The IRS seized more than $17 million from innocent business owners over a two-year period using obscure anti-money laundering rules and civil asset forfeiture, compromising the rights of individuals and their businesses, a government watchdog has found.

The Treasury Inspector General for Tax Administration (TIGTA) released a report Tuesday detailing how, between 2012 and 2014, IRS investigators seized hundreds of bank accounts from business owners based on nothing but a suspicious pattern of deposits. In more than 90 percent of those cases, the money was completely legal. The report also found that investigators violated internal policies when conducting interviews, failed to notify individuals of their rights, and improperly bargained to resolve civil cases.

The investigation was launched in 2014, when media investigations and several lawsuits by the Institute for Justice, a libertarian-leaning public interest law firm, highlighted the cases business owners who had their life savings seized by the IRS for violating anti-"structuring" rules.

The rules are intended to stop money launderers from evading federal banking regulations by making small cash deposits under $10,000, but IRS agents ruthlessly pursued cases against small business owners when there was no other evidence or indication of criminal activity. For example, The New York Times profiled the case of Carol Hinders, an Iowa woman runs a small, cash-only Mexican restaurant. In 2013, two IRS agents showed up at Hinder's door and told her the agency was seizing $33,000 from her bank account for structuring violations. She was never accused of a crime.

In response to public outrage, the IRS announced in 2014 it was changing its asset forfeiture policies to only pursue cases where there is other evidence of criminal activity. However, the full scope of the cash seizures—and the overwhelming amount of cases involving innocent people—have not been revealed until now.

The inspector general found money seized and forfeited by the IRS was legally obtained in 91 percent of a sample of 278 structuring investigations it reviewed occurring between fiscal years 2012 and 2014. Altogether, those funds totalled $17.1 million and involved 231 cases.

"That is just a shocking, shocking statistic," says Robert Johnson, an attorney at the Institute for Justice. "It shows the cases we've been bringing are not isolated incidents by any stretch of the imagination. This is the bread and butter of what the IRS has been doing for years."

The inspector general also found that, in 54 cases, property owners gave reasonable explanations for why their deposits did not exceed $10,000, but in most of those cases there was no evidence that IRS investigated their explanations.

In addition, the inspector general found evidence "that in at least 37 cases the Government bargained nonprosecution in order to resolve the civil forfeiture." In other words, the IRS leveraged its civil forfeiture cases by threatening to file criminal charges.

In another 2014 Institute for Justice case, state and federal officers showed up at Lyndon McLellan's convenience store to announce the IRS had seized the $107,000 in his bank account based solely on the appearance of structuring violations. He was not charged with a crime.

"It took me 13 years to save that much money, and 13 seconds for the government to take it away," McLellan told The Washington Post.

After McLellan testified before the House Ways and Means Committee about his case, a U.S. attorney sent his lawyers a letter that read: "Whoever made [the case documents] public may serve their own interest but will not help this particular case. Your client needs to resolve this or litigate it. But publicity about it doesn't help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. The offer is good until March 30th COB."

Treasury Inspector General for Tax Administration J. Russell George said in a statement that the IRS "has now made important improvements to this program; however, the IRS should ensure that protections are in place so that people have rights and that innocent people do not feel compelled to settle a civil forfeiture matter under the pressure of possible criminal prosecution."

Republican Illinois Rep. Peter Roskam reintroduced a bill in Congress this year that would codify the IRS new policy. It would only allow the IRS to pursue structuring cases where it had reason to believe the money was used to commit a crime or was the proceeds of a crime. Roskam introduced the bill last year, and it passed the House unanimously, but it died after failing to make it to the Senate floor for a vote.

Roskam and House Ways and Means Committee chairman Kevin Brady (R-TX) said in a statement Tuesday that the report "reaffirms our Committee's findings that the IRS has repeatedly and knowingly abused its authority to wrongly target and seize money from hardworking Americans."

"We commend TIGTA for issuing this report and building off of our work to bring IRS's abusive practices to light," the legislators continued. "These investigations are a critical part of holding the IRS accountable to the American people, as well as delivering justice to the innocent victims of the IRS."

Johnson says Roskam's bill is important because the IRS policy changes are not binding on the agency. "If you had a case where IRS didn't follow the policy, there's nothing a property owner or judge could do about that," he said.

In 2016, the IRS announced it was sending notifications to approximately 1,800 property owners who were potentially affected by civil asset forfeitures, but, unless challenged, it has kept the money from all those cases. According to a 2015 Institute for Justice report, the IRS seized $242 million in more than 2,500 structuring cases from 2005 to 2012.

"When you read this kind of thing, it's troubling and disturbing," Johnson says, "but it shouldn't be surprising given the profit incentives that civil forfeiture creates."