ATM fees or currency conversion bank fees if paid for business purposes are considered business expenses and as such are deductible on the schedule C - http://www.irs.gov/pub/irs-pdf/f1040sc.pdf - line 10
If these fees are for personal purposes - these are non-deductible personal expenses.
If these fee are in connection with your investments - they are deductible on the schedule A - http://www.irs.gov/pub/irs-pdf/f1040sab.pdf - line 23 - subject of 2% florr limitation.
The IRS is correct - if the employer pays or reimburses for any employee's personal - not job related - expenses - that amount is considered a compensation for services - and should be treated the same way as wages - thus should be reported on the W2 form, employment taxes are due.
Only employee's expenses that are job related may be reimbursed under an accountable plan and would not be included into employee's compensation.
Thank you for clarification - so far we are talking about employee's business expenses - more specifically - travel expenses.
The point of the IRS agent is likely - that the fees to receive the money are not business expenses.
We need to consider the IRS publication 463 - http://www.irs.gov/pub/irs-pdf/p463.pdf - please see on the page 5 - Table 1-1. Travel Expenses You Can Deduct
Fees themselves are not business expenses, but should be viewed in connection with allowable business expenses. Thus, if the employee incurred ATM and currency conversion fees to pay for lodging - that fees should be included into lodging expenses; if these money were used for meal - that will be meal expenses, if the money were for a airplane ticket - that would be transportation expenses, etc.