If you make large claims for deductions without supporting records, provide inconsistent explanations, and your story is unconvincing, the Tax Court will not only disallow the deductions but also uphold a 75% civil fraud penalty.
Holding
The Tax Court sustained the IRS in full. The Court disallowed all contested individual and S corporation flow-through deductions for 2015–2017 and upheld §6663 civil fraud penalties for each year.
Why It Matters
Fraud penalty risk is real for “paperless” returns. This was not a negligence case. The Court found clear and convincing evidence of intentional evasion, triggering the 75% fraud penalty under §6663.
Tax professionals get less benefit of the doubt. The taxpayer was an experienced return preparer with accounting education. That sophistication cut against him on intent.
“Flood destroyed my records” needs proof. No photos, no insurance claim, no repair evidence, no reconstruction effort. The Court treated the flood story as unsupported.
Cash businesses …
