IRS Takes Hard Line on Employee Tax Returns

An employee of the Internal Revenue Service was fired for three years of questionable tax returns. She tried to convince the agency and third parties the problem was with her tax preparer. A federal court was not convinced and the errant IRS employee remains off the agency’s payroll.

An Internal Revenue Service employee fired for 3 years of questionable tax returns tried—without success–to pin her problems on her tax preparer. (Levy v. Department of the Treasury, C.A.F.C. No. 2007-3204 (nonprecedential), 9/12/07)

Levy was a GS-4 seasonal clerk in the IRS Memphis office. The agency audited her 2001 and 2002 tax returns as the result of routine computer matching. As it turns out for both years Levy had unsubstantiated itemized deductions for contributions and medical expenses and had not fully paid her taxes to the tune of more than $6,000. (Opinion, pp. 1-2)

The IRS removed Levy based on overstating deductions for two tax years, and for failure to timely pay her taxes for three tax years.

Levy appealed to the Merit Systems Protection Board where a hearing was held before an administrative judge. The AJ found that Levy failed to timely pay her taxes for the three years, that deductions taken by Levy in both 2001 and 2002 were improper, that the deductions taken in the latter year amounted to 56% of the Levys’ gross income for that year, and that Levy had shown “reckless indifference” by continuing to use the same tax preparer for 2002 even after learning that her 2001 return was being audited. In short, the AJ found that IRS had made its case and sustained Levy’s removal. (p. 3)

Levy took her appeal to the Federal Circuit Court of Appeals but had no better luck there. She tried to convince the court that all of this was the fault of her tax preparer and therefore it was error for the Board to sustain the charges against her. Citing Metra Chem Corp. v. Comm’r, 88 T.C. 654, 662 (1987), the court pointed out that generally “the duty of filing accurate returns cannot be avoided by placing responsibility on a tax return preparer.” (p. 4)

Levy stays fired and joins a long line of IRS employees who have found out the hard way that the agency does not tolerate tax cheats that it discovers on its payroll.

About the Author

Susan McGuire Smith spent most of her federal legal career with NASA, serving as Chief Counsel at Marshall Space Flight Center for 14 years. Her expertise is in government contracts, ethics, and personnel law.