In a recent case before the United States Tax Court, the Petitioner, an Internal Revenue Service Revenue Agent for over 29 years, and his wife were found liable for the fraud penalty for the taxable years 2011, 2012 and 2013. In the Tax Court case, the Petitioners conceded the deficiencies for those years totaling approximately $100,000.00. However, the Petitioners disagreed with the IRS’ assertion of the fraud penalty against them for the years in issue. In upholding the fraud penalty against the Petitioners, the court found that the taxpayers claimed business expense deductions for obvious personal expenses, including expenses for parties, flowers, gifts, vases and holiday decorations. The court stated that the Petitioner, a former Internal Revenue Service Revenue Agent, should have known better. In order to uphold the fraud penalty against taxpayers, the IRS must first demonstrate that there was an underpayment of tax and that some portion of the underpayment is due to fraud. The Tax Court upheld the fraud penalty against the taxpayers by finding that they intended to conceal taxable income and to prevent the collection of tax by overstating deductions and claiming non-deductible and obvious personal expenditures as business expenses. In this case, the fraud penalty totaled over $70,000.00 in addition to the $100,000.00 tax liability that the Petitioners conceded. What do you think?