Taxes and Death

A middle-class couple find themselves in an IRS-spun web of debt and despair.

Randy Fitzgerald from the March 1991 issue

(Page 3 of 5)

Alex and DuBois found themselves begging faceless IRS employees for some record that the post office had ever received and attempted to deliver the original notice of deficiency. It should have been a simple matter. Had delivery of the certified IRS mail been accepted and signed for, or attempted and refused by the Councils, the Postal Service would have kept a record indicating the circumstances. No response.

As Christmas 1984 approached, another problem-resolution officer, this one in California, wrote the Councils, requesting additional information. They sent it. Again, the seasons passed with no answer. On October 29, 1985, another IRS employee, this time in Memphis, wrote: "We apologize for not replying sooner....Because of the volume of our correspondence, we have been unable to gather the information we need....We will write you again within l60 days." Four months later the employee wrote again to say the IRS was still gathering the requested information/"We are sorry for the inconvenience we have caused you."

The Councils' agonizing limbo was broken only by monthly tax-due notices showing an ever-escalating bill. Requests for meetings with IRS officials went unanswered. The Councils were haunted by the fear of losing their new home, which they had built and moved into during February 1986, and the homebuilding business in which they had invested all their savings.

When they hung the two framed lithographs--the source of their troubles--in their new home, Kay watched impatiently as Alex stood on a stepladder with a tape measure, methodically checking that each picture was centered perfectly. This exactness in him gave Kay faith that their lives would eventually return to normal.

In 1986, three years after Alex had first requested it, the IRS bureaucracy produced a Postal Service certified mail list indicating that the deficiency notice had been sent on April 15, 1983, a month before the statute-of-limitations period expired. Crestfallen at first, Alex soon became angry as he perused a copy of it. The Councils' 1983 address, in suburban San Francisco, was incorrect. DuBois's copy had been misaddressed as well.

Furthermore, the document gave no indication whether delivery of the deficiency notice had been attempted. As it turned out, the IRS had stalled so long in seeking the delivery records that the Postal Service had destroyed them in the course of routine housekeeping after two years.

In its manual the IRS warns employees to exercise "extreme care" to ensure that there are no typographical errors in the taxpayer's name and address when deficiency notices are sent. Nonetheless, Alex and Kay had been victimized by bureaucratic sloppiness.

The Councils' anger turned to hope. Its own evidence proved the IRS wrong. Surely the agency would now admit its mistakes and back down. Yet when Alex's attorneys contacted IRS officials, they impassively replied that Alex had only two options: Pay the amount due, or file suit in federal court against the IRS.

On May 15, 1987, the IRS filed a $284,718 tax lien against all of Alex and Kay's property and assets. Council Development Co., solely owned by them, held a $896,000 short-term construction loan from an insurance company for their small residential housing project. The Councils held a $ 112,000 loan from the same company on their own house, the model for the development. Because of the lien they were unable to refinance their home-construction loan as a conventional mortgage and mortgage insurance on the houses under construction was canceled. They now faced the loss of their home when the loan came due in a balloon payment. The lien also sabotaged any possibility of credit for a second real estate development for which they had already spent money on feasibility studies.

Alex filed suit against the IRS in January 1988 to have the crushing tax lien removed. Alex's attorneys pleaded before the federal district court that the Councils couldn't survive any delays in the trial. Granting the IRS additional time to conduct discovery "would spell financial disaster" for the Councils because the tax lien had effectively killed their ability to earn a livelihood. All their savings were tied up in the housing development. They couldn't even pay the $30,000 in annual interest accumulating on the IRS tax assessment.

Kay no longer planned for the future. She couldn't see beyond the next week or the next threatening letter from the IRS. Alex, however, stitched and restitched the shreds of his old optimism together. He helped organize his 30th-year high school reunion. He began working toward his private pilot's license. He en. oiled in classes on the U.S. Constitution at Wake Forest University. He had known hard times before, since the age of 12, when his father died and he had been forced to find employment. His desire to remain strong for Kay helped Alex resist despair.

Only in phone conversations with his old friend Chuck David did Alex occasionally reveal his frustration. "We just can't get away from this. It's so unjust. The IRS broke my back." Chuck sensed that the fighting spirit was being beaten out of Alex. He stopped asking about the problem. It had become a wound that would not heal.

Alex and Kay celebrated their 14th wedding anniversary in May 1988 with a three-day driving trip through North Carolina. As in the early years of their marriage, a sense of adventure buoyed them. "l can live with losing everything and starting over," Kay told Alex, "so long as we have each other." He assured her he felt the same way.

Later that month, federal judge Frank Bullock called a hearing on their case. Alex and Kay thought their burden would finally be lifted one way or another. They were shocked and furious when, instead of presenting testimony, the IRS sought and was granted a two-month extension to gather more evidence. Their tax problem had dragged on for eight years.

Now Alex acted defeated, seeming to lose hope. Their business was paralyzed. They were about to lose their home. Their net worth had plummeted to $15,000. They couldn't pay their lawyers, and it seemed they would never have their day in court. Even the original cause of all their troubles--the investment in two lithographs--had long since failed as a business. There were no takers for the prints.