Re: Income Tax Audit Curse
Income Tax requires the players to discard Items totaling (in this case) 1,100 Gold Pieces. If they have enough Items to do that, they are required to do so -- there's no "or lose a level because that's the same as 1,000 Gold Pieces" option. If they don't have enough Items on the table, then they discard all Items they have AND lose a level as a penalty.
Basically, your friends didn't read the card closely and you were right. Also, that was an evil play. I approve.
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