IRS shuts down mom and pop dressmaker, sells dresses within hours

Dallas Morning News – by Kevin Krause

The unmarked vehicles arrived in the morning. More than 20 armed agents poured out.

Hours later, Mii’s Bridal & Tuxedo was out of business after serving customers for decades. Its entire inventory of wedding gowns and dresses as well as sewing machines and other equipment were sold at auction.

The hastily-called sale held inside the store netted the IRS about $17,000 — not enough to cover the roughly $31,400 in tax debt alleged, court records show. The balance is now likely unrecoverable.  

Mii’s, a small Garland business owned by an elderly immigrant couple from Thailand, was never accused in court of violating any federal laws.

The owners, Tony Thangsongcharoen, 68, and his wife, Somnuek Thangsongcharoen, 72, are fighting back. The Garland couple sued the government in federal court in Dallas in March for more than $1.8 million, alleging the IRS violated its own procedures during the tax seizure at the small storefront on Garland Road in March 2015.

“The agents auctioned off, before their very eyes, the family’s entire life savings for pennies on the dollar,” the lawsuit said.

Allegations of improprieties against the IRS for its asset seizures are not new. The agency has been under fire in recent years for seizing the bank accounts of mom and pop businesses due to their banking transactions.

The IRS claimed that the businesses intentionally tried to evade federal bank reporting requirements by making cash deposits just under the $10,000 limit. Critics say the IRS is being heavy-handed for seizing money from businesses when they haven’t been charged with a crime.

Anya Bidwell, an Austin-based attorney for the Institute for Justice, a public interest law firm in Arlington, Va., said the IRS has a “history of aggressively interpreting federal laws to seize property.” The IRS agreed to change its policy of targeting small businesses for cash seizures, she said. But the Mii’s Bridal case, she said, shows that “broader, more comprehensive reform is also needed.”

“No one in the United States should lose property without being convicted of a crime or without a proper due process hearing,” Bidwell said.

The Mii’s Bridal lawsuit also claims that some of the seizing agents improperly purchased items during the auction, in addition to other irregularities.

“The lead agent brought four children to join the armed agents and tag along during the entire process,” the lawsuit stated. The children sat on a pallet with several boxes of pepperoni pizza while watching events unfold, the suit said.

And the Thangsongcharoens dispute that they owed the IRS any taxes. The government says they owe for the 2005, 2008 and 2010 tax years.

“The taxpayer’s tax returns on file with the IRS reflect that the tax year at issue generated a net operating loss carryover, not a taxable amount,” the suit says.

The IRS declined to comment, saying its policy doesn’t allow statements about specific cases. The Justice Department’s tax division defended the agents’ actions in court filings, however, and has asked a federal judge to dismiss some claims in the lawsuit.

Curtis Smith, an attorney for the government, denied in a court filing that one of the seizing agents bought something at the auction. He conceded however that an “off-duty Dallas Police officer in plain clothes bid on and purchased one small item.”

Dallas police assisted the IRS during the raid. The police department did not respond to questions about the matter.

Speedy sale

The Thangsongcharoens started their wedding dress business in 1983 after coming to Texas from Thailand, according to their lawsuit and corporate filings.

When reached at their home on Thursday, the couple said they didn’t want to say anything that could harm their case.

An IRS agent obtained authorization for the seizure from a U.S. district court after she submitted an affidavit, the lawsuit said.

The couple’s attorney, Jason Freeman, received numerous internal documents from the IRS following a Freedom of Information Act request about the incident.

The lawsuit says one document received is a written “directive” from an IRS supervisor to “shut down this failing business.”

Freeman, a tax law specialist who teaches at SMU’s law school, could not immediately be reached for comment.

When the agents arrived for the seizure, they told the Thangsongcharoens to give them a $10,000 check within two hours to avoid the sale of their roughly 1,600 “designer” gowns, worth more than $615,000, according to the suit.

Regarding the speed of the sale, the government said in legal filings that the IRS used a special law that allows for a streamlined procedure if the agency determines the goods seized could “perish or waste” or become greatly reduced in value.

As a result, the IRS didn’t have to post advance public notice of the Mii’s sale or wait at least 10 days before selling the goods, as is normally required.

The provision also says a speedy auction can be used if storing the property would cost the IRS “great expense.”

It’s unclear from court records which of those scenarios was foreseen by the IRS in the Mii’s Bridal shop case. But the Thangsongcharoens say in their suit that the agents deliberately marked down the inventory to about $6,000 so they could claim it would cost more to store than it was worth.

That comes to less than $4 per dress, the lawsuit said. The agents initially believed the value was significantly higher, according to the lawsuit. IRS regulations say the agency calculates a minimum bid price prior to the sale of seized items.

Addison-based tax lawyers Garrett and Deborah Gregory are former government tax attorneys who worked for the IRS. He said selling a business’s entire stock within four hours of seizure would be “unusually fast.” Deborah Gregory said the IRS usually doesn’t act that quickly.

“A lot of bureaucracy has to happen,” she said.

She also said it’s unusual for a police officer to bid on seized items, even if he was off duty at the time.

“If nothing else, it looks really bad,” she said. “I think the agency would frown upon it.”

Garrett Gregory said, however, said that taxpayers generally get plenty of notice of their tax debt before collection efforts begin.

“They’ll shut down businesses,” he said. “They can move pretty swiftly on that … to stop the bleeding.”

Left ‘destitute’

In the case of Mii’s Bridal, a revenue agent listed the dresses as being new and in “good condition.” The retail store stocked dresses for brides, bridesmaids and family members as well as veils, tiaras, pillows and prom dresses, court records say.

Agents seized items they shouldn’t have, such as a Vietnam veteran’s hat left at Mii’s to have badges of honor sewed into it, according to the lawsuit. The IRS refused to return the hat, the suit says.

The agents also seized video game consoles, a surround-sound music system and a 65-inch TV, which was not authorized by the judge’s order, the suit said.

The Government Accountability Office studied IRS tax seizures in a 1999 report and made several recommendations afterfinding that some decisions to seize assets were “questionable.”

In just under a quarter of the cases studied, the seizures “produced little revenue to the government and contributed little to resolving the taxpayers’ delinquencies,” the GAO report said. In some cases, the seizures essentially ended any attempts for further collections, the report said.

Tony Thangsongcharoen blames the episode for his subsequent heart problems that required a quadruple bypass surgery.

“Tony and Somnuek were left destitute — everything that they had built since immigrating to the United States and beginning their business in 1983 wiped out before their eyes,” his lawsuit says.

https://www.dallasnews.com/news/crime/2017/07/08/mom-pop-fights-back-irs-taking-selling-entire-inventory