Tax Court: IRS Agent Could Substantiate Only $215 of $95,000 of Claimed Charitable & Medical Deductions

Following up on my previous post. IRS Fires Agent Who Lost Tax Court Case on Deductibility of Losses from Side Business (June 25, 2012):  Quinn v. Commissioner, T.C. Memo. 2012-178 (June 27, 2012):

[P]etitioner is an experienced tax compliance officer that remains employed by the IRS. Petitioner should have a complete understanding of substantiation requirements. Despite her background, petitioner has presented altered or fabricated documentation in an attempt to deceive respondent and the Court.

She understated her income by claiming deductions she was not entitled to claim for each year at issue. Even if we accepted her purported records (which we do not), she still claimed significantly more contributions and expenses than her questionable records supported. It is incredible that a tax compliance officer would be able to substantiate only $185 of charitable contributions yet claim charitable contributions of $48,116 for the years at issue. The charitable organizations confirmed that petitioner claimed contributions that she had not made. It is equally troubling that she was able to substantiate only $30 of the $47,542 of medical and dental expenses claimed.

Petitioner’s records were also incomplete or inauthentic and consistently unreliable. Her employment with the IRS made available other taxpayer records substantiating claimed Schedule A deductions of the types at issue here. While we cannot be certain of the source, we find that some (if not most) of petitioner’s records for each year at issue were altered. Unexplained inaccuracies in other documents imply that petitioner fabricated receipts for both years at issue. Even documents that appeared genuine did not substantiate that the couple actually incurred those costs or expenses.

Her testimony and assertions in the post-trial brief were also inconsistent and implausible. Petitioner maintained she was unaware of the requirements for accurately stating and substantiating income. We find this incredible. In contrast, the credible testimony of her supervisor, her husband and representatives of the charitable organizations contradicted petitioner’s records, testimony and assertions.

(Hat Tip: Jack Bogdanski.)  See also Forbes:  IRS Compliance Officer Audit Thyself, by Peter J. Reilly.