The Tax Court has held that a former special agent in the IRS Criminal Investigation division was liable for additional tax and penalties.
In the case,
In 2003 he was disbarred from practice before the IRS, and in 2007 his CPA license was revoked because of the conduct that led to his disbarment from practice before the IRS. From 2003 to 2006, Banister earned income from his tax consultation services, speeches and book sales. The IRS audited him for those years, and determined his income for each year by the bank deposit method. The IRS prepared substitute returns and issued notices of deficiency.
According to the Tax Court, Banister refused to testify at trial, “citing his Fifth Amendment privilege against self-incrimination. Instead he submitted a motion for offer of proof’ that, to the extent intelligible at all, repeated and elaborated on his argument that his U.S. income was not subject to income tax.”
Circumstantial evidence of fraud included several “badges of fraud” that were present in the case, according to the court, such as a longtime pattern of failure to file returns, failure to report substantial amounts of income, failure to maintain adequate records, failure to cooperate with taxing authorities in determining the taxpayer’s correct liability, and implausible or inconsistent explanations of behavior.
Moreover, Banister was on notice that his positions regarding taxable income and the duty to file returns were frivolous, the court noted. “His persistence in discredited arguments in the face of unanimous rulings by the court negates good faith,” said the court. “Thus he has offered no defense to the inference of fraudulent intent to be drawn from the circumstantial evidence and objective facts found.”
Therefore, the court found him liable for failure to file, frivolous argument and fraud penalties for the 2003-2006 tax years.