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IRS GETS IT WONG IN TAX COURT

March 28, 2006

A strange Tax Court case yesterday shows that the IRS can't just phone it in and win.

Karen McNanus ended up in Tax Court because the IRS said she got a 1099-MISC from a company named Heath and Associates, which had gone out of business before trial. IRS agent Pam Wong testified on behalf of the government. It went poorly:

During cross-examination as well as direct, Ms. Wong's responses appeared evasive. It was also readily apparent she was unfamiliar with the case and unprepared to provide any insight outside of what she could recall from reading the file.

Furthermore, respondent did not provide documentary evidence to support Ms. Wong's testimony or to show compensation was paid to petitioner by Heath & Associates. At one point during cross- examination, Ms. Wong admitted she had no documentary evidence to support her statements.

Finally, respondent informed the court he was unable to obtain the third-party records from Heath & Associates because the company had ceased to exist. Thus, any evidence concerning moneys paid by Heath & Associates to petitioner was based solely upon the notice of deficiency and the memory and credibility of Ms. Wong.

That "memory and credibility" was not pursuasive:

Outside of Ms. Wong's unconvincing testimony, respondent presented no evidence proving petitioner received any income in 1996.

The moral: A 1099, by itself, isn't necessarily enough to ensure in IRS win. If you get an erroneous 1099, you can fight back and win.

Cite: Karen McManus, T.C. Memo. 2005-57.

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