John Bullis: Civil fraud penalty assessed against IRS employee

The Internal Revenue Service has many employees. That one of them did not comply with the income tax laws is easy to imagine.

However, in the case of Jacynthia Quinn, Tax Court Memo 2012-178, the IRS employee was a tax compliance officer. She claimed dependency exemptions, medical expenses and charitable contributions that the Court found she was not entitled to claim. Apparently the court testimony by others contradicted the taxpayer’s claim she was not aware of the documentation and other tax law requirements.

Her husband, her supervisor and representative of seven charities to which she had claimed she made contributions testified. The court found their sworn testimony was more creditable than hers. Her testimony was held to be inconsistent and implausible. Some of her claimed receipts were found to be “doctored” — changed to try to support her claims.

The court imposed extra income tax, penalties and interest, including the larger and more serious civil fraud penalty. That means she does have to pay federal income tax of $9,940 for year 2006 and $ 8,040 for year 2007. At the trial, Quinn conceded the couple could not claim their two daughters as dependents. She lived in California when she filed the petition. She began her career with IRS in the 1980s and served as a tax compliance officer since the 1990s.

A tax compliance officer audits returns and examines deductions claimed as Itemized Deductions on form 1040, Schedule A. The tax compliance officers meet with taxpayers, review the records and determine if the taxpayer has substantiated the deductions claimed on the returns. Quinn was formally trained to conduct those audits. She regularly audited individual income tax returns where charitable contributions and medical expenses were issues.

Quinn did not comply with the substantiation requirements for charitable contributions and medical and dental expenses listed in the IRS Notice. Of the claimed charitable contributions of $48,116 for the two years all but $185 were disallowed. Of the claimed medical and dental expenses of $47,542 for the two years, only $30 was substantiated and allowed.

The court found she presented altered or fabricated documentation in an attempt to deceive IRS and the court and found her liable for the civil fraud penalty.

Did you hear? “Too many people think they are being creative when they are just being different.”

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.