The problem started when Riccardo A. Lucchino, a disgruntled former employee, came to the IRS to tell them of tax irregularities at Jones Oil Co. The company, with annual sales of $15 million, was owned by Terry and Patricia Jones. They also owned other interests such as 20 gasoline stations and thousands of acres of farmland.

Angelo Stennis, agent for the IRS Criminal Investigation Division, had worked closely with the informant in the examination of Jones Oil. After completing the initial phase, the agent contacted the snitch because he had felt threatened after squealing on the company. Stennis told Lucchino to be careful and told him what was going to happen the next day: The IRS planned to carry out a search warrant at Jones Oil.

Lucchino telephoned a television reporter telling him to go to Jones Oil the next day with his camera. While the IRS hauled off 300 boxes of records, TV cameras rolled. Because of the story's vital interest throughout Nebraska, newspapers in seven cities carried the story. Proud of its scoop, the TV station used the footage in its advertisements.

The next day brought the company devastating communiques: A major supplier canceled sales from terminals in five states. Some customers told Terry Jones they would be glad to do business again if the IRS would write them saying he did nothing wrong. The business began collapsing: The sales plunged 80 percent, the workforce, 90 percent. By year-end, Jones Oil shut down.

During this time, Terry Jones became depressed, couldn't sleep and allowed his physical health to deteriorate so much he was admitted to the hospital. His wife had trouble sleeping, questioned her religious faith and required counseling.

Terry Jones and his family had lived in Lincoln, Neb., for four generations and possessed a spotless reputation. After this, however, he and his wife noticed that longtime friends would "look the other way when they saw the Joneses." Social invitations "came to a screeching halt." Their housekeeper said she had seen them on television, and she wouldn't be coming back. After the devastation to the company and the Jones family, even with 300 boxes of records and the snitch's information, the agency found no wrongdoing by Patricia or Terry Jones. In fact, the IRS discovered it owed the Joneses C $415,000.

More significant to the agency than the wasted audit was a phone call made on the morning of the raid: Lucchino had phoned his brother-in-law John Sims "gloating" and taking credit for the raid and for notifying the TV station. That afternoon, Lucchino again called Sims, who operated a car dealership next door to Jones Oil, asking if "things had calmed down... if the news crew was still there."

Unknown to Lucchino, Sims had taped part of the calls C and then allowed Terry Jones to listen to them. Because the tapes revealed that Lucchino knew of the raid in advance, the Joneses had sufficient reason to sue the IRS for disclosure of confidential tax information.

In court, the agency argued that Jones Oil might have failed for many reasons other than the bad publicity.

The judge disagreed and ruled for the Joneses. Publicity caused the company's demise and the family's emotional distress. It added that the IRS should have known that even without a conviction the suggestion of criminal activity could damage a company and devastate a person's life. The couple got $5.4 million. (more at Dealing With IRS)

THE MORAL: Loose lips sometimes sink the taxman.

Released 12-10-01