News & Articles

COURT RULES THAT IRS CAN'T RELY ON FORM 1099-C

10 / 22 / 2009

The United States Tax Court has ruled in McCormack v. IRS, T.C. Memo 2009-239, that the IRS cannot rely on merely the fact that a Form 1099-C has been issued by a credit card company, when the taxpayer has made a good faith dispute of the amount due and owing, and there is then a settlement reached between the parties to that dispute.  The IRS must do more than rely on the amounts set forth in the Form 1099-C.  Under IRC Section 6201(d), in any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return and has fully cooperated with the IRS, the burden is then on the IRS to produce reasonabel and probative information concerning a deficiency, in addition to the amount identified on the information return.  In the case, the taxpayers asserted reasonable disputes as to the amounts reflected on Forms 1099-C, and the IRS failed to produce reasonable and probative information independent of the third party information returns.
 
While not at issue in the McCormack case, taxpayers and practitioners examining their receipt of a Form 1099 need to be aware of Section 7434 of the Internal Revenue Code.  This section provides for civil damages and recovery for taxpayers who can show that a fraudulent information return has been filed.  For more information, see 7434 Claims.