Stranded in the IRS’ Own Special Hell

We’ve all been to hell and back. Telephone hell, customer-service hell, bureaucracy hell.

On my desk I happen to have both a canceled check to the DMV for my car registration and a bill sent one month later claiming the amount was still due.

But of all the hells on Earth, none is more feared than the one ruled by the IRS.

And now that the tax deadline is past, just be glad you didn’t invest in a certain jojoba venture back in the 1980s. Your tax troubles could have been as bad as Jay Michtom’s.

Michtom, 67, was sitting in a Northridge deli Wednesday explaining two documents: One is a signed letter from the Internal Revenue Service that states he owes no taxes for the years 1983, 1984 and 1985. The other, sent a few months later, shouts “Final Notice!!� and orders him to pay up now, or else.

“We can also file a Notice of Federal Tax Lien,� the letter cheerfully noted, “if we have not already done so.�

The disputed tab now exceeds $30,000 and interest mounts daily. There is indeed a lien on the Northridge home Michtom and his wife, Jill, have lived in for 29 years.

Michtom, a retired IBM engineer, at least has timing on his side. America’s most hated government agency is now under intense scrutiny for its abuses and bureaucratic ways. His experience may not rival the horror stories that were told in the Senate Finance Committee’s televised hearings last year, but it’s easy to understand his aggravation. Now Michtom has shared his tale--and his contradictory documents--with politicians and the press, hoping for some kind of redress.

It all started with jojoba, the Southwestern desert plant known for its uses in lotions and medicine. Jojoba, Michtom says with a grin, “is a dirty word around our house now.�

Michtom was still working at IBM in 1983 when a financial planner told him about an intriguing investment opportunity--a limited partnership to explore the potential of jojoba farming. There would be four farms where different methods would be explored. The partners, it was hoped, might see a return on their investment in about five years. There were about 250 limited partners; the Michtoms would invest about $15,000 over a three-year period.

The Michtoms and other partners would claim deductions on these investments on the grounds that the money was “at risk.� When the IRS later disallowed these claims, the partners disagreed and took the case to tax court--and lost. Michtom blames the attorney and still contends the deductions were valid.

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The Michtoms’ and the other partners’ troubles with the IRS paled compared to the jojoba venture itself, which collapsed in failure and feuds. When the general partner tried to fire the scientist who had been contracted to supervise the research, the scientist sued and won a $7-million judgment. The general partner claimed bankruptcy, and the limited partners were held liable. The Michtoms wound up paying nearly $50,000 to resolve their share of the judgment.

This debacle, it seemed, produced a tiny bit of good news--that the partners’ jojoba investment was indeed “at risk.�

For 10 years Michtom argued his point, making scores of phone calls and sending dozens of letters and faxes. He visited IRS offices in Van Nuys and downtown L.A. and contacted officials in Fresno and Ogden, Utah. “I got the impression that the IRS has lots of little pockets and no one talks to anybody else,� he says.

Frequently, IRS agents would express sympathy, he says, but the bureaucracy itself was another matter. Finally, a tax collector in Van Nuys did more than nod sympathetically. He listened, looked at Michtom’s documents and told him he was absolutely right: He owed nothing.

This lone tax collector, Michtom says wistfully, “became my champion.� He guided Michtom to an “audit reconsiderations� officer, and that official agreed. Then they went to a department manager and he agreed. Michtom asked for his opinion in writing--and got it:

TO WHOM IT MAY CONCERN:

This is to confirm that, according to our records, IRS has abated the F. 1040 taxes owed by Mr. J. Michtom for the years 1983, 1984, 1985. He does not owe any Federal taxes for these years.

Thanks for your understanding.

The letter is signed by M. Derian, revenue officer.

So Jay and Jill Michtom were feeling pretty good. A couple of months later, after spending Thanksgiving with their son, they came home to find another IRS letter. This did not ask for their understanding but declared “Final Notice!! We intend to levy. Please respond NOW.�

And so it all started over again.

Some IRS officials, Michtom says, have explained that their hands are tied--that neither the IRS itself nor the $50,000 civil judgment Michtom had paid can undo the tax court’s ruling that the “at risk� deductions he had claimed were invalid.

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Michtom is able to discuss all this with a pained smile. “After 10 years, I guess I can be philosophical about it,� he says. “But deep down inside, it feels so unfair. The facts say to me this isn’t right.�

His latest letter from the IRS, dated March 30, came from an Ogden official whose name was unfamiliar to Michtom. She suggested this strategy: “You may pay the taxes and file a claim for a refund. The claim will be disallowed, but then you have your appeal rights and have the option of going to the court of claims.�

Michtom just shakes his head and imagines more lawyer fees.

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I managed to get out of DMV hell without any scars. A sympathetic cop believed my story when he stopped me for an expired registration. I made a few phone calls and found a helpful state employee who told me all I needed to do was fax Sacramento my proof of insurance.

But IRS hell is so much scarier a place. Even the IRS seems to understand Jay Michtom’s grievance. Their advice?

Step deeper inside. And you might want to hire a lawyer.

The Times recently introduced a new column, An Equal Chance, in which staff writer Kenneth Reich focuses on government and corporate bureaucracies. He may be reached at Times Mirror Square, Los Angeles, CA 90053. Readers may reach Scott Harris at The Times’ Valley Edition, 20000 Prairie St., Chatsworth 91311, or via e-mail at [email protected] Please include a phone number.