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False, Fraudulent, or Erroneous Information Returns

Taxpayer-clients sometimes complain that they received either a Form W-2 or a Form 1099 that is either false, fraudulent or erroneous. If you believe you have received an incorrect informational return, you should start out by calling the sender for the purpose of trying to informally resolve the matter.

If the form is incorrect, a corrected information return should be provided by the sender to you. If, on the other hand, the sender refuses to correct the form and you believe that the form was sent for malicious purposes, the Tax Law provides for damages against the person or entity filing the false return.

Internal Revenue Code Section 7434 creates a private right of action against anyone who willfully files a fraudulent information return with respect to payments purported to be made to another. The statute allows for damages equal to the greater of $5,000.00 or the amount of actual damages suffered, plus court costs and, in the court’s discretion, reasonable attorneys’ fees.

I normally suggest that the taxpayer try to resolve matters informally with the sender first, to give them the opportunity to correct their error, if any error exists.

The statute of limitations for bringing suit is six years from the date the false information return was filed or the date the return could have been discovered through reasonable care, whichever the later.

Mark A. Krohn, LL.M Taxation, CPA and a partner at J&G, is in charge of the Business Law Team and is also a member of the Trust & Estates Team. He can be reached by phone at our Walden, NY office at 866-303-9595 toll free or 845-764-9656 and by email.

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