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IRS
Cause and effect
By: David K. Every
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Article
Jul 14,1998
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 or those of you that have heard horror stories about the IRS (Internal Revenue Service, or the U.S.'s Gestappo-like tax-collection agency), and never believed them (or felt that they were the exception) -- I must correct you with a tale of my own plight. Since I started my long trail of anguish, I've dealt with literally dozens of others who have stories similar to mine (but often worse).
For many years, off and on, I've been a consultant. Consultants are almost always screwed by the Govt., and computer consultants especially. About 14 years back (around '84 or 85), the Govt. decided to protect Hardware and Software Engineers by making it nearly illegal for us to be "independent" consultants -- we are somehow different from Doctors, Lawyers and about every other professional (probably having to do with the fact that we have a smaller lobby). We were told this was "for our own good". What is really meant that not only were we forced to pay self-employment taxes and the like (about 15% off the top), but then they made it hard to deduct business expenses, and the IRS roughed up companies who would hire us as contractors (instead of as part-time employees) -- which made it harder to get jobs, and so that we couldn't write off our legitimate expenses, and so on. The end result has been a lot of pain for all involved, which seems to be what the Govt. is best at.
Because of the complexities and problems of being a Consultant, I've had little "problems" with the IRS. Things like special "assessments" done years after the fact, to get me into owing some small amount of money -- and then hitting me with interest and penalties (that add up to some far larger amount). The IRS also loves this game where they take money from one years payment, and apply it to different year (without telling me) -- then hit me with penalties for the not paying the right amount on the first year. It doesn't matter what was clearly labeled on the checks / payments, they can do what they want, they are the IRS. Redirecting money is their little game of the pea in the acorn shell, where I always lose (1).
(1) Lest you think I wasn't clear. I've literally printed an entire page with nothing but the year to be applied to in one huge font. Stapled the check to the back of that page. Written the year in the memo area, large, in red, circled, and double underlined. Put a post-it note on the check, begging them to apply it to the right year. And I called before, and after, they got the check, to plead with them to please apply this to the right year. They still screw it up.
              
Well it all came to a head a couple of years ago. In 1995, the IRS decided to go after me for 1986's taxes. THEORETICALLY there is a 5 year limit on taxes, but here is the catch, that is only if you can prove that you filed. How do you prove you filed 10 or 20 years ago if you only have to keep your records for 5 years? How do you prove you filed at all for that matter? (2)
(2) The answer, that they will only tell you years after the fact, is that you must send ALL your paperwork to the IRS via registered mail, and keep those records forever, or you are guilty, and will pay!
There is another caveat to them being able to go after you for that long "ago" -- they are also SUPPOSED to have been in contact with you within a three years of the problem. For me they were not, but once again, how do you prove that they haven't tried to contact you? (3) You can't prove a negative, and for all I know, one IRS agent called out my name once (in a whisper in the men's bathroom at 3:00 a.m., 4,000 miles away), and it is my responsibility to hear that (not theirs to make sure they got in contact with me).
(3) Think about that. You don't have to keep your records, unless THEY claim that they tried to contact you. But you may never know that they've tried to contact you, and so can reopen any year on a whim. Typical bureaucratic double-talk that you can't win -- you must keep your records in case they SAY that they've been trying to contact you for the last 20 years (or they tried to contact you once, 18 years ago).
The end result is that they claimed that I'd been corresponding with them over this issue (I hadn't), and that I never filed (I had). But I am used to paying them their extortion money, and was prepared to again -- until I saw the bill, $40,000.00 (with a small amount coming from a newly created / discovered "issues" with '89's and '91's taxes as well).
I don't know about you, but I don't have $40,000.00 -- and am usually getting by, but I was lucky to have a few thousand in the bank. I was just coming off a long down time between contracts (3 months), the wife was in the hospital having open-heart surgery, and I had just relocated to a new area (San Diego), this was exactly the stress I needed in my life.
     
As soon as I learned of the problem, I called the IRS -- or should I say, I tried. And I tried. And I tried. I was going to work, and calling every 15 or 30 minutes for days. Usually it was busy. Occasionally I would get through to a automated recording, "We will be with you as soon as possible". Which translated to "pay us now, or you will die on hold!". I would leave the speaker phone on for hours while I did other things, waiting for a voice, and usually being forced to hang up for lunch, or being disconnected at 5:00 p.m. sharp (with a friendly reminder of their business hours). After weeks (literally), I got through. I had talked to my taxman (accountant), and he told me "Do not volunteer information, and do not tell them anything other than setting up an appointment or getting a representative". My first conversation with them can be paraphrased like this;
IRS - "Hello, can I have your name, Social Security Number, Address, all your current bank-account numbers and where you currently work". Me - "David Every, my SS#, my address, and I was told by my accountant not to release more information than that. I am trying to set up an appointment to come in and talk to someone about these 'issues', and you are threatening to seize my accounts at this moment, so it wouldn't be prudent to volunteer more than that until we can get things worked out."
IRS - "We already know all about you and all that information, we just want those numbers to make sure you know them... and so that we can verify that it is really you. Besides, you should give us the money first, then we can work out the problems later."
Uh huh, I'm surprised the guy didn't mention he had a bridge that he wanted to sell me.
Me - "You already know it is me by my SS# and other info -- so who I am is already established. I'm just trying to get some background and get a representative assigned to my account so I can work things out. You have made a mistake on these taxes and I want to get this stuff worked out as quickly as possible".
IRS - "We are the IRS, and we do not make mistakes!". <I swear to God that is what the guy said! Word, for stupid inane word!> "And furthermore, if you don't volunteer the information I'm asking for, I'm going to hang up on you as you are being belligerent and hostile!"
Me - "I'm not being hostile, I'm just trying to set up an appointment, and I was told specifically NOT to volunteer that information. I've been on hold for hours. Please, just set up an appointment so I can come down and deal with this in person, or transfer me to someone who will talk to me on the phone."
IRS - <click> as the phone hung-up.
My voice was not hostile, though I believe it became incredulous at times. Of course I screamed profusely at the guy and his sub-simian goose-stepping relatives after he had hung up on me (after being on hold for such a long time). But I gave up for a while -- I gave my accountant whatever information I had, and asked him to please deal with it, and I kept in contact with him.
   
Weeks went by, with all sorts of nasty letters coming from the IRS, and the bill inflating constantly (by huge amounts each time). But my accountant was finally able to talk to the IRS, and was trying to get them to set up a meeting (with slightly better luck than I was having). By this point I believe the bills had inflated to $60,000 (in a few months). He explained the situation to them, and what I was going through, that I had filed, that I had paid, and that I would pay what I SINCERELY owed, and so on.
The IRS wouldn't give me an account representative, until I agreed to give them some money to show I was acting in good faith (and they said that if I did they would not seize my accounts, which they were threatening to do). So I agreed to pay '94's taxes, if they would agree to deal with me (and not seize my accounts, and so on).
I hadn't paid the nominal amount due for '94, since they had claimed I owed ridiculous amounts in all the other years as well. (I wanted to get everything worked out at once). But I paid '94 to show good faith and to set up an appointment.
They said thanks, and I got an account representative that could only deal with one year at a time. They wanted to deal with '91 and I was supposed to pay the full amount for the other years immediately. I wanted to deal with 1986 with the account rep. since this year was huge, and had the most errors on their part. I was starting to prove errors on their part (more on this later). They immediately started threatening to seize all accounts (again) -- but my point was that until we could get all the years worked out, that I wasn't going to pay other years off -- especially since they were demanding amounts that I did not have (and that were wrong).
My reward for acting in good faith, was that they seized our bank accounts -- Checking and Savings. They stole something like $3,000. They promised not to seize my accounts and give me an account rep. if I paid '94 -- I did, they lied. Furthermore, by paying them for '94 it gave them the bank info they needed to seize. There is no such thing as acting in good faith with the IRS (which I learned over time).
My accountant was immediately in contact with them, and restraining me from going down their and kicking their lying asses (and I'm not a violent person by any stretch of the imagination)! He got a hold of an IRS agent and said, "What's up? He was acting in good faith, and you said you put a hold on things". IRS said, "oops. We'll just keep that money -- but we assure you it was an innocent accident". I learned over time that all these little mistakes seem to be in their favor.
Months of back and forth mail, went by. With their letter still getting worse. They had just stolen '91's taxes (and then some) by theft -- and I'd paid '94's taxes, and I was in constant contact trying to get them to deal with me on '86 and '89. It was all a mail-nightmare -- me claiming I had filed '86, them saying "prove it". Me saying I didn't make that much in 1986 (no where near what they claimed), and them saying, "prove it". (The company I had worked for had gone out of business, so it was painful getting the records). It was amazing at how adept the IRS is at dodging questions, turning everything on you and giving people the run-around. They were wasting time, and blaming me for not being fast enough. "Prove to us what we don't have through asking us questions we won't answer, and do it faster".
Through a lot of fight and debate with them, I finally found out that they had no numbers on what I had made that year and that they had been "guessing" all along, based on previous years results and national averages, and so on. In other words, they had made it all up! (Which explains why their numbers were ridiculous). During all this time, I was able to dig up W-2's and 10-99's (income), and show them I made a fraction of what they claimed. I sent them a copy of my tax return (lucky for me I had kept a copy of what I had filed even past the 5 year mark).
They agreed to accept the tax return, but not admit that I had filed it before. I still had to pay the whole amount of taxes, again, with interest and penalties -- they claimed I owed them a few thousand dollars, and with interest and penalties it was like $20,000+, not counting the other years. At least the total bill was down to like $25,000.00 (a lot better than like $60,000 that it peaked at).
There are theoretical limits on interest and penalties that should have made any total amount far lower, but don't think those rules actually apply to you or me. They are just on the books, and the IRS has no intention of paying attention to parts of the book that they don't like. You can fight it, and win, eventually. But then they will come up with something else to "get you". Or that is what they kept doing to me.
 
I had paid my taxes (estimated), or most of it, back in 1985 -- and they said "prove it". How do you prove it? After a lot of research, and dealing with old bank records, I did prove it! (Or most of it). I sent them canceled checks (with their stamp on it) for like 80% of the bill, back in 1985! With my account and year written on them! (Ha!)
At first they argued that I was wrong, then admitted, "Oh yea... you did pay in 1985." (Vindication!) But they said, "Since it has been more than 5 years since you paid this, we get to keep your money as 'unclaimed funds' -- so please pay the full amount anyway, with interest and penalties." Basically they claimed that since I hadn't "claimed it in time" they get to keep it -- like there is some expiration date on my money. Interesting irony that my money had a statute of limitations and their crack-headed claims did not.
My Accounts attitude was, "What are you going to do, they are the IRS? Just pay them the $25,000, that you don't have, and consider yourself lucky. I've seen far far worse!"
I searched around and got an enrolled agent (an EA is a special ex-IRS agent that exist solely to prove things like this). I had to pay them hundreds of dollar, to prove that I had paid thousands of dollars, 9 years before -- and that the law clearly stated that the money was mine (or at least had to be applied to the bill).
After months, the EA's were able to prove that "Yes", I had paid the IRS the money, and find the account it was in (you have to prove to the IRS where they put your money). They also proved that the IRS was not allowed to just keep my money, and they had to credit it. The full amount had to be deducted from my bill back in '85. The IRS relented and credited my account. Then they took out some of the interest and penalties for that money on one line -- then added it back on the next line. Plus they put all the penalties on the front end, and charged me interest on the penalties as well. All this is illegal and shoddy accounting, but it costs $500-$1000 a pop to prove them wrong on each point.
I went from owing something like $18,000 for a $4,500 bill, to owing them like $7,500 for a $1,500 bill. I pointed out that their numbers had to be wrong. Even with their ridiculous numbers the most I could owe was like $5,000. The accountant and the EA both said that the IRS was wrong, the IRS said "prove it!". I could, but it would have cost me far more to do so than I would have gotten back (I was also out of money for a while, because this stuff is expensive).
The end result was that a bill for something like $1500 (which I had paid, but that I can't prove), I now owed the IRS something like $7,500 with interest and penalties -- which would be considered usury and a criminal amount under the law -- but I could not afford to prove this any further than I had. So I knew I would just have to pay that amount (and I since have). But at least '86 was taken care of, and was far far less that the $25,000 bill that it started as!
Down to one year -- 1989. The IRS had put a lien of a few thousand dollars on me (in like 1991), for 1989's difference. What had happened there was the IRS had diverted some of 1989's tax money to another year -- then came after me in 1991 for '89's numbers. I went to buy a condo but couldn't because of a tax-lien. In order to buy the condo, I had to pay off the lien -- that is a condition of getting a mortgage. I did so in '91, so thought all this had been resolved -- it had been 5 years, and I hadn't heard another peep out of the IRS so I thought everything had been fine (naive I know).
Now they were claiming that lien was never paid -- yet it had to have been, since I couldn't have gotten the condo without it being cleared. But this was a game I was getting used to ("find the money", or the "shell game").
Not only that, but I later learned that they had diverted money from '91 to pay off '89 as well (that was why I had owed for 1991). Yet somehow no matter how much money they kept taking from other years the amount owed never went down (or got applied). I tried to find the "diverted" 1991 money, and of course the IRS couldn't find it.
This stuff takes time, and I had been asking on a regular basis to put one account representative on this, so I can deal with all the issues at once. They don't want to deal with me directly, and the person I am dealing with on the phone (fax) is saying different things than the nasty-grams I'm getting in the mail! I keep mentioning this, but they still won't assign an account representative -- it just seems to be more fun this way (for them). Of course I am getting mixed messages with them alternating between nasty letters, and reasonable ones. I have an accountant, an enrolled agent, and briefly a tax attorney all working on separate issues (all billing me).
I sent them another letter asking about this stuff (again), to which I got a response that if I didn't pay off their fictitious amounts for '89, that they would start garnishing my wages. But at least this threat had a new number to call (the "we're about to screw you" hotline!).
I got in contact with the representative (finally) and explained what was going on. She said, "no problem, we can see by all the correspondence and payments, that you have been acting in good faith, and if you pay us a couple thousand more, then we will put a hold on the garnishing". I mentioned that last time I acted in good faith, and gave them money, they had used that information to seize my bank account. "Well that is not my dept., just send us the money and I promise that we won't garnish your wages". Fine, I sent the check, and went back to investigating.
As soon as the check had cleared, they garnished (see stole) my entire paycheck, and said they were taking all the rest I was going to make until they we were "paid in full". They also put hold on my bank accounts (fortunately I had learned from last time to keep money in a safe deposit box). I don't know about you, but I have bills to pay.
According to IRS schedules, a Family of 2 in San Diego County is allowed to keep $400/month to live off of, the rest would go directly to coffers of the IRS! My rent is $1,095/month, my car is $400, cost of food is about that, and that is not counting the many other things necessary for life.
I was livid. I called up the same agent I had spoken to, only a week before, and was I fuming.
Me, "Just a week ago you promised me you would NOT garnish wages if I paid you $2,000". IRS, "Yes, but if I had told you that we would garnish the wages anyway, then you would not have given us that $2,000".
Me, "YOU LIED!".
IRS, " I have no control over collections, that is a different dept. There was nothing I could do to stop it!"
Me, "You lied to my face! Aren't there laws against that. In the real world that is called fraud!"
IRS, "You don't need to be angry, this is just how things are done. Call collections and deal with them, and you can probably get them to stop."
Me, "Why couldn't I do that a week ago and avoid this whole mess?".
IRS, "A week ago, it was in 'automated collections' and no one would talk with you. Now that they have garnished your wages, it is in 'regular collections', so now there is someone assigned to deal with it. Here's the number."
Me, <slam goes the phone>!
She honestly could not understand why I was upset that they had lied to me, and why I should be angry at all. This was just the way things were done. Fraud and theft is the standard Modus Operandi of the IRS, and I should just learn to deal with it (in her mind).
At this point I was going to quit my job, seriously. I had no choice, I couldn't survive on what they were going to "allow" me to keep. I was looking into changing ID's and going underground, and seriously considering emigrating to another country -- one where they paid more attention to their constitution than this country does. I've got enough skills (I hope). Even if I was running underground, and doing contract work and changing jobs frequently, at least I would be able to survive and provide for my family. And what were they going to do if they caught me? Shoot me twice? They were denying my rights to exist -- all without due process, which is normal for the IRS.
Fortunately, I called collections, and they were suddenly reasonable. It had all just been a power-play to scare me into making monthly payments. If I paid them some small amount of protection money, they would stop their theft and harassment. I would have been far more receptive had they asked before garnishing -- but that isn't how things are done. The IRS wants you to know that you have the right to exist only at their whim.
I set up a payment plan, and continued to investigate. Through their typical means, they were charging me more in interest in penalties than I was paying. (I was paying $250/month, but I think they were increasing the amount by something like $255/month). Fortunately, I was able to get '89's taxes down a little, I had already taken care of the other years except 1986, and the total was down to under $8000 or so, and I got a tax return that was going to pay off a couple thousand.
 
It was very hard chasing down what had happened to 1989's taxes (when I had paid 1991). The mortgage company had gone out of business, and sold all "assets" to another company. The new company said they never received those records (and I was out of luck). Escrow gets weird in that there can be multiple holding accounts and things like that. As near I as could deduce by lots of "field investigation", the Escrow company put the money in an account to pay off the taxes (for State and Fed). The State (California) took the entire amount, or got written the entire amount, and some how this appeased the fed, for a while (?). I still don't know why if I owed the State something like $500, they would take $3000, but the money got taken out by the state (and not the Fed), and I'm still not sure why the Fed didn't tell me what was going on back then. But 6 years later, you can't get the state to admit anything, nor give me the money back -- the Fed will placed all the blame on me anyway, and so I had to pay interest and penalties for all those years. Also the fed had diverted money from '91 to '89, and they wouldn't admit where that was. But that was only a couple hundred dollars, and it would cost me more to prove that they had it, than it was worth (by far). The end result being that I got to pay that tax, again.
The California BAR was annoyed that there were so many lawyer jokes. So they did a little study to prove that those people that had the least dealings with lawyers were the ones making all the noise. Unfortunately, they study showed the exact opposite -- the more experience people had with Lawyers and the Legal System, the more resentful and hateful those people were towards both. The jokes and hostility did not come from ignorant individuals hating what they didn't know (for once) -- the problem was that the more people knew about the legal system (and some lawyers), and the more experiences they had, the more angry they were -- and the more likely to have had really bad experiences. I suspect that the IRS is the same way. Those that really despise the IRS (or their methods) are not the crooks that were justly caught -- but the people who were righteous and right, and who were steamrollered anyway. The IRS is intentionally buerocratic and painful, and want to do everything they can to screw people, because they think that all people are crooks and deserving of a good screwing. Of course if you are not a crook, it is quite an annoying experience to be treated like one. And if you protest you just prove to them that you are a witch, and should be burned at the stake!
Then there are the results. For paying my taxes on time, and the IRS's incompetence, I got a $1,500 bill turned into something on the order of $7,500.00 - $10,000 with interest and penalties that would embarrass a loan-shark (and methods that would make one look like Mother Theresa). In total, for a bill of about $3,000 (giving them every benefit of the doubt), I had to pay (over the coarse of three years), about $15,000 dollars, and another couple thousand to Accountants, EA's, and Tax Attorneys, to prove only a fraction of their accounting mistakes along the way (and save myself much more). Of course that revised amount was much better than what the IRS was trying to hit me with in the first place, but it is still criminal grand larceny (by definition).
This month (July '98), my wife and I finally made our last payment. We had a little private celebration that we had finally gotten caught up, and gotten the rabid-monkey off our backs. Hurrah!
Two days after the IRS got our final payment, they sent us a letter. I actually opened it expecting it to be a letter of thanks, or of warning for the next time. In typical IRS manner, they were auditing us for 1995. I'm sure them sending it out two days after our check cleared (and we paid them off) was a complete coincidence. Along with all the other ways that they have screwed us.
After this experience, I can truly understand the McVeighs, Weavers, Koresh's or other perceived isolationist lunatics of this nation. The Govts.. anti-constitutional behavior does not justify the extreme reactions of some these people (nor forgive them their crimes) -- but honestly, how many times does someone have to get screwed, stomped on, beaten, cornered, and spit on, before they snap? When the laws designed to protect us are ignored and used to abuse us, how long before people lash out in response?
Of course many people who read this article said, "Woah, be careful. The IRS or Govt. might really go after you!" Think about that. We are forced to fear our govt., because we know they are not subject to our laws, and little things like the Constitution of the United States! They might attack us because they don't like what we say. Some freedom. I figure, what the hell are they going to do to me that they already haven't tried to do? As Richard Geere said in a movie about the lack of justice in another totalitarian regime, "What are you going to do? Shoot me twice?!?!"
In a post mortem, we got through the audit OK. They found one mistake for a minor amount, and tried to eliminate many legitimate expenses. I (through my accountant) gave them what they needed to condescend to agree that the legitimate expenses were legitimate (not easy with the IRS), and showed many more that we had not claimed. They should have ended up owing us many hundreds of dollars -- but they agreed to let us "off the hook" if we agreed to pay only $15. in extortion money. The IRS does this because if they come out owing you (after an audit), then they are not supposed to be able to audit you for another 3 years -- so they intimidate you into a small settlement (as a way to reserve their right to screw you later). But after already putting many hundreds into accountant fees, and many, many hours of wasted time (me and my wife) -- we caved and paid the $15. The reality is that they can make your life hell by just not accepting legitimate claims and so on -- and I've fought all that I can afford to for a while. I still have this barely controllable urge to punch in the nose the next guy who tries telling me about all the good things our govt. does with our money.
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