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Tax Court cuts IRS agent no slack on penalties

March 31, 2009

An IRS agent and his wife did a little business on the side, selling nail care kits and carpet cleaner. The agent, Mark Squier, prepared the returns and, taking advantage of a minor IRS perk, he e-filed him at his office in Oklahoma City.

The Tax Court found that the agent wasn't entirely forthcoming with his employer about the income from his side business when, as is normal practice, he was audited himself:

In an attempt to hide the true income from the IRS, petitioner used his home copier to alter the business's bank account statements for February, March, April, September, October, November, and December 2002. Petitioner submitted the fraudulent, altered documents to the IRS examiner during the audit. Moreover, petitioner failed to keep adequate books and records for the business for the years at issue. Petitioner later admitted to other IRS agents that he altered the bank documents.

That may explain why Mr. Squier no longer works for the IRS. That doesn't keep the Tax Court from holding his old job against him:

Petitioners' deemed admissions of facts evidenced numerous badges of fraud: (1) Petitioner fraudulently understated income and overstated deductions for all years at issue with respect to the nail kit business; (2) he failed to maintain adequate records for all 3 years; (3) he used his home copier to alter bank statements which he provided to the IRS in an attempt to evade tax; (4) he failed to cooperate with respondent and was nonresponsive throughout the litigation, failing even to appear at his own hearing; and (5) he possessed greater than average knowledge of the requirements of the Internal Revenue Code because of his years of employment with the IRS.

To be sure, the "greater than average knowledge of the Internal Revenue Code" isn't universal among IRS agents, but it clearly is a working assumption when they come under audit. The Tax Court upheld over $30,000 in civil fraud penalties on the couple.

The Moral? If you work for the IRS, there's no home-field advantage on audit.

Cite: Squier, T.C. Summ. Op. 2009-47.

Tags: civil fraud.tax court.