Why Did the IRS Seize this Wedding Boutique and Sell Everything for Next to Nothing?
Former owners are suing for $2 million, accusing agency of violating the rules.
In 2015, IRS agents strode into a Dallas wedding boutique, shut it down, and sold the entire inventory in just four hours to recoup alleged unpaid taxes. Now, the former owners are seeking financial compensation. They have filed a $2 million lawsuit, alleging multiple IRS rule violations and acts of impropriety.
Tony and Somnuek Thangsongcharoen opened their store, Mii's Bridal Salon, in Dallas, Texas, in 1983. The elderly Thai immigrants sunk their life savings into designer wedding dresses and were left penniless when the IRS sold them all, according to the couple's attorney.
"They've really been destitute," Jason Freeman, their attorney, tells Reason. "This really completely wiped them out financially."
In the lawsuit, the couple claims that the IRS conducted the entire seizure illegally, broke multiple statutes, and ultimately conspired to shut Mii's down.
According to the legal filing, the IRS believed Mii's owed $31,422.46 (which the couple disputes) and internally documented their 1,600 dress inventory as being worth $615,000.
The legal filing claims that the agent on the case originally recognized that the entire inventory would not need to be sold to satisfy the debt. However, Freeman obtained internal IRS communications through a Freedom of Information Act Request and found that IRS higher-ups decided that the agency should "shut down this failing business."
The lawsuit contends that the IRS violated its own rules in the process.
On the day of reckoning, March 4, 2015, 20 armed agents and members of the Dallas Police arrived at Mii's and told the Thangsongcharoens that they had two hours to write a $10,000 check or forfeit the entire inventory.
It was "totally improper to come in and demand a check like that within a matter of hours," Freeman says.
The couple didn't fill out a check, so four hours later, the IRS had sold the entire inventory and additional items through auction for $17,000. In conducting the sale so quickly and from within the store, the plaintiffs believe the IRS failed to comply with notice of sale and public sale requirements.
The auction took place under the IRS perishable goods sale procedures. Invoking it allows the IRS to seize and sell goods immediately instead of waiting 10 days and posting public notice of a sale, as is typically required. According to Freeman, such a quick sale "really circumvents statutorily prescribed safe guards" and is only meant to be used for perishable goods, not wedding dresses.
But the procedures also allow the IRS to sell goods immediately if it claims it would cost more to store them than they would gain from waiting to sell them. And that's how the IRS justified the immediate auction.
Freeman's internal documents show that the IRS internally devalued Mii's inventory in order to justify the perishable goods sale. They arrived at a valuation of $6,000—about $4 for a designer wedding dress. The IRS then claimed that storing the dresses would cost the agency more than they could sell them for.
Freeman also argues that the IRS overstated the costs that would be necessary to store the dresses, making the entire scheme "a bad faith engineered valuation designed to get what they wanted".
The IRS had decided that a perishable goods sale would be the "resolution where the government will benefit the most," as stated in internal communications.
Mii's was never able to reopen after the seizure. Tony Thangsongcharoen claims the stress of the ordeal caused him to have a heart attack and undergo quadruple bypass surgery.
The $1.8 million lawsuit was filed in the United States District Court for the Northern District of Texas Dallas Division earlier this year. It is meant to cover "damages resulting from the reckless, intentional, and/or negligent disregard of the Internal Revenue Code (I.R.C.) and governing Regulations by officers, agents and/or employees of the Internal Revenue Service ('IRS')".
Freeman says he hopes this lawsuit will help prevent future IRS misconduct.
"I don't think this is how citizens and taxpayers should be treated, ever … ," Freeman says. "While most government acts are performed with unquestionable integrity and good faith there are unfortunately exceptions to the rule. … When it happens they need to be held accountable. That's the only way to prevent it from becoming the rule."
So far, the government has moved to keep this case from getting a jury, requested the amount requested in the lawsuit to be trimmed, and commented that the Thangsongcharoens lack legal standing. According to the government, only Mii's, the bridal shop itself, should remain as a plaintiff.