Small businesses still fighting for cash seized by IRS

The business operations of a drug dealer or a terrorist have little in common with a Maryland dairy farmer.

But in a bizarre business tale, the IRS in February 2012 seized nearly $63,000 from a pair of dairy farmers after a series of cash deposits came under scrutiny due to federal laws. Those rules were intended to target criminals including money launderers, who deposit large amounts of cash in increments of less than $10,000 to evade authorities.

In a prior settlement with the government, Randy and Karen Sowers, who own South Mountain Creamery in Middletown, Maryland, got back a portion of the seized money, around $33,500. Now in a new letter filed this week to the Justice Department, a nonprofit organization that has has been working with the farmers is helping in the fight to get back the rest of the couple's money — $29,500 — despite the prior settlement.

"We know the right thing to do would be to give this money back," says Robert Everett Johnson, an attorney at the Institute for Justice public interest law firm.

Randy Sowers said his bank teller initially suggested that his wife keep deposits under $10,000 to avoid time-consuming paperwork at the bank. "We thought it was very legitimate," he said. Karen Sowers initially wanted to deposit $12,000 earned from a weekend farmer's market. "If I wanted to hide it, I would have put it in a can. We have trouble paying our bills and don't need the government coming and taking money from us."

Despite settling previously with the government, the Sowerses and Johnson say they are owed all of the assets, and initially had to settle for fear of losing the full amount seized and potentially more assets.

The IRS and Justice Department work closely together on these seizure-related cases.

"Federal law prohibits the IRS from discussing specific taxpayers," IRS spokesman Dean Patterson told CNBC by email. A Justice Department spokesman also declined comment on specific cases.