Norwich — A longtime Norwich bakery won at least a temporary victory against the IRS when the agency agreed this week to return more than $68,000 it took three years ago under a controversial policy known as civil forfeiture.

Unfortunately for Vocatura’s Bakery Inc. and its owners, federal prosecutors at the same time launched a criminal investigation and said they were seeking virtually every financial record for the business over an eight-year period when the store did most of its transactions with cash.

The announcement of a grand jury subpoena of business records came months after a federal prosecutor, Peter S. Jongbloed, proposed a plea agreement that would have required two of the bakery’s partners, David and Larry Vocatura, to face up to four years in prison and forfeiture of $160,000 in assets in addition to the $68,382.22 the IRS previously seized.

The Vocaturas, who have been operating out of Norwich since the 1950s, declined the offer.

“We feel like we didn’t do anything wrong,” David Vocatura said in a phone interview. “We’re not going to plead to a felony.”

“The prosecutor at this point is just fishing for something,” said Robert Everett Johnson, an attorney for the libertarian Institute for Justice who has been leading the Vocaturas’ legal team in the case.

Johnson added in a phone interview that he believes the prosecutor realized he had done something wrong in the past and is going forward with the case to retroactively justify the initial seizure. The Institute for Justice, the same group that represented Susette Kelo in the famous Fort Trumbull eminent-domain case in New London, has taken on the Vocaturas because it considers current civil forfeiture policies “one of the greatest assaults on private property rights today,” he said.

Tom Carson, a spokesman for the U.S. Attorney’s Office in Connecticut, said he would have no comment on the case.

“This is part of a continuing investigation,” he said.

According to a recounting of the case in The Huffington Post and elsewhere, the Vocaturas’ problems began in May 2013 when up to 10 armed IRS agents showed up at their bakery on Boswell Avenue.

“They came here very aggressively,” said David Vocatura, whose bakery employs up to 20, in a phone conference with attorney Johnson. “There were questions about your business, personal life, criminal connections. ... It was crazy.”

The bakery, whose origins date back to 1919 with the family’s first shop in Westerly, is well known among locals for its huge grinders and freshly baked Italian bread distributed throughout the region.

“This is a clean, hard-working business,” Vocatura said.

The bakery for many years had operated on a cash basis, and deposits, according to the family, were kept below the $10,000 threshold because the Vocaturas didn’t want to inconvenience tellers who otherwise would have to fill out time-consuming forms required by the federal government to discourage criminal elements from quietly transferring large amounts of cash.

Unfortunately, the large number of transactions in the $7,000 to $9,900 range also set off alarms with financial regulators concerned about “structuring” — the intentional deposit of cash below the regulatory threshold. Structuring is a felony charge, Johnson said, that can be argued even when there is no involvement in criminal activity such as drugs or money laundering.

“The whole structuring issue has been huge,” Johnson said.

In fact, the government’s reliance on structuring as evidence of criminal activity became so heated in 2014 after a series of embarrassing cases in which legitimate businesses had their assets seized that it led to a backlash in which first the IRS and then the U.S. Department of Justice amended their policies.

But the amended policies did not apply to cases in 2013 when the Vocaturas were first cited, so Johnson said prosecutors after an 18-month latent period apparently decided to go forward with the restructuring charges. He said the criminal investigation started only after the Vocaturas rejected the proposed plea agreement.

“Our goal is to put a stop to this retaliatory investigation,” Johnson said. “We don’t think it’s right, and we think it has to end.”

Johnson is particularly peeved that forfeitures have occurred in the past without any evidence of criminal intent or involvement. What’s more, he said, government agencies that seize the money are able to keep it as an off-the-books addition to their budgets, allowing them to pay for “little goodies” such as educational conferences in exotic locations and drink makers for office use.

“It’s not American, and it’s not right,” he said.

According to an Institute for Justice study based on IRS data, Connecticut is one of the hot spots for seizures based on structuring of financial transactions, ranking third highest in the country among states with only one U.S. attorney. Another institute report put the value of such forfeitures at $125 million over an eight-year period until changes in policies reduced structuring seizures.

A congressional hearing Wednesday addressed cases of IRS abuse, and Johnson testified before lawmakers about the Vocatura case and others.

“The government has now held the Vocaturas’ money for over three years without bringing its case before a judge, violating statutory deadlines,” Johnson said in testimony.

It was only after the Institute for Justice filed a lawsuit Tuesday against the IRS — one day before the hearings — that the agency agreed to return the seized money. But Johnson said Thursday the Vocaturas had not yet actually received the money.

David Vocatura said the whole situation has been very stressful for the family, and he worries about the possibility of having to close the business if he and his brother lose the case. But he said business has been good for the last couple of days as social media spread the word about the situation and the community started to rally behind him.

“We shouldn’t be in the position we’re in,” Vocatura said. “We’re hard workers. It’s one of the craziest situations that could develop.”