Originally published by Forbes.com.
Do you have nightmares about heavily armed jackbooted IRS thugs storming your house and selling your furniture to passers-by to apply pennies on the dollar to a tax bill that you don’t understand? A story that Kevin Krause recent broke on Dallas News might fuel those fears particularly when Fox Business distorts the story with an inapt comparison.
The story was first brought to my attention by Ernie Land, Kent Hovind’s consigliere, who remains attached to Dr. Dino’s innocence narrative. You are an attentive reader so you are unlikely to make the same mistake Ernie and a few other people I have spoken to made, but I’m going to give you a test. Here is an excerpt from the article (You can read the whole thing if you want)
The owners, Tony Thangsongcharoen, 68, and his wife, Somnuek Thangsongcharoen, 72, are fighting back. The Garland couple sued the government in federal court in Dallas in March for more than $1.8 million, alleging the IRS violated its own procedures during the tax seizure at the small storefront on Garland Road in March 2015.
“The agents auctioned off, before their very eyes, the family’s entire life savings for pennies on the dollar,” the lawsuit said.
Allegations of improprieties against the IRS for its asset seizures are not new. The agency has been under fire in recent years for seizing the bank accounts of mom and pop businesses due to their banking transactions.
The IRS claimed that the businesses intentionally tried to evade federal bank reporting requirements by making cash deposits just under the $10,000 limit. Critics say the IRS is being heavy-handed for seizing money from businesses when they haven’t been charged with a crime.
The Test
Breaking up deposits or withdrawals to keep them under $10,000 to avoid banks currency reporting is called “structuring”. The last time I noted structuring being big news was in the case of Dennis Hastert over two years ago. OK. So here is the quiz. What does the Thansoncharoen matter have to do with structuring? Answer: Nothing.
You read the story carefully and got that right, but if you look at the account of the article in this link, you will see that others did not. The problem with criminal prosecutions for structuring is that it is a crime that is easy to commit by accident. On the other hand, it is pretty easy to prove, making it the prosecutorial equivalent of shooting fish in a barrel. Arguably, civil structuring seizures were even worse, which is why the IRS was pressured to stop doing them.
But structuring has absolutely nothing to do with the Thansoncharoen case and the reporter’s choice to allude to it, is a judgment I would question. The reason for that is, bizarre and disturbing as the wedding dress seizure story is, it is likely an isolated event. And as is the case with most stories like this, we are only getting one side of it. The source for the story is a complaint filed in US District Court on March 1, 2017. Here is the complaint, which you can read for yourself.
A Bizarre Story
According to the complaint filed on March 1, 2017, in US District Court, the Miis “allegedly owed the IRS $31,422.46 related to the tax years of 2005, 2008 and 2010”. The complaint does not indicate what kind of tax. A subsequent filing makes it look like corporate income tax. Given that the events complained of occurred on March 4, 2015, it is possible that the 2005 liability which could have been assessed as early as 2006 was getting very close to the ten-year statute of limitations on collections.
Other bizarre elements of the story told in the complaint is that inventory valued at $615,000 yielded $17,000. An agent bid on some of the items and the lead agent brought kids along. Plaintive notes include a veteran’s cherished hat that went as part of the inventory even though it was there to have something sewed on it and Mr. Thangsongcharoen having quadruple bypass surgery not long afterward. One of the most important contentions is that the IRS improperly used a procedure for inventory that is perishable or too expensive to store relative to value.
For what it is worth, this is likely the notice of the auction in question, which has some pictures. Also reading the complaint and the response, it appears that the $615,000 was based on the retail tags making the low relative yield not entirely shocking, although it does not make the whole affair much more sensible.
The Fox News Treatment
Fox Business found the whole matter of interest and interviewed Jason Freeman, the attorney who filed the complaint.
I did not have any luck reaching out to Jason Freeman, but he gives every indication of a being a legitimate attorney with a client with a real grievance that can be addressed. The one thing that was on the hysterical side in the Fox framing of the story is that they compared it to Floyd Mayweather who recently had a lien for $22.2 million filed against him recently.
The distinction is that the lien is on a 2015 liability and Mayweather has filed a petition in Tax Court, which blocks further IRS action and suspends the statute of limitations on collection. IRS collections is, quite rightly, moving harder and faster against Mayweather than it does against people with smaller balances. And he has advisers who are working the system, the way it works. The Thansoncharoens had a purported liability old enough to be attending grammar school. We have no idea of what combination of stubbornness on their part and IRS screw-ups brought the matter to the point of a seizure. Usually, you will find that the proportions vary.
The Response
The US response, as is standard denied most of the allegations in the complaint. They admit that there was an auction, that the liability they were chasing was about $31,422.46 (Accruing interest makes it a moving target) and they actually had something about an agent making a bid.
With respect to the second sentence, the United States denies that any IRS or TIGTA employees bid or purchased at the sale, but admits that an off-duty Dallas Police Officer in plain clothes bid on and purchased one small item.
More Sensationalism
Kevin Krause in his Dallas News coverage in an attempt I would guess to provided more context cited a GAO report critical of IRS seizure procedures. The report was issued eighteen years ago, so it would take quite a bit of study to determine to what extent it remains relevant.
Practical Lessons
In terms of practical wisdom to avoid this happening to you, neither the complaint nor the response shed any light. We really don’t know what course of action or inaction by the couple contributed to them being in this situation. I spoke with Deborah and Garrett Gregory of Gregory Law Group PLLC who were quoted in Mr. Krause’s story. They are former IRS attorneys who now have a practice that focuses on audit and collections. And they are married. I could not resist asking whether they met while working at the IRS which strikes me as just so romantic. As it happens, they met in law school.
They commented that cases like that of the wedding shop seizure put the IRS in a very bad light. Yah think? More to the point, though, they have never seen a situation like this. Seizures, where the IRS comes in and takes actual physical stuff, are very rare.
If you look at what is currently up for auction, you will see that it is mainly vehicles and real estate. These auctions are not for the unsophisticated. The terms are cash or certified check on the barrel-head, everything as-is, and, in the case of real estate, the possibility of redemption by the original owner. And then there is the possibility of really resentful neighbors. That is the problem Anthony Jaworski, who was the only non-Hovind to purchase property seized from Kent Hovind’s Dinosaur Adventureland found out about.
Regardless, the Gregorys emphasized that there are a lot of opportunities to work things out including payment plans and even the prospect of having your debt declared currently non-collectible. They have worked hundreds of cases and never seen an outcome like that of the wedding shop couple.
I also spoke to my friend Mark Stanhope, a CPA who had focused on collections since around 2000. He is a member of the American Society of Tax Problem Solvers, which could be good source for finding help near you. He has never seen a seizure. Keep in mind, in talking about seizures I am talking about tangible assets. Liens and levies of bank accounts are a different matter. Those do happen with some frequency.
Policy
Horror stories like that of the dress shop seizure led to major changes in the laws governing IRS collections in the nineties. Combined with successive budget cuts since 2008, IRS collections has become quite enfeebled.
According to the IRS Data Book , at the beginning of 2016, there was $137 billion uncollected tax, penalties and interest spread over 13 million delinquent accounts. They collected over $37 billion. At the end of the year there was $138 billion spread over 14 million delinquent accounts. There were over 470,000 liens filed and nearly 870,000 levies. There were fewer than 500 seizures. You might wonder why the IRS even bothers with seizures. I’m thinking that forgoing them entirely would probably be unwise, since people would then be able to make their net worth entirely unreachable by converting it to tangible form.
Something that happens a lot more than seizures that I asked both the Gregorys and Mark Stanhope about is people beating the IRS by waiting out the ten-year statute of limitations on collections. That does happen. I have not been able to get statistics on it, but the anecdotal evidence is that it is much more common than seizures. There is a real danger that as the capacity of the IRS to collect continues to erode, people who organize their lives to live on their after-tax income will start feeling more and more like suckers. Having a president who argues that not paying income taxes means that he is smart is probably also not that helpful.