I second the 'cherry eye" diagnosis.
No spankings please.! It will make him poop in hidden places. I use an Iris pen to confine my chi's , until they are pretty reliable to the pads. His carrier/crate goes in there, his food and water dish, and a large pad (34x36")washable or a disposable pad. A few toys for him to chew on will help too. Unless you can watch him, he is in the pen.
From what i"ve read, I think Taco is scared or timid in nature. How old is he? He barks, as you said from stress and fear. Have the kids try and drop and tiny bit of treat as they walk by. No speaking, looking, or picking up for now. After Taco gets to looking at the kids for his treat, then they could squat down and offer him one. No picking up or playing yet. Just keep this routine up, and hopefully it will work. (I have one that is 8 years old, and has not responded to this treatment. Congenital, mother was the same way)