It is not “illegal” to violate the code (4 U.S.C. 1) that specifies how to fly the flag.
It is a set of rules that applies to government agencies, although it it considered the standard for all flag etiquette.
Yes, if this were a federal government office flying the flag this way, there might be a small fine for the miscreant.
Nevada:
DESECRATION OF FLAGS
NRS 201.290 Penalty; exception.
1. Any person who, in any manner, for exhibition or display, puts or causes to be placed any inscription, design, device, symbol, portrait, name, advertisement, words, character, marks or notice, or sets or places any goods, wares and merchandise whatever upon any flag or ensign of the United States, or state flag of this State, or ensign, evidently purporting to be either of the flags or ensign, or who in any manner appends, annexes, or affixes to any such flag or ensign any inscription, design, device, symbol, portrait, name, advertisement, words, marks, notice or token whatever, or who displays or exhibits or causes to be displayed or exhibited any flag or ensign, evidently purporting to be either of the flags, upon which shall in any manner be put, attached, annexed or affixed any inscription, design, device, symbol, portrait, name, advertisement, words, marks, notice or token whatever, or who publicly or willfully mutilates, tramples upon, or who tears down or willfully and maliciously removes while owned by others, or defames, slanders, or speaks evilly or in a contemptuous manner of or otherwise defaces or defiles any of the flags, or ensign, which are public or private property, shall be deemed guilty of a misdemeanor.
2. This section shall not apply to flags or ensigns the property of or used in the service of the United States or of this State, upon which inscriptions, names of actions, words, marks or symbols are placed pursuant to law or authorized regulations.
[1911 C&P § 338; A 1919, 438; 1919 RL § 6603; NCL § 10286]