Any person, including a corporation, partnership, individual, estate, and trust, who makes a payment (such for as rent, wages, salaries, and annuities) must file an information return with the IRS to report the payment. But what happens if a false information return is filed with the IRS?In 1996, Congress enacted 26 U.S.C. § 7434(a), which gives victims of fraudulent filing activities a damage remedy against the perpetrators. The provision applies whenever “any person willfully files a fraudulent information return with respect to payments purported to be made to any other person.”

Any person, including a corporation, partnership, individual, estate, and trust, who makes a payment (such for as rent, wages, salaries, and annuities) must file an information return with the IRS to report the payment. But what happens if a false information return is filed with the IRS?In 1996, Congress enacted 26 U.S.C. § 7434(a), which gives victims of fraudulent filing activities a damage remedy against the perpetrators. The provision applies whenever “any person willfully files a fraudulent information return with respect to payments purported to be made to any other person.”

Update: On October 1, 2013, in Vandenheede v.Vecchio,the U.S. Court of Appeals for the Sixth Circuit affirmed the U.S. District Court for the Eastern District of Michigan’s judgment for the Defendants Vecchio and Borschke. Plaintiff Mary C. Vandenheede sued Defendants alleging tax fraud under 26 U.S.C. § 7434. The district court granted Defendants’ motion for summary judgment based on the fact that violations of 26 U.S.C. § 7434(a) fall on the “filer,” and not on every person involved in preparing the return.

ered default judgment against two trusts with respect to claims arising from fraudulent 1099-MISC forms filed by the trustee that falsely reported payments of income by the trusts to the plaintiff. Default judgment was entered here because the trustee refused to obtain legal counsel for the defendant trusts, despite being ordered to by the court.By way of background, the trusts here were previously the subject of a tax enforcement action that also ended in default judgment when the trustee refused to obtain legal counsel for the trusts. As a result, the court ordered enforcement of the tax lien through seizure and sale of the trust property that was purchased by the plaintiff in the present case. Thereafter, the trustee apparently sought to retaliate against the plaintiff by filing fraudulent 1099-MISC forms reporting payments to the plaintiff of income attributable to the former trust property purchased by plaintiff. These false filings prompted the plaintiff's lawsuit (brought under I.R.C. §7434) and resulting default judgment at issue, which ordered the trusts to pay statutory damages of $5,000 per false filing and declared that the payment amounts reflected in the 1099-MISC forms should be zero.[View source.]

In Derolf, et al v. Risinger Bros. Transfer, Inc., 119 AFTR 2d ¶ 2017-692, an Illinois Federal District Court case, workers for a business claimed misclassification as independent contractors rather than employees and among their claims made an allegation that the business violated IRC §7434 by purposefully misclassifying them and willfully filing fraudulent information returns by issuing them 1099 returns instead of W-2 returns. Under §7434, a recipient of a 1099 has a civil right of action against the issuer of a 1099 which is determined to be willfully fraudulent, and can recover any damages incurred.

What is an employee to do, when he receives an incorrect Form W-2? Based on the recent decision inSwartwout v. Edgewater Grill LLC, No. 12-cv-130, the employee should not file a lawsuit for damages against the employer's accounting firm under the Internal Revenue Code, 26 U.S.C. § 7434. In Swartwout, the plaintiff sued his former employer (a restaurant), the restaurant's owners, and the restaurant's accountants for allegedly submitting a fraudulent Form W-2 for plaintiff's yearly wages.The plaintiff filed his lawsuit under § 7434, which allows damages against "any person [who] willfully files a fraudulent information return with respect to payments purported to be made to any other person."