played out in the media, David Vocatura says the government kept them in limbo as it waited for the news cycle to blow over.

"We thought with everything going on with structuring in the news that some judge or court would see that this is wrong and they shouldn't be doing this to us," he said.

In February, 33 months after the bakery's bank account was seized, Jongbloed broke his silence. He offered the Vocaturas an opportunity to end their ordeal, while also preventing the public backlash that had impeded recent structuring cases.

Though the federal government had still not filed criminal charges against the brothers, Jongbloed wanted them to plead guilty to structuring, a felony, and admit that they'd "acted with the intent to evade the reporting requirement." By doing so, the Vocaturas would be subject to a potential four-year prison sentence and would have to agree to forfeit both the initial $68,000 and an additional $160,000 in personal assets between them.

But by getting the Vocaturas to admit guilt, the IRS would also have been able to keep the brothers from speaking out about their case. The plea deal would have served as an admission that the government had some cause to take their money. Nobody could accuse the government of once again abusing civil forfeiture if the victims ultimately handed over the money as punishment for a crime they had copped to.

Jongbloed noted that sanctions could be harsher if the case went to trial, and encouraged the Vocaturas to take the deal. The brothers, who still insist that they've done nothing wrong, rejected that offer.

On May 10, Jongbloed responded by demanding more than six years of business records documenting all of the bakery's dealings. He finally wants to figure out if the Vocaturas had actually broken the law when IRS agents raided their account.

But Johnson questions the timing of the request, and says it amounts to a retributive fishing expedition that will subject the Vocaturas to unfair scrutiny: "If you're an IRS investigator and you feel like you have to make a case against somebody because you have to justify what you've been doing to them, you start looking for any kind of ambiguity in their records, where you can claim, even if it's not true, that they're hiding income or not paying all of their taxes."

The Institute for Justice is now considering a motion to quash the subpoena.

"I didn't know what structuring was that day, until the agent explained to me what it was," David Vocatura told The Huff
Institute for Justice
"I didn't know what structuring was that day, until the agent explained to me what it was," David Vocatura told The Huffington Post. "We're good, hardworking people and we run a clean, legitimate business."

While the government is finally giving the Vocaturas their money back, the fact that they were able to hold it for so long without taking concrete action shows how much leeway they have in these cases.

As long as the current system of civil asset forfeiture remains intact, new federal guidelines or policy are unlikely to be effective, said Steven L. Kessler, a New York attorney who has defended a number of clients in high-profile forfeiture cases. He believes clear legislative action is needed to keep the government from compromising people's property rights in the hunt for money.

"When the government says they're going to do that on their own, they're going to make the change, everyone is very happy and we move on to the next story," said Kessler. "Rarely does anything change, because we're dealing with a guideline -- we're dealing with something that is within the full discretion of the government."

There are some rumblings in Congress for a legal overhaul.

Last week, Rep. Jim Sensenbrenner (R-Wis.) and a bipartisan group of co-sponsors introduced a bill to rein in civil asset forfeiture. Among the most significant measures, the Deterring Undue Enforcement by Protecting Rights of Citizens from Excessive Searches and Seizures Act of 2016, or the DUE PROCESS Act, would shift the burden of proof from the property owner to the government, and raise the standard needed to validate a forfeiture. If passed, the new law would require the government to provide "clear and convincing" evidence that property was substantially connected to criminal activity -- still below the "beyond a reasonable doubt" standard for criminal convictions.

The bill would also give property owners a variety of tools to make it easier to contest a seizure, including quicker notice of the government's forfeiture motion, increased time to respond and a mechanism for property owners to recover attorney's fees in certain cases that end in a settlement.

Another piece of legislation proposed this week would specifically address civil forfeiture in structuring cases. The bill would officially put previously announced IRS and Department of Justice policy changes into law, offering stronger protections for small business owners accused of nothing more than making cash deposits in amounts under $10,000.

These legislative fixes would do little for Vocatura's Bakery, however.

While their legal saga began as a civil forfeiture case, the IRS has now decided to pursue criminal forfeiture against them. That isn't addressed in the DUE PROCESS Act, which only deals with civil cases.

Nor is it assumed that these bills will pass. Civil asset forfeiture reform has hit snags in Congress before, in part due to aggressive lobbying from law enforcement groups intent on preserving the practice.

On Wednesday, the House Committee on Ways and Means is set to hold a hearing on "Protecting Small Businesses from IRS Abuse." The committee held a similar hearing in February 2015, in which IRS Commissioner John Koskinen admitted that the government's forfeiture case against McLellan, the North Carolina convenience store owner, was "not following" the agency's own policy.

Koskinen is set to give testimony again this week. Johnson is on the witness list as well, along with Institute for Justice clients who had their assets seized by the IRS in structuring cases.

Johnson says the Vocaturas' case should serve as further proof that the IRS is still using structuring laws to manipulate the legal process and unfairly target small businesses.

"The way you would expect the criminal justice system to work if you were reading your high school civics textbook is that you'd expect the government first to investigate people, then to obtain an indictment if they think something wrong has happened, and then to obtain a conviction and then finally to punish them," he said.

"But in this case that all has happened exactly backwards," Johnson continued. "The government first punished the Vocaturas by taking their property, then they tried to get them to plead guilty to charges, and only when they refused to plead guilty did the government investigate."

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