How to Dispute a 3rd Party Information Return

8/7/2019 How to Dispute a 3rd Party Information Return

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How to Dispute 3rd Party Information Return

INTRODUCTION

The Tax Return Team is committed to helping those who are in CDP or Tax Court and who arehaving administrative or judicial difficulties with the IRS. A large number of people who contactus have filed a Hendrickson return and are now experiencing the wrath of the IRS againstthem. The reason I say Hendrickson returns is because the IRS actually has a stamp that they

are putting on Forms 4852 with his name. These returns are automatically being labeledfrivolous due to significant evidentiary and procedural problems. Accordingly, the IRS sendsthem letters with language such as failure to file, failure to pay, frivolous filing, fraudulentfiling, overpayment of the refund, we changed your account, and other goodies.

Folks that are filing like Mr. Hendrickson advocated are getting steamrolled in Tax Court1,

sanctioned in Appellate Court2, and denied certioriat the Supreme Court3 like Mr. Walbaum inall these instances. And Mr. Walbaum is hardly alone. He tried to claim Social Security andMedicare on a federal income tax return and used a Form 4852 to claim $0 wages but listedamounts of Social Security and Medicare withholding.

On February 7, 2011, one of Mr. Hendricksons closes adherents, Mr. Mooney, was sanctionedby the Tax Court (a 2nd time, doubling the prior sanction) for trying to get a refund of SocialSecurity and Medicare on his federal income tax by claiming $0 wages but listing amounts ofSocial Security and Medicare withholding4.

Aside from the fact that the refund regulations do not allow a claim for Social Security andMedicare on a Form 10405, there are other problems with Mr. Hendricksons administrativeremedy which well outline below. In summary, we intend to show the following points:

The law and the regulations do not give the recipient the right to correct aninformation return;

The principal problem with using a Form 4852 to correct a Form W-2;

The facts behind a reasonable dispute with a 3rd party return; How to cooperate with the Secretary How to make a reasonable dispute

Erroneous 3rd party returns vs. Fraudulent 3rd party returns Formal claim for refund without using IRS forms

INSUFFICIENT ADMINISTRATIVE REMEDY

Mr. Hendrickson has put his freedom on the line in defense of his administrative remedy inclaiming a refund of monies paid in as internal revenue taxes. While we agree with most of his

understanding of tax law as explained in his book, Cracking the Code, we believe it is important

to understand that Mr. Hendrickson's administrative remedyis insufficient to rebut 3rd party

reporting. Mr. Hendrickson maintains that by using a Form 4852, one may correct an erroneous

1 Walbaum v. CIR, Tax Court Docket 9372-092Walbaum v. Commissioner of Internal Revenue, Court of Appeals, 8th Circuit 2010 (unpublished)3Walbaum v. CIR, Supreme Court 2011 (certiori denied)

4 Mooney v. CIR, T.C. Memo 2011-35 (2011), docket 8128-095 26 CFR 301.6402-2 c) Form for filing claim. Except for claims filed after June 30,

1976 for the refunding of overpayment of income taxes, all claims by taxpayers for the refunding of [taxes,interest, penalties, and additions to tax shall be made on Form 843.
http://scholar.google.com/scholar_case?case=2848708739705446033&q=Walbaum+v.+CIR&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=2848708739705446033&q=Walbaum+v.+CIR&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=4890740503167988191&q=Walbaum+v.+CIR&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=4890740503167988191&q=Walbaum+v.+CIR&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=4890740503167988191&q=Walbaum+v.+CIR&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=2848708739705446033&q=Walbaum+v.+CIR&hl=en&as_sdt=2,34


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W-2 (CtC, pg. 177), or in the case of a Form 1099, one simply checks the box marked

Corrected (CtC, pg. 176).

Disillusioned by many losses in tax court suffered by many who have followed Hendricksonsadministrative remedy, we set out to explore why his remedy fails to make a reasonable dispute

to 3rd party reporting and uncover what constitutes a reasonable dispute as demanded by Title26. Our experience, Tax Court, the Internal Revenue Code (26 USC), and the regulations thatgovern it (26 CFR), all demonstrate why his administrative remedy will never gain acceptance inthe courts on any level.

ASIDE: We found it fascinating that Tax Court and the Appellate Courts continuously refer to

Forms 1099, 1098, W-2, etc. as 3rd party information, 3rd party returns, or 3rd partyinformation returns. Even the courts recognize that this information is not first butthirdhand, yet accept this information over ones firsthand sworn testimonysomething Mr. Hendrickson complains about bitterly. Whats going on?

CORRECTING A FORM1099

According to the IRS implementing regulations that govern Forms 1099 among others (26 CFR

301.6011-1)6, only the payer may correcta 3rd party information report. It is wrong andpotentially fraudulent for the recipient of the form to mark the Corrected box and proceed to

change the form. Instead, the recipient must make a reasonable dispute in a court proceeding(26 U.S.C. 6201(d)) before any such correction will be accepted. If you assert the Form1099 is incorrect, the only way you will get a chance to prove your claim is in a judicial setting,most commonly, Tax Court. There you must establish a reasonable dispute to shift the burden ofproof to the Secretary.

CORRECTING A FORM W-2

Mr. Hendrickson maintains that the proper way to correct a Form W-2 is by using a Form 4852.On its face, that seems correct; in practice, that's not what's happening. Case law requires thatthe recipient must attempt to contact the payer to correct the form7,8, because the payer is theonly one who can submit a Form W-2C, which corrects a previously issued Form W-2.Moreover, if the recipient fails to contact the payer, the burden of proof may not necessarily shiftto the Secretary.

Tax Court has consistently maintained that because there are withholding amounts (federal, SS,

or Medicare) indicated on the Form 4852, wages must have been earned. (Remember that a

Form 4852 is signed under penalties of perjury by the recipient who thereby swears that thefigures andwhat they represent are true.) Court decisions reason that withholding occurs only

6 (b) The Internal Revenue Service may prescribe in forms, instructions, or other appropriate guidancethe information or documentation required to be included with any return or any statement required to be

made or other document required to be furnished under any provision of the internal revenue laws orregulations.

7 Morgan v. CIR, 2010 TC Summary Opinion 29 - Tax Court 20108 Fitzpatrick v. CIR, 2009 TC Summary Opinion 102 - Tax Court 2009
http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=bc6bc2746242aa8b4f01c7c6b104e5e2&rgn=div8&view=text&node=26:18.0.1.1.2.1.54.3&idno=26http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=bc6bc2746242aa8b4f01c7c6b104e5e2&rgn=div8&view=text&node=26:18.0.1.1.2.1.54.3&idno=26http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00006201----000-.htmlhttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=bc6bc2746242aa8b4f01c7c6b104e5e2&rgn=div8&view=text&node=26:18.0.1.1.2.1.54.3&idno=26http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=bc6bc2746242aa8b4f01c7c6b104e5e2&rgn=div8&view=text&node=26:18.0.1.1.2.1.54.3&idno=26http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00006201----000-.html


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Taxpayer Bill of Rights, March 28, 1996, House Report 104-506 1996, pg. 36

b. Requirement to conduct reasonable investigations of information returns (sec. 602of the bill and sec. 6201 of the Code)

Reasons for changeTaxpayers may encounter difficulties

when a payor issues an erroneousinformation return and refuses to correct

the information and report the change to the IRS, or

when a fraudulent information return is filed. [formatting and emphasis mine]

FULLY COOPERATE WITH THE SECRETARY

In order to assure the burden of proof remains with the Secretary, you must fully cooperate withthe Secretary in the following ways:

A. Bring reasonable dispute over the item of income to the attention of the IRS within areasonable period of time. A reasonable period of time includes the followingcorrespondence:

Responses to IRS letters and notices

Notices to the Commissioner about the fraudulent information returns

Challenging the fraudulent issuance of the information returns as part of the CDPhearing

In response to a proposed substitute for return

In a tax court petition

B. As reasonably requested by the Secretary, provide (within a reasonable period oftime) access to and inspection of all (1) witnesses, (2) information, and (3)documents within the control of the taxpayer.

So in order to shift the burden of proof onto the Secretary, there are really two key elementshere: (1) make a reasonable dispute; and (2) cooperate fully with the Secretary.

MAKE A REASONABLE DISPUTE

In Spurlock9, the Court states that [the taxpayer]did not make her dispute known to the third

parties who prepared the information returns she claimed were fraudulent. In Wong, the Tax

Court issues a similar ruling by stating, Petitioner did not assert that the issuance of the Form1099 was fraudulent.10.

If we wish to contest an information return, we have to positively assert that the 3rd partyinformation return was fraudulently issued. As shown above in the Taxpayer Bill of Rights, theseare not our words but those of Congress.

9 Spurlock v. Commissioner, T.C. Memo. 2003-124

10 Wong v. CIR, 2009 TC Summary Opinion 152 - Tax Court 2009
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=104_cong_reports&docid=f:hr506.104.pdfhttp://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=104_cong_reports&docid=f:hr506.104.pdf


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According to the court, we don't have to make a complete case in order to make a reasonabledispute

[T]he statute does not require a taxpayer to provide independentdocumentation proving that a disputed information return is erroneous as

a prerequisite to raising a reasonable dispute under section 6201(d)...

11

.

ERRONEOUS 3RD PARTY REPORTING

We propose that if you merely argue that a 3rd party information return is erroneous, youimplicitly admit receiving taxable income because

1. Only employees are issued information returns denoting income.2. Only an employer is legally able to correct an error on a Form W2.

3. Employers pay employees wages so your disagreement could only legitimately be about

the amount reported, but notthe characterization of those amounts (wages, withholding,

etc.).

Thus, attacking the W-2 as erroneous is insufficient to dispute your status as an employeeworking for an employer earning wages. This is why a Form 4852 does not have what it takes to

rebut a Form W-2 because a Form 4852 is a substitutefor a Form W2 and contains all thepresumptions of a Form W-2 (the only difference being the person who subscribes it).

FRAUDULENT 3RD PARTY REPORTING

Since there are problems with reporting the 3rd party information report as erroneous, Congressonly gave us one other option: a fraudulently filed report. There are two instances where wecould see this occurring:

You did not engage in a taxable activity but a 3rd party claims that you did; or

The payer lacked legal authority to issue a 3rd party information report.

Thus, you must assert that the 3rd party information return was fraudulently issued. We realizethat declaring fraud is a steep climb, we dont believe the issuance is actual fraud, but ratherconstructive fraud. Were working to determine all the elements and to see how Congressintended us to use that language to describe how a 3rd party report is issued.

Finally, according to Spurlockand Wong, supra, the recipient of the information return has theburden of notifying the issuer that they fraudulently filed an information return. And you mustalso notify the Commissioner that the information return in question was fraudulently issued.

FORMAL CLAIM FOR REFUND V. IRS FORMS

The last problem with Mr. Hendricksons administrative remedy is that it relies on a non-taxpayerusing IRS forms. We are of the opinion that tax forms are required for those made liable under

11 Fitzpatrick v. CIR, 2009 TC Summary Opinion 102 - Tax Court 2009


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the law for any internal revenue tax. If you did not receive taxable income, then we dont believeyou should use IRS forms to file for a refund.

For non-taxpayers who have been treated as taxpayers, case law permits filing a claim forrefund using your own form in your own words.

One reason for this is that 7203 requires a return but does not define that word orrequire anyone to use Form 1040, or any official form at all. All that is required is acomplete and candid report of income.12

In practice, the courts have not adhered to such a rigorous standard but have developed theirown informal refund claim standard. This doctrine originated with the Supreme Courts ruling in

United States v. Kales , 314 US 186 (1941) , which recognized a taxpayers right to claim a refundbased upon an informal claim. The claim must be perfected through a statement that the claimis made under penalties of perjury13.

SUMMARY

We absolutely do notagree with Mr. Hendricksons administrative remedy because it is defectiveand cannot be sustained. And we havent begun to look at the evidentiary problems of standingpat on the Form 4852 as Mr. Hendrickson believes.

What is the remedy? Everyone should be courageous and look at the defects of Mr. Hendricksons method

and try to reconcile it with the law, the regulations, and outstanding case law. Thegoal is to perfect what he started.

Look at what presumptions are created when a non-taxpayer uses forms designedfor a taxpayer.

A Form 4852 presents an evidentiary problem because it is insufficient in and of itselfto establish the truth of the matter. And your self-serving declaration that you didntearn wages is hardly convincing. Your first-hand witness testimony doesnt makeyour bad math or your sworn numbers and figures become something they arent.

Mr. Hendricksons own example showed what will happen when one stands pat onthe Form 4852. His company issued a 3rd party return under penalties of perjury andhe issued a rebuttal Form 4852. Thus far, all is equal. But then the Commissionerbrought additional credible and probative information in addition to the informationreturn which met his burden or production. He won.

Congress already provided you the factual basis for contesting a 3rd party informationreturn. You must contest it as erroneous or fraudulent.

Do everything you can to keep the burden of proof on the Commissioner.

12 United States v. Patridge, 507 F.3d 1092 (7th Cir. 11/14/2007)13 Pennoni v. United States, Fed. Cl. 06-861T (2009)
http://scholar.google.com/scholar_case?case=18305947994074260442&q=United+States+v.+Kales,+314+U.S.+186+(1941)&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=18305947994074260442&q=United+States+v.+Kales,+314+U.S.+186+(1941)&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=18305947994074260442&q=United+States+v.+Kales,+314+U.S.+186+(1941)&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=18305947994074260442&q=United+States+v.+Kales,+314+U.S.+186+(1941)&hl=en&as_sdt=2,34http://scholar.google.com/scholar_case?case=18305947994074260442&q=United+States+v.+Kales,+314+U.S.+186+(1941)&hl=en&as_sdt=2,34

How to Dispute a 3rd Party Information Return

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