Bank clients with less than US$10,000 frequent deposits from suspicious sources are potential targets for account seizure even in the absence of a formal criminal case, Internal Revenue Service (IRS) said.

Under the Civil Asset Forfeiture Act, authorities are allowed to seize bank accounts from any depositor suspected to have acquired assets through illegal acts. The law is intended to help the federal government curb swindlers, drug traffickers, and terrorists through bank records.

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According to IRS, some individuals and business entities tend to frequently make small deposits to avoid taxes and government paperwork. The offense, called structuring, is a crime itself even without proof of illegal activity, one official said.

The IRS then forwards such cases to the Justice Department, but the agency keeps no record of the number of dispute cases or the total amount seized. In 2012, the Institute for Justice in Washington accounted more than 639 seizures from 114 in 2005.

In accordance with the Bank Secrecy Act, financial institutions are required to report to the government of huge deposits as well as those below from US$10,000 that is suspected to have originated from illegal sources.

Last year, the IRS received 700,000 doubtful bank activities with an average seizure amounting to US$34,000. Depositors can file for a dispute but clearance would take longer not to mention US$20,000 or more worth of legal costs.

Carole Hinders, owner of a small-time cash-only Mexican restaurant in Iowa, told The New York Times that almost US$33,000 was seized from her checking account.  The IRS agents, came knocking on her door after the incident, said that she is not charged of any crime but fund structuring.

Hinders, 67, believes she has not done any violation and was not informed by the local bank that depositing below US$10,000 is illegal. Criminal Investigation Chief Richard Weber said cited on Thursday two valid grounds for seizure: if the money is acquired from illegal sources or through structuring to ease depositors of reporting requirements classified as "exceptional circumstances".

JoLynn Van Steenwyk, fraud and security manager at Northwest, said that banks do not have the liberty to inform clients in events of malicious findings such as structuring. 

This explains why Hinders' surprise thinking that she has been doing the bank a favor by avoiding complex paperwork in the past 40 years. "I didn't actually think it had anything to do with the IRS," Hinders said.

TagsCivil Asset Forfeiture Act, Internal Revenue Service, IRS, Bank Secrecy Act