By Sean Chi
Tax Attorney, The Law Offices of Spar & Bernstein
I would first like to make clear that I in no way condone the actions taken by Joe Stack yesterday when he crashed his plane into the IRS building in Austin, Texas. The point of this post is not to excuse the actions of Mr. Stack, but instead try to understand the circumstances that drove Mr. Stack to his deplorable actions.
The information that has trickled out since yesterday clearly shows that Mr. Stack had considerable problems with both the IRS and the California taxing authority, the Franchise Tax Board. In 2000, Mr. Stack had one business licenses suspended by the California Franchise Tax Board for failing to file taxes for one year, and another business license suspended in 2004 for failing to pay taxes. And the total amount of the taxes owed that resulted in the suspending of his business? All of $1,153.
If it seems to you like a disproportionate response to suspend a business for such a small tax liability, that’s because it is. In all fairness, it is rare for any collection actions to be taken on such a small liability. However, any operational business that continues to pay taxes should never be suspended for a liability barely over $1,000. It simply doesn’t make financial sense. The business in question, Software Systems Service Corp., was in operation since 1995 and only owed on two years of taxes. In all likelihood, the business was paying annual taxes in excess of $1,153. By suspending his business license, the California Franchise Tax Board was likely costing itself more revenue in its attempt to collect on such a small liability. The medicine would be worse than the cure.
On the other hand, Mr. Stack could have easily addressed the small liability he owed. Monthly payments of $50 would have likely addressed this issue. However, as taxing bodies are wont to do, they may have played hardball with him and insisted on a full payment of the tax liability without making him aware of the other legal payment options available to him.
In addition to his state tax liabilities, he apparently had some undetermined IRS issues. The only information available at this point are his claims that he spent more than $40,000 regarding back taxes and that a recent audit showed more than $13,000 in unclaimed income.
I admittedly do not know the particulars of Mr. Stack’s interactions with the IRS, but I can imagine what the likely issues were. He probably objected to the amount of his tax liabilities, maybe filing some amended returns, which would be summarily rejected with no explanations as to why. Any attempts to settle his tax liability would likely be difficult, due to owning a plane and real property with equity. The IRS should have at least gave him the option to make monthly payments to full pay within five years, but likely didn’t (liabilities do not need to be under $25,000 for a five year installment agreement). The audit likely came years after the original tax filing, at least two years I would guess, and likely increased his original tax liability by thousands of dollars with additional penalties and interests.
Having said that, Mr. Stack has plenty of blame of his own for his tax issues. It is ultimately up to each individual to account for the taxes we owe; the government is not our accountant. In addition, all tax problems can be addressed in some manner if you have professional representation. Tax laws do not involve much if any discretion, contesting liabilities or working out settlements have firm rules that the IRS and state governments have to follow. This is not to mention the fact that despite his tax issues, Mr. Stack was not exactly ruined by them. He did still have a house, a plane, and a family. Most people who have had $40,000 in tax problems have not been able to walk away with such things.
Most importantly, his tax issues do not come anywhere close to justifying his actions. I’m not saying anything justifies crashing an airplane into a building of innocents, but whatever the Franchise Tax Board and IRS did certainly didn’t. I know of people with considerably more tax difficulties than Mr. Stack that are trying to address them legally and rationally. Mr. Stack actions were completely unforgivable and no one should be attempting to give merit to his act of terrorism.
In the end, Mr. Stack may or may not have taken the actions he did regardless of how the IRS and California Franchise Tax Board acted. However, here are some suggested steps that should be taken by them to minimize the frustrations of all tax payers:
- No collection actions for tax liabilities under $5,000. Annual tax refunds should full pay this amount within the statutory expiration period anyways. If they don’t, the taxpayer likely had minimal enough income to qualify for a settlement or non collectable status anyways.
- Issue audits or substitute returns within one year of the original due date. Too often the IRS abuses the three year rule allowing them to file an audit or substitute return. By waiting until the last minute, the IRS can increase the balance due amount dramatically by accruing nearly three years of penalties and interest. By forcing them to issue audits or substitute returns within one year, $5,000 balances do not suddenly become $8,000 balances.
- Alternatively, penalties and interest can be restricted from beginning until after the date of the audit or substitute return.
- Inform tax payers of their options. Rarely have I ever heard of the IRS or state government asking for anything less than full payment. In their zeal to collect as much as possible as soon as possible, they do not care about the harm their collection actions have on people. The government created safeguards for taxpayers; it is just too bad that these safeguards are enforced by the IRS themselves and they never see fit to let taxpayers know about them.
- Change the culture of taxing bodies. Too often from the very beginning they act completely hostile to the taxpayer. Give working with them to resolve their tax issues a chance instead of simply bullying and threatening people. Although there are many instances of people who knowingly commit tax fraud, there are likely disproportionately more that are innocently making tax mistakes or having financial difficulty.
- See the forest from the trees. Closing businesses, levying people from work and home, and ruining credit will not grow the economy. Taxes understandably need to be paid, but shutting off future income that exceeds the actual liability does not make financial sense.
