Form 1099 income: How to dispute income you never received

Did IRS send a notice indicating you omitted income from your return? If you did not receive the income described in the notice you can dispute the item. Form 1099 is one of the forms people use to report payments to others, and those 1099’s are filed with the IRS. Sometimes the amount reported is excessive. In other cases the reports are completely incorrect because the taxpayer was not paid anything by the reporter.  When a payment to taxpayer is reported to the government and that taxpayer does not include the payment on a tax return, IRS will send letter CP2000. The letter identifies the amount paid according to the report received. The person who reported the payment to the government is identified. The IRS includes the computation of tax, penalties and interest due as a result of adding the reported payment(s) to the income reported in taxpayer’s return.

Where the taxpayer disputes receipt of the amount they should immediately notify the IRS that no such payment was received. There is a statute (Title 26 section 6201(d)) that requires the IRS to examine the taxpayer’s claim by gathering evidence. According to the statute:

“In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed with the Secretary . . . by a third party and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.”

Taxpayer must cooperate

In Joseph T. McQuatters, TC Memo 1998-88 the Tax Court points to the legislative history of 6201(d), quoting the following: “Fully cooperating with the IRS includes (but is not limited to) the following: bringing the reasonable dispute over the item of income to the attention of the IRS within a reasonable period of time, and providing (within a reasonable period of time) access to and inspection of all witnesses, information and documents within the control of the taxpayer (as reasonably requested by the Secretary). [H. Rept. 104-506, at 36 (1996), 1996-3 C.B. 49, 84].” The same language appears in the statute. Thus, 6201(d) seems not available where TP has received and ignored the various notices, did not produce records and information, refused to meet with the IRS and etc.

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