IRS audits tax returns of 800 of its employees
Albert B. Crenshaw
IRS audits tax returns of 800 of its employees
Sat Jan 3 16:55:01 2004
64.140.158.138

Posted on Sat, Jan. 03, 2004
IRS audits tax returns of 800 of its employees
By Albert B. Crenshaw
Washington Post
http://www.mercurynews.com/mld/mercurynews/business/7625665.htm

WASHINGTON - The Internal Revenue Service is auditing the tax returns of about 800 of its employees after preliminary checks raised questions about business deductions they reported.

The audits were triggered by suspicions raised by other agency employees about 25 of their co-workers last year. The office of the Treasury inspector general for tax administration found that about half of the 25 had improperly reported items on Schedule C, which is used to report income and expenses from operating a business.

Workers fired

Several of those employees were fired, the agency said.

``I am disappointed that a small but unacceptable number of our employees have generated false business deductions to reduce their taxes. We have a zero-tolerance standard for abuse of the tax laws by employees,'' Internal Revenue Commissioner Mark W. Everson said in a prepared statement. ``As administrators of the tax system, our employees must maintain the absolute highest standards when it comes to their own taxes.''

IRS officials said the suspicions arose when IRS employees in several offices, assisting co-workers in preparing their returns, noticed a recurring pattern of deductions in Schedule C on a number of returns. Following agency procedure, they notified the inspector general. Officials declined to describe the nature of the questionable deductions.

After the initial investigation, the IRS identified about 800 employees whose returns appeared questionable based on their Schedule C filings. Audits of most of those employees' returns are being conducted and will begin soon on the rest, the agency said. They are part of a joint investigation with the inspector general's office. Under the law, only the IRS can do audits, but the inspector general is responsible for reviewing IRS employee conduct.

``Our investigations are designed to determine whether these apparent individual issues are mistakes or intentional, and to provide those details to appropriate authorities,'' Pamela J. Gardiner, the acting inspector general, said in a prepared statement.

Everson said the IRS expects many of the employees facing audits to substantiate their claims. Those who can't will face sanctions ranging from reprimand to demotion to firing, depending on the nature and severity of their transgressions, he said.

An agency spokesman said it was unlikely that any of the questionable deductions were related to the workers' employment. IRS employees are barred from doing tax-return preparation or other such work on the side, though they can obtain permission to work in unrelated outside businesses. Some of the questions may involve businesses run by spouses, the spokesman said.

Schedule C income and expenses have long been a source of enforcement problems for the IRS. Most of the items on that schedule are not independently reported to the agency as are items such as wages (reported by employers on Form W-2) and mortgage interest (reported by lenders on Form 1098). Thus, to verify a taxpayer's Schedule C income and expenses, the agency relies primarily on face-to-face audits, which these days are done on only a small portion of the roughly 130 million returns the agency receives annually.

Small fraction

The 800 IRS workers under audit represent a tiny fraction of the agency's roughly 115,000 employees, and the spokesman called them ``precautionary on our part,'' noting that ``IRS employees are traditionally right at the highest level of tax compliance of any government agency.''

Nonetheless, the agency also said it is launching a ``multi-step initiative'' that will include a new review of tax behavior of IRS employees.

The IRS has been checking specifically on federal workers since 1992. The IRS does periodic surveys of the payment status of government workers.
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Vernie Kuglin 58 yr old FedX Pilot

The Associated Press
Tax Refuser Wins Federal Evasion Case

Tue Aug 12 18:29:38 2003

.c The Associated Press

MEMPHIS, Tenn. (AP) - A woman who said she refused to pay federal income taxes because the IRS didn't respond to her inquiries about tax law has been acquitted of tax evasion.

Vernice Kuglin, a 58-year-old FedEx pilot, had been charged with six counts of tax evasion. Had she been convicted by the federal court jury, she would have faced up to 30 years in prison and $1.5 million in fines.

``I feel justified,'' she said after Friday's verdict.

Kuglin said she began to question the federal tax system about 10 years ago and wrote the Internal Revenue Service twice in 1995 with questions about what law required her to pay taxes. She said she didn't get a response. On Dec. 30, 1995, she filed a withholding statement directing that no taxes be withheld from her pay.

The government accused Kuglin of filing false W4 forms from 1996 to 2001, during which time she earned $920,000 in income. Normal withholding would have been about $250,000.

Federal prosecutor Joe Murphy said during closing arguments that Kuglin did have an opportunity to sit down and discuss her situation with the IRS, ``and she didn't.''

The five-day trial did not resolve whether she must make the tax payment.

``I think it is safe to assume the IRS will attempt civil collection, but she is not guilty of tax evasion,'' said defense attorney Robert Bernhoft.

Larry Becraft, another defense attorney, said after the verdict that the federal tax code is confusing and ``at best is a walking due process violation.''

Becraft, who helped win acquittals for 17 defendants in another Memphis tax trial 12 years ago, said the letters from his client to the IRS showed a lack of criminal intent to evade tax laws and that she sincerely believed her conduct was proper.

``The whole thing could have been resolved if the government had simply answered her questions,'' Becraft said. ``It didn't happen. I made an argument to the jury that an American has a right to ask the government for answers.''

IRS spokeswoman Nancy Mathis was unable to state agency policy on responding to letters asking it to specify the law that makes people liable for income taxes.

She said the IRS had posted various items on its Web site and issued news releases stating that taxes are mandatory. The first words of the Internal Revenue Code are ``a tax is hereby imposed.''

When asked if she planned to start paying federal income taxes again, Kuglin said: ``I will pay all the taxes for which I am liable.''

She said she believes the 16th amendment to the Constitution - giving Congress the power to collect income taxes - and the Internal Revenue Code are constitutional, ``but I also feel there is a gross misapplication of the individual income tax laws by the IRS.''

Kuglin said she hopes to resume flying for the Memphis-based cargo airline as soon as the government returns her passport, which was seized after her indictment this year.




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