The IRS is seeking payment from my wife for back tax's from 2007.

In early 2008 one of my wife's friendships went bad. Apparently her ex-friend who also had a registered corporation in VA filed a 1099-MISC on my wife (approximatley $6,000) for the 2007 tax year, but my wife was never employed by the company nor did my wife ever receive any compensation of any sort from the company and of course we never received a copy of the 1099 from the company.

About 90 days ago we received a letter from the IRS asking us to either pay the back tax's or explain why we should not. We replied by letter that my wife had never been employed by the company, that she had never received any sort of compensation of any kind from the company, that she had never received her copy of a 1099 from them, and that the company was not registered with the state when they filed the taxes with the Fed Govt.

Late last week we received the IRS response to our letter which essentially said "pay the taxes or we'll continue to assess interest charges on the balance until you make full payment".

Asking my wife's ex-friend to correct or rescind the 1099-MISC probably wouldn't help so at this point I think I have three options: 1 - Cut my losees and pay the tax's. 2 - Continue to contest this with the IRS, but to do so I think I need to prove my wife didn't receive the money, the problem is how can I prove a negative? Is there some way to shift the burden of proof to the company that filed the 1099 or to the IRS? If not, what can I do to convince the IRS that the 1099 is not correct? 3 - Pay the amount due in full and file a claim for refund, but I really don't like the idea of doing this as now the IRS has the money and I have to fight to get it back and, even worse, it seems like an admission that we really do owe the money.

Any other suggestions?

I suggest the best course of action is to hire a CPA who has experience in dealing with the IRS. You should be prepared to provide the IRS with bank statements and other evidence that clearly support your assertion that your wive had received no payment from the VA corporation.

I would certainly recommend that you fight the IRS on this matter, but only with the support and help of a qualified and experienced CPA. I think you might be surprised to find out that the CPA may indeed be helpful in favorably resolving this in your favor!

Best of luck!

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Ask TaxGuru Please refer to the legal disclaimer.

I agree with seeking competent representation, but sometimes the cost of representation can exceed the amount in controversy.

Read your notice carefully, there should be instructions for what to do if you disagree. You should be able to appeal the determination to an appeals office and there should be a phone number. Don't be afraid to call them. They may not have even read your letter.

Before the IRS denies your claim that the income was not yours they should contact the person responsible for filing the 1099 and request some evidence that the 1099 was correct. If they can't I would think the IRS would have to revoke the proposed assessment.

If you do pay it you can still fight it, it is not an admission. In fact, in cases involving significant amounts, taxpayers will sometimes pay the tax so they can litigate the issue in Federal District Court instead of having to file in Federal Tax Court.