Christopher Hesse Son Of Farmer Makes Irs Postpone Deferred-Contract Action

Few people ever beat the Internal Revenue Service. Meet one man who beat it into submission.

Christopher Hesse, a Moses Lake tax accountant, wasn’t looking for a fight when Columbia Basin farmers came to him in 1995 with complaints that the IRS was picking on them.

But after learning that the powerful federal agency had targeted potato growers to collect more taxes on the sale of their crops, Hesse, the son of a farmer, was enraged.

For nearly two years, Hesse led a campaign against the IRS, feeding lawyers and congressional leaders valuable technical data, giving speeches and publicizing his cause.

In January, Hesse, 39, became a hero to some when the IRS backed down, postponing its roundup of farmers until next year. That gives Congress time to change the tax laws and spares thousands of farmers a hefty tax bill.

“It was wrong; I knew it was wrong,” says Hesse, taxation director for Spokane-based LeMaster & Daniels public accountants.

“They (IRS) weren’t looking for people not reporting income or for tax protesters. These farmers were reporting all their income and paying their taxes. The IRS just wanted more.”

Shawn George, spokeswoman for the IRS in Seattle, declined to respond to Hesse’s comments, saying “we try to work with tax preparers in a spirit of cooperation and arrive at fair solutions.”

Hesse saw nothing fair about the way the agency went after dozens of Columbia Basin farmers. These growers for years had openly deferred taxes generated from crop sales into the coming year. The practice meant they could deliver their crop in October and take payment after Jan. 1. That would smooth out their tax bill in years such as 1996, when crop prices were high.

Hesse concedes that deferred contracts are rare in the business world. But he argues that since the contracts cannot be traded or exchanged, they have no value until they are cashed. So the income should not be taxed until the year the farmer gets his money.

“It’s not much different than employees agreeing to be paid in January for two weeks they worked at the end of December,” he says.

Hesse, an Oregon native, brought his wife and four children from the accounting firm’s Tri-Cities office to Moses Lake years ago to be closer to his parents and brothers, who operate a nearby corn and hog farm. He still is visibly moved when he drives past Frontier Junior High School, remembering that two of his kids were in the building last year when a teacher and two students were fatally wounded by another student.

Work is a priority in Hesse’s highly efficient life. His 11-hour workday begins at 5:30 a.m. at the office. Hesse says he avoids golf because it takes too much time. He keeps a complete set of CD-ROM tax law books handy in his briefcase.

Driving a teal Grand Am with personalized plates - “SHRPNCL” Hesse logs 28,000 miles a year traveling between 10 LeMasters & Daniels branch offices as the firm’s top troubleshooter.

“I’m the answer guy,” says Hesse, whose billing rate is $145 per hour, though he has only a handful of personal clients. “Few people in public accounting are not expected to have a clientele. But on a moment’s notice, I’m expected to tackle an issue.” Some tackles are top-level.

When Sen. Charles Grassley, the high-ranking Iowa Republican, was drafting legislation last year to change the deferred contract tax law, his staff called Hesse for advice.

“I sent the bill to Chris and asked him if this is going to get us where we need to be,” says Bill Hanigan, Grassley’s tax counsel. “He helped us write everybody’s solution.”

Hesse says in the early days of his crusade, congressional leaders yawned at his warnings that the IRS eventually would target farmers in the Midwest and elsewhere, writing it off as an Eastern Washington issue.

In late 1995, a LeMasters & Daniels client lost an appeal on the deferred contract issue and Hesse demanded that the IRS explain its interpretation of the tax law in a public memorandum.

It took the agency 10 months to publish its findings, but that bought Hesse time to muster national support.

During that span, an Iowa hog farmer made news for losing a tax appeal on a huge $900,000 deferred contract and Lind, Wash., wheat farmer Bill Loomis took a similar claim to U.S. Tax Court. Hesse donated more than 200 hours to visit Capitol Hill, write articles for trade journals and assist Loomis’ attorneys.

After the IRS released its findings, scared and angry farmers bombarded Congress with calls. “It was a firestorm,” Hanigan says.

Rep. George Nethercutt, R-Spokane, quickly gathered 134 cosponsors for a House bill to reverse the IRS finding, while Grassley found 56 cosponsors for a similar bill in the Senate.

The IRS promptly announced a one-year moratorium on deferred contract audits.

Since then, says Hesse, “The IRS has been fairly quiet.”

, DataTimes ILLUSTRATION: Photo