Chairman Roth, and Members of the Senate Finance Committee, thank
you for allowing me this opportunity to appear here this morning to
relate to you my experience with the Internal Revenue Service.
Like many women who have gone through a divorce, I was the one stuck
with the tax bill for our last joint return for tax year 1983. The
IRS assessed that return for additional taxes of $7,000, but sent
all the notices to my former spouse. Unfortunately, it took him over
a year to notify me of the assessment. I immediately contacted the
IRS. The IRS had ceased to be willing to examine my records and was
demanding that I pay them $16,000 instantly. At the time, my former
spouse was earning in excess of $40,000 a year as a glazier and had
no dependents. My income was approximately $15,000 a year as a newly
hired bank employee with a dependent 14 year old daughter. For the
two years following my divorce, I was financially destitute. I had
just managed to get an apartment -- a real home for the two of us.
I mention this to remind you good people that when an IRS collection
procedure gets out of control, the victim of that collection still
has to deal with all the other traumas of their life. An honest
collection by the IRS, with no snafus, of an amount actually owed is
incredibly stressful in itself. Therefore, it is critical that the
IRS not be allowed, whether by design or accident, to pursue
taxpayers for erroneous debts. At present, there are no effective
protections against this.
In my case, I had to file a Tax Court Petition to force the IRS to
examine my records, which I did in 1988. This is not unusual if the
IRS does not get a response to early requests for records, and I did
not feel resentful or persecuted. However, it did cause problems and
added to my stress. I had to use my rent money to pay the accountant
and lawyer, and so I lost my apartment. My daughter and I were
reduced to sharing a rented room. I consoled myself with the thought
that we had survived worse and we would get another apartment later.
It is important to note here that my ex-husband was not a party to
this petition in tax court. We settled out of court and the IRS
agreed to a reduced tax from $7,000 to $2,709, a reduced total
demand from about $16,000 to approximately $3,500. I went to the
meeting in July 1988 to sign the agreement and, check book in hand,
prepared to pay the amount in full at that time.
The IRS refused my payment until they had sent me a bill because
they would not have anywhere to credit the money without the bill
and they claimed they needed time to calculate the exact interest
due. I wanted the payment properly credited. I wanted this to go
well and to be permanently resolved. I thought, in a few weeks, I'll
have a bill. But, the IRS said that the bill would take six months
to prepare and arrive no later than January 1989. Six months! I
recall asking if I was going to be charged interest for the six
month waiting period and the IRS attorney, through my accountant,
said no. The interest would be calculated through the date of the
agreement and as long as I paid it right away in January, there
would be no additional interest. He said it would be about $3,500
total. I never understood why they could not just whip out their
calculator and tell me what I owed right then and get this whole
thing over with.
The bill never came and in February 1989, I started calling the IRS
asking where it was. I called the Fresno office and they suggested I
also call Laguna Niguel. Both offices had no record of any taxes
owed by me. I found this hard to believe. I wanted to be absolutely
certain they were correct. I wanted to remarry and I did not want to
bring this tax bill into the marriage. I called both offices again
in March and again before July. I was told the same thing, that I
owed nothing for 1983. I asked for a receipt or something to show
this was paid because I was simple minded enough to believe this was
as a reasonable request. The IRS employees all said that they "don't
do that." I had to take the word of the IRS that I owed nothing. In
this, I had no choice. At the time, I was not aware that my account
had been set up on a separate bookkeeping system to which the IRS
employees with whom I spoke did not have ready access.
It works like this: when you file a tax return, it is recorded in a
Master-File. This is what the IRS clerks pull up on their computer
when you call and ask if you owe money. However, at some point in
1989, the IRS "split" the Master-File of our joint 1983 return and
transferred separate assessments into two Non-Master Files, in each
of our individual names and respective social security numbers. This
was due to the fact that I had gone to tax court and my ex-husband
had not. Since my ex-husband and I had taken separate actions with
regard to this matter, the IRS had to handle our files separately.
These Non-Master Files do not show up on the computer when the IRS
clerks check a taxpayer's social security number for a balance owed.
According to the attorney who explained this to me in 1997, the
Master-File continues to exist, but may show as a zero balance,
until the IRS recombines those accounts. It will then reflect the
correct amount owed according to the agreement. Until that happens,
every time the IRS clerk pulled up my or my joint signer's social
security number, they will see a zero balance and conclude that no
taxes are owed. To add to the confusion, there is no notation in the
Master-File that it has been "split." Therefore, there is no way for
the IRS clerk to know that you might have an outstanding collection
in a Non-Master File. As a result, I was repeatedly told by IRS
clerks that I owed nothing. So far as I know, to this very day,
these accounts have not been recombined and the Master File
continues to exist with a zero balance while the Non-Master Files
shows a balance owed. Yet, the IRS has been aware of this error at
least since I notified them of it earlier this year -- if not even
earlier. I have made repeated requests of the IRS to recombine these
accounts ever since I learned of the problem. As far as I know, it
has not been done.
It is incredible to me that Non-Master Files are allowed to co-exist
with Master-Files at all! It creates two accounts under the same
name with the same social security number, that can reflect
conflicting balances due for the same tax year for the same person.
Such a practice substantially increases the potential for error and
confusion inside the IRS while simultaneously making it impossible
for a taxpayer to get reliable information from the IRS. The
taxpayer either gets conflicting information, or in my case,
consistent but incorrect information. Every day the taxpayer is
unable to get accurate information from the IRS about a balance
owed, is another day's interest added to the debt. Even while the
taxpayer is wandering around in this IRS maze of multiple accounts
the clock never stops running. This is incredibly frustrating and
unfair to any taxpayer. Unable to overcome this obstacle to
compliance through no fault of the taxpayer, he or she is charged
penalties as well for that failure! Much of my misery was caused
because the IRS could not answer accurately the simple question,
"How much money do I owe?" As far as I know, that condition has not
changed.
To add to the confusion, my former spouse telephoned my fiance to
complain that he had paid the tax and now the IRS was after him for
it again. He refused to share his records with me, but, his story
and the IRS story both matched. Still, I had no independent records
to prove either one. I requested his payment records from the IRS in
1988, records to which I learned I was not entitled at that time. I
made a second request for those records in 1997. The IRS has refused
me these records or even a statement as to their content. Why, if my
joint signer has never paid anything on this tax, is the IRS hiding
that information from me? How can I know, for certain, what my
liability is without the records of my joint signer? Perhaps he has
paid nothing, but if that is so, then their refusal to share that
information with me makes no sense.
Mr. Chairman, I did everything humanly possible to obtain correct
information. I made every attempt to get this tax paid and every
conceivable request for some kind of record to evidence what the IRS
was telling me. I know of nothing else I could have done.
So, after being wrongfully informed that there was nothing owed, I
remarried in July 1989. I carried on business with the IRS without
incident and my new husband and I filed a joint return in 1990 and
received a refund. We were now convinced, of course, that if I owed
any money to the IRS, the IRS would never have issued a refund, so
now we were confident that the IRS information was correct. It was
not.
In September 1990, without any notice and without our knowledge, the
IRS filed a tax lien against me.
On December 19, 1990, the first lien holder on our home sued us as a
result of that Federal Tax Lien in the sum of $6,161.41. The lender
threatened to call our loan if we did not immediately get the IRS
lien released. We would have lost our home. A home, by the way, that
my new husband bought for himself 6 years before he met me. So, the
real damage was being done to him, an entirely innocent spouse.
All of this, after I had been so careful to pester the IRS
repeatedly for as a bill and been repeatedly told that no money was
owed!
Worse than that, the lien did not reflect the terms of our earlier
settlement agreement! The tax lien reflected an assessment nearly
twice that of the IRS agreement and the IRS refused to discuss that
fact with me. Meanwhile, while the assessment was 'ripening' it had
gone up to over $8,000!
I tried to reopen my tax case and was told that the Federal Tax
Court did not enforce out of court settlements made with the IRS!
How convenient this is! Only the taxpayer is held to the agreement,
not the IRS! I was adamant that this was just morally wrong! I was
very upset!
I fought this collection for two reasons: (1) because, based on
information provided by the IRS itself, I sincerely believed I owed
nothing and (2) because I believed the IRS, even if they intended to
collect twice, was obligated to calculate my collection in
accordance with our agreement.
My new husband contacted the Revenue Officer who had filed the lien.
The Revenue Officer informed my husband, and later me, that he had
my former spouse's file "..right here on my desk..." and he knew
that my former spouse "..had paid the taxes..." but that it was not
"..relevant..." because these were separate collections. He insisted
that if we wanted my former husband's payments to offset my
liability, we would have to produce those records, otherwise we
would have to pay it again. The duplicate payment would balance the
IRS books and he would help us file for a refund of the overage.
Imagine my new husband's frustration at the prospect of effectively
paying $8,000 dollars that we believed had already been paid.
At this point, which was early 1991, I requested a Problems
Resolution Officer who, after some inquiry into my account, came to
the conclusion that I, indeed, did not owe anything for the 1983
taxes and that, once she got a written confirmation of this from the
Fresno office she could get everything "abated to zero." Meanwhile,
she said, the IRS agent should stop collection activity -- which he
did not. However, I thought, "Great! This is all going to get
straightened out soon!" I was wrong. A few days later she called me
and informed me that the IRS Fresno Office had changed its mind
about providing her with the necessary documents and, without those,
there was nothing she could do.
I made one final attempt at reasoning with the collection agent. He
merely repeated that he knew the tax had been paid, and he knew I
didn't owe the money, but it didn't matter. The only way to get rid
of the tax lien was to pay the $8,000 whether we owed it or not.
The collection agent then offered to assist us with regard to the
refund application. He knew we were being sued by the bank because
the IRS was a co-defendant. So, he just refused to do anything and
let the bank force us to pay what we did not owe. With the bank
about to call the loan, we had no choice but to pay the IRS demand
in full.
Mr. Chairman, although I am giving you a rather general description
of these events for the sake of overall continuity, it is important
for me to tell you that both my husband's and my own physical and
emotional well being suffered tremendously under the constant strain
of these repeated attempts to get the IRS to honor their agreement
and collect only what I owed. It was physically exhausting. We
almost never slept. Every conversation had to be memorialized in a
letter. There were the visits to the attorneys and the accountants,
their bills and their depressing advice, "pay it, it's cheaper than
fighting" and the very real prospect of loosing our home to the bank
if they called the loan. You don't eat, you don't sleep, you're
afraid to talk too much to each other for fear you'll take it out on
your spouse. If you do talk, it's about the IRS. We were newlyweds!
I cannot describe the guilt, knowing that I had brought my new
husband into this.
My parents became so concerned for my health that they cashed in a
retirement CD and loaned us the money to pay the IRS. Since they
were living on a fixed income, this was a big deal for them to do. I
know they made sacrifices to do this. It was as a selfless act of
love.
On February 21, 1991, we handed a cashier's check for the entire
amount they demanded, $8,194.73. Please keep in mind the original
underlying tax was $2,709 and that the original amount due was
supposed to be no greater than $3,500. The balance was interest that
accrued from July 1988 to February 1991, a period of 18 months. In
that time frame, the "bill" that I could not get anyone to give me
to pay nearly tripled from the original amount! I was forced to pay
$4,500 for their mistakes!
In exchange for this payment, we were given a Certificate of Release
of Federal Tax Lien. My cashier's check reflected my name, my social
security number, the tax year to which it was being applied -- 1983,
as well as my tax court docket number. In other words, the IRS had
everything it needed to properly credit the payment. I could not
have made it any clearer where to apply the proceeds of the check.
In February, 1992, a letter arrived from the IRS office in Maryland
signed by a woman with the authoritative title of "Chief, Accounting
Branch." The letter said the IRS had received a payment and, if we
had made this payment, please send the IRS a copy of the check with
an explanation, which we did. We also asked her in that letter not
to refund the money or any portion of it unless she first made sure
neither of us owed any money anywhere for any year.
In March 1992, we received an unsigned IRS form letter indicating
that the payment had been applied to our 1990 joint return. I
actually telephoned the IRS and asked about this and was told simply
that, if the Accounting Branch determined that there were no taxes
owed for any year, the only way to refund the money was to credit it
to the most recent tax year.
In other words, they could not credit the payment to my 1983 tax
year unless there was a balance due. Therefore, we logically
concluded that the Accounting Branch did what we asked, checked out
our taxes, found nothing owed and was merely refunding us the
overpayment in accordance with their own bookkeeping system. We had
absolutely no reason to think that the refund was in any way
erroneous.
In November of 1996, nearly 5 years later, out of the blue without
so much as one prior notice, we received a certified letter from the
IRS containing a Notice of Intent to Levy. The particulars of the
tax being levied were identical to the particulars of the tax lien
that had been released in 1992. For reasons unknown to us, they
changed their mind and wanted more money again. Why? I telephoned
the agent who sent the letter and was told it was a different
assessment because, even though everything else was identical -- the
tax year, the amount, the assessment date -- there was an "N" after
my social security number on this assessment and therefore, I had to
pay it again. The "N", I later learned, is a tag for "Non-Master"
File. Remember those? The separate collections that nobody seems to
know about? Well, this was one of them. Whether the IRS failed to
close it at the time we paid it in 1991, or whether they reopened it
because they wanted to get the refund back they gave us in 1992
doesn't really matter much to me. Whichever one occurred, the fact
remains, the IRS had made yet another error. Once again, they
demanded that I balance their books and pay for their mistakes. How
many times was this going to happen, I wondered?
A tax attorney informed me that my release of lien was meaningless
adding, "..the IRS refiles these all the time. I cannot tell you how
many people come in here clutching these things (release of lien)
for dear life thinking that they offer some kind of protection.."
He stated the Taxpayers Bill of Rights did not allow the IRS to
collect interest from the taxpayers based on its own errors, and
even suggested that I write to my Congressman but cautioned me not
to expect a significant outcome because, "..they (Congress) can't
really do anything..." , Congress is less than effective when
dealing with the IRS on behalf of taxpayers.
I gave Problems Resolution another try. This time, they were less an
advocate for me than an arm of the IRS collection office. It was, in
fact, the Problems Resolution Officer who told me "..you know, you
kept a refund to which you knew you were not entitled...". Her tone
of voice was not friendly. Keeping a refund that you know you are
not entitled to is a crime. She demanded I pay back the refund. So
much for the Problems Resolution Office.
After a brief hospitalization for surgery resulting from a freeway
pile up that totaled our car, my husband resumed work in January
1997, only to discover that while he was recovering from surgery the
IRS had levied against his salary. My husband would be allowed to
keep $18 a week to support me and the children for approximately two
months. Anyone entering a grocery store today knows that is
tantamount to condemning us to a soup kitchen for our meals. Two
months of being unable to meet our financial obligations would have
sent us into bankruptcy and foreclosure. Again, the innocent spouse
was going to be punished for my old tax problem.
To protect his ability to provide for his children and myself, my
husband set up a separate residence in San Clemente and filed for
divorce on February 3, 1997. In California, the day you file for
divorce your salary is your sole and separate property. The IRS
ignored that fact and left the levy in place. In an unusual
determination, the county refused to comply with the second levy and
my husband's income was safe. However, his retirement fund was not.
That was community property and we fully expected the IRS to swoop
in the next day and take the whole thing. So, on the 5th of February
1997, I filed bankruptcy to stop the IRS long enough for us to
figure out what to do about this.
My bankruptcy notice was hand delivered the same day. The following
day the IRS notified me that my schedule C's for 1993, 1994 and 1995
were "questionable," and asked me to reconsider them. We took this
as a thinly veiled threat to punitively audit our returns.
The IRS refiled the lien for which I had a release. We discovered
this in March of 1997. I am informed that this is common practice.
The liens threatened my husband's residence which was his separate
property but the IRS ignores this in community property states. I
have been informed that the liens would survive the bankruptcy, as
all liens do. So even though this was his sole and separate
property, it was possible.
My now widowed mother could not bear watching us go through this and
took out a loan against her retirement so we could pay the IRS and
get this over with. However, my husband and I knew that paying the
demand would never resolve this. We tried that in 1991. They would
screw this payment up too and in a few years be back for more "with
interest." We needed closure, some way to end this forever.
Since the real problem occurred back in 1989, and the IRS never
correctly set up my account for $3,500, and because every penny over
that amount was a result of that error, we determined that under the
Taxpayer's Bill of Rights provision that the IRS could not make us
pay interest for their mistakes. We should not owe more than $3,500,
If we could get the IRS to correct their errors we should be able to
pay $3,500 and be done with it. So, that's what we did. We made a
directed voluntary payment of $3,500. We put the rest of the money
in a CD in case the IRS swooped in to destroy us unannounced. We
waited.
Our lives are now forever altered. Joint tenancy, joint bank
accounts, joint tax returns are no longer a part of our life. We
will pay additional taxes every year as a result. Our confidence in
the integrity of the IRS has been completely shattered. This year we
got a refund on our 1996 taxes and sits in a CD as does the $3,500
that the IRS recently returned to us without any explanation. We
don't dare cash refund checks anymore. My credit is completely
destroyed, and my husband's credit is seriously damaged. We will
suffer the effects of this IRS collection for the rest of our lives.
I originally wrote to you, Mr. Chairman, because the IRS should not
be above the law. Couples should not have to divorce because of the
IRS. Once you became involved, the IRS released all the liens and
sent us back the $3,500. Senator Roth, your effort saved us from
being forced to live apart, and preserved our ability to provide for
our children. For this, we will be forever grateful. However, the
conduct of the IRS remains the same, and for thousands of other
taxpayers, there is no help. Ours is a hollow victory if the IRS is
allowed to continue this type of conduct.
People tell us how terrified they would be to do what we have done.
They are convinced that the IRS will target us for punitive audits.
One person put it this way, when she learned we had written to
Congress, "that's like painting a bull's eye on your chest and
giving the IRS a loaded gun." She believes the IRS will never forget
this and someday get back at us in retaliation. Mr. Chairman, she
could very well be right. The IRS is judge, jury and executioner --
answerable to none. We do not believe that our experience is
isolated. For over 10 years the IRS has conducted itself as a
legalized extortion operation willing to commit abusive acts to
collect money, even that which they know is not owed.
An agency of the United States Government, allowed such sweeping
authority as that granted to the IRS, should be held to the highest
standards of honesty and integrity. The IRS is not. Those of us
subject to that authority should be guaranteed an accessible and
effective remedy for its abuse. We are not.
It is a disgrace to our nation that an arm of our democratic
government is allowed to behave as if it were an extension of a
police state. I hope that Congress can act to end this national
shame.
Thank you for allowing me this time.