After a routine inspection by the Bureau of Alcohol, Firearms, Tobacco, and Explosives (ATF) uncovered violations that resulted in a taxpayer’s business ultimately closing, the taxpayer hatched a plan for revenge. Five years later, he issued W-9s to the two ATF agents, requesting their Social Security numbers. He never received that information, and he then issued a Form 1099-MISC to each of the agents, showing he paid them $250,000 apiece. The agents did not report the income, and the taxpayer deducted $500,000 on the company’s return, flowing the loss through to his individual return. At trial, the taxpayer insisted he had spoken with an IRS agent who said it was acceptable to write off the $500,000. He was sentenced to two years in prison for filing false returns. (U.S. v. Petrunak (May 4, 2017) U.S. Court of Appeals, Seventh Circuit, Case No. 16-3631)
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