WASHINGTON - It was a rational suicide, she said, if there can be such a thing.
Kay Council's husband, Alex, killed himself nearly two years ago at age 49, leaving her two eerily businesslike notes. A postscript to one said she would find his body on ``the north side of the house,'' where he lay with a bullet through his head.
Another, longer note referred her to a tape recording. It also urged her to move quickly to ``obtain the required evidence of death from the authorities'' so that she could get the money from his suicide-proof insurance policy. His death, he wrote, ``was a simple business decision.''
Kay Council blames his death on the Internal Revenue Service.
For more than four years, the Councils had been fighting to prove they did not owe the IRS nearly $300,000 in penalties, interest and payment on a $70,000 investment in what turned out to be an invalid tax shelter.
Six months after Alex Council's death that June evening, a federal judge in North Carolina agreed with them - but by that time the victory was muted. The Councils' house-building business was nearly defunct, Kay Council's credit was nearly ruined, her house was on the block, she owed thousands in legal fees, and she had about $16 in her bank account.
And, of course, her husband didn't know they'd won.
Kay Council came to Washington last week at the suggestion of the National Taxpayers Union to testify at a Senate committee hearing.
The Councils met when they both worked at the same mortgage insurance company in Greensboro, N.C.
In 1973 Alex Council was offered a job in California running a new mortgage insurance company. Kay followed him to a suburb of San Francisco the next year and they were married.
By 1978 the business was a success, and the Councils found themselves the happy recipients of a $300,000 bonus. Their accountant suggested oil and gas leases and a tax shelter called Jackie Fine Arts, which involved buying the rights to reproduce paintings.
Investors in the company could receive a tax credit in the first year and a depreciation over the total investment during the term of the deal, according to 1980 news stories about Jackie Fine Arts.
But in late 1979, after the Councils had claimed a $70,000 writeoff for that year's taxes, the IRS announced that those seeking tax shelter at Jackie Fine Arts might find themselves under a leaky roof.
So the Councils expected to be audited and knew they might have to ante up. Indeed, an auditor contacted their accountant and during the next few years repeatedly asked for information that the Councils dutifully produced.
When neither they nor their accountant had received an official ``notice of deficiency'' by the time the statute of limitations ran out in May 1983, ``we thought we were home free,'' said Council. But five months later they did hear from the IRS - not the notice, which would have given them a 90-day period to fight the assessment in tax court, but a bill for a tax of $115,895, a penalty of $5,795 and interest of $61,331.12, for a total of $183,021.12.
As they tried unsuccessfully to find out what had happened to the original notice, which the IRS said it sent in April 1983 (one month before the statute of limitations expired), the interest meter continued to run until the total reached nearly $300,000.
``The only communication I had received from the IRS since 1983 indicated receipt of my letters requesting the above information, bills threatening collection procedures, and notices of intent to levy on my assets,'' Alex Council said in a 1987 affidavit.
There were notices such as this one, sent in 1985 and written in the urgent style the IRS favors:
``WE HAVE PREVIOUSLY WRITTEN TO YOU ABOUT THE FEDERAL TAX SHOWN BELOW. IT IS OVERDUE AND YOU SHOULD PAY THE TOTAL AMOUNT DUE IMMEDIATELY TO AVOID ADDITIONAL INTEREST AND PENALTIES.
``IF YOU CANNOT PAY THIS
AMOUNT IN FULL, PLEASE WRITE OR CALL US IMMEDIATELY. . . . WE HAVE ENCLOSED A COPY OF PUBLICATION 568A, WHICH PROVIDES INFORMATION ABOUT OUR COLLECTION PROCEDURES AND YOUR RIGHTS IN RELATION TO THEM.''
Before receiving their first bill from the IRS and starting their lengthy legal battle, the Councils moved back to North Carolina. Alex Council wanted to get into the construction business.
They continued to correspond with the IRS.
They asked for a copy of the notice the IRS said it had sent, and got it - two years later. The IRS maintained the original notice had been sent by certified mail, so the Councils asked for the certification number so they could check with the San Francisco post office. The IRS produced that in 1987, but all the paperwork except one list had been destroyed two years before in routine Post Office procedure.
That list, however, showed a curious error. Instead of sending it to 71 Corte Del Bayo, Larkspur, Calif., the IRS had sent it to 7+-.
The IRS is prohibited by privacy laws from commenting about a specific case, but in its legal brief (which contained two typos itself), the agency's lawyer argued that ``actual receipt of the notice is not required if the notice was properly mailed.''
The Councils' attorney, James M. Iseman Jr., produced two other persons' deficiency notices that were not mailed in window envelopes, and examples of other incorrectly typed addresses - including that of the Councils' accountant. He too never received the notice of deficiency.
But the matter came to trial four months after Alex Council's death. Meanwhile, the IRS had, as a result of the 1979 audit, also audited the Councils' 1978 return, as well as the business returns for 1983, 1984 and 1985. A penalty of $6,821 was levied for 1978 - as a result of the problems with Jackie Fine Arts - and was paid.
Council had borrowed money to build his first development of middle-class suburban homes, sold them and then bought more land. They built a house for themselves first, taking out a $112,000 construction loan to do it. But in July 1987, the IRS placed a lien on the home, and the Council Development Co. began to crumble.
As a result of the lien, which lenders would discover in a routine credit check, mortgage insurance on the houses under construction was canceled, and Alex Council couldn't get the money he needed to keep his business afloat. They could not convert the construction loan on their own home to a mortgage because of the lien.
``You get to the point where you expect them to walk in any day and take what you have,'' said Council. ``We lived with that every day. But when they didn't, I came to believe that it was because they knew they were wrong.''
In May 1988, the judge in U.S. District Court granted them an injunction against the IRS enforcing the lien. But instead of ruling that the IRS was wrong, as the Councils had hoped, the judge scheduled a trial and allowed the IRS more time to gather evidence.
``Of course, the 60 days turned into October,'' she said. By that time the Councils' net worth was about $15,000, she said, their business was stymied, their lives were consumed with their tax battle, and they could not see how to get out from under it all.
A month after their anniversary trip, Alex Council was dead.
In the shorter of the two notes he left, he wrote:
My dearest Kay,
I have taken my life in order to provide capital for you. The IRS and its liens which have been taken against our property illegally by a runaway agency of our government, have dried up all sources of credit for us. So I have made the only decision I can. Its purely a business decision. I hope you can understand that.
I love you completely,
After her husband's death, Kay Council had the tape he left transcribed. It ran 15 pages and contained detailed instructions about everything he wanted her to do. Although Kay was a half owner of the construction business, she knew little about the details, she said. For example, she did not know that her husband did not have mortgage insurance.
After she got the $250,000 from his insurance policy (it had a clause that paid off for suicide after two years of premium payments), she tried to do what he wanted her to: keep the court case against the IRS alive, pay off bills, finish building the housing development, and sell the houses to get money to live on. But the more she thought about it, the more she wondered what would happen if she lost the case against the IRS; she would have to use what was left of her husband's insurance money to pay what she could of the debt, sell everything else and start anew penniless and in debt.
``I was determined the IRS would not get one penny of Alex' money,'' she said. ``Even if I had to burn it in my back yard. My lawyer said, ``Don't you know you could go to jail for that?' And I said I didn't care.''
So she paid her credit card bills, bought herself a $70,000 ``cracker-box'' townhouse with cash, gave her attorneys $15,000 and tried to run the construction business, which she found rough going. ``I really didn't know about that part of the business,'' she said. ``What I had done was pick out the color of the carpets and that kind of thing.''
When the case came to trial, the IRS argued that since the Councils knew from their auditor that their deduction probably would not be allowed, they should have contacted the agency to find out what happened. The judge, in a sentence Council's friends love to quote, dismissed that notion sharply: The tax code ``does not place upon plaintiffs the burden of hounding the IRS for delivery of a possible notice of deficiency.'' He ordered the deficiency canceled and the lien revoked.
But Kay Council's troubles were not quite over.
Knowing the construction loan on the house was coming due in March, she put the house up for sale. But in February of last year, one week before the closing, she learned the lien had not been removed by the IRS, and the sale was doomed.
Her attorney arranged for the lien to be lifted under the condition he hold the net proceeds of the sale for 10 days. When she went to get the money from him, she said, Iseman told her the money was owed to him and refused to release it until she had given him $10,000 and a deed of trust for $36,000 on her town house.
Iseman says he understands that Council feels attorney's fees were high but that she didn't realize that bills had been mounting since 1985. Although the IRS had been ordered to pay attorney's fees, it did not do so until two weeks ago - a week before Council was scheduled to tell a Senate committee about her experiences.
Council must pay the difference between the amount Iseman charged and the IRS paid, as well as what is left from the other audits. She currently owes about $14,000. And she discovered, to her dismay, that it is her responsibility to convince credit bureaus that the lien has been removed and was improperly filed in the first place.
Kay Council speaks of herself as a woman who had to become tough or ``lay down and die.'' In choosing to fight, she gained strength she never thought she could possess. But now she doesn't know quite what to do with it.
Her victory last October was hollow, she said sadly. There was something missing from the dry legal language of the court decision, and the dry legal handshakes of her attorneys. When she came to Washington last week to tell the committee about what had happened to her, she knew that IRS Commissioner Fred Goldberg was going to precede her at the witness table, and she hoped to meet him.
``I wanted him to shake my hand,'' she said. ``What I wanted was for him to say he was sorry. That they made a mistake, and they were sorry. But he left before I even got near him.''