Here's one for the "What was that Internal Revenue Service agent thinking?" book.
At the explicit direction of Congress, since 2007 the rules for deducting cash contributions to charity have been extra strict—you even need a receipt to deduct that $20 bill put in your church's Sunday offering plate. Giving fake documents and fibbing to the IRS to support a deduction has, of course, been a no-no for a lot longer. Yet when IRS Revenue Agent Margaret Payne had her own 2008 and 2009 tax returns examined, she faked receipts to back up her claimed cash donations, U.S. Tax Court Chief Special Trial Judge Peter J. Panuthos concluded in a decision he issued this week.
Reached this morning at her desk at the IRS in Manhattan, Payne called the decision "completely unfair and biased,'' but declined further comment. The IRS declined any comment on the case on privacy grounds. The decision can't be appealed under a special Tax Court procedure for small cases in which taxpayers are allowed to represent themselves, as Payne did.
Here, as told in Judge Panuthos' 12-page-decision, is the sorry story: During the audit, Payne, then a 28 year IRS veteran, gave an IRS examiner copies of two year-end letters, purportedly signed by Pastor Lemuel M. Mobley of the Living Stone Baptist Church in Brooklyn, stating she had donated $6,047 to LSBC in 2008 and $14,000 in 2009. But when the examiner met with Mobley, he said he didn't even know Payne (his congregation had only 50 to 75 members) and that the letters were a "cut and paste job" on church letterhead, with his name forged and even misspelled.
Later, after talking to a long-time congregation member who was an IRS secretary and Payne friend, as well as to Payne herself, Mobley changed part of his story. In a letter to the IRS, he claimed that he knew Payne by a different name and that she had given the money to the church. Yet in that same letter he repeated his assertion that the letters Payne had originally given the examiner were forged, writing: "She pieced together a financial statement and stated to me that she had one of her children to sign my name…..She stated that she was sorry for what she had done. She asked for forgiveness and I forgave her for what she had done to me as well as to the church. I did not give her or anyone else permission to sign my name on any document.''
Judge Panuthos wasn't nearly so forgiving of a woman he pointed out had graduated from college with majors in accounting and finance, completed some graduate work in forensic accounting and had been a Revenue Agent (in other words, an IRS examiner or auditor) for 20 years. In a scathing opinion upholding $6,500 in back taxes and $1300 in penalties against Payne, he described the case as full of "inconsistencies, contradicting testimony, fabricated documents, and simple untruths," and observed that the three witnesses (Payne, Mobley and the IRS secretary) had each "not only contradicted the testimony of the others but also contradicted his or her own testimony and documents. ''
Panuthos concluded Payne had engaged in a "misguided and inept attempt to support claimed charitable contribution deductions through a fictional account of the past," and that the IRS secretary was probably in on the scheme too. He wrote: "It appears highly probable that petitioner (Payne), in concert with her longtime friend and fellow IRS employee, cut and pasted stationery from LSBC and provided the same to the IRS agent examining the returns in an attempt to support the claimed deductions."
The Judge also made fast work of any suggestion Payne had probable cause for avoiding the 20% penalty for negligence or disregard of rules, saying he was satisfied her underpayment resulted from a "very deliberate and knowing attempt to reduce her tax liabilities."
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