John Bullis: Fraudulent Form 1099-MISC damages


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Dr. Nicholas Angelopoulos (Dr. Nick) received an IRS Notice in 2011 for additional income taxes in 2007 based on form 1099-MISC sent to him. The form showed $159,000 as taxable income to him, but it should have been about $38,000.

Dr. Nick sued his former partners in district court for issuing a fraudulent form 1099-MISC with intent to cause him damages and problems with IRS.

The jury trial in the civil case in district court found the form was issued fraudulently and with intent to harm Dr. Nick. Dr. Nick prevailed on all counts and the defendants’ counterclaim. The jury awarded him $990,000 in compensatory damages, $1 million in punitive damages and about $200,000 in interest.

The district court found Dr. Nick wasn’t unreasonable when he refused to settle for a much lower amount the defendants offered. Dr. Nick sought $369,466 as reimbursement of the fees and costs he paid while the defendants offered only $5,000.

Dr. Nick hired an attorney, an accountant and an expert witness. Dividing the fees paid between the main issue on Count 1 with other issues was difficult. Count 1 involved whether the defendants had intentionally and fraudulently issued the incorrect form 1099-MISC. The jury found that intent was present.

Then the big issue was how much reimbursement of fees and expenses was appropriate for Dr. Nick.

The attorney fees were found to be reasonable and not excessive. The accountant dealt with IRS and prepared four years of amended returns after the Tax Court’s favorable ruling. Other fees and expenses were found to be reasonable also, but the district court only awarded part of the fees to Dr. Nick as reasonable and related to Count 1.

It’s good to keep records of the income you receive each year and compare it to the form 1099-MISC or other forms. Everyone makes mistakes sometimes. If the form shows the wrong amount, meet with the issuer and resolve the matter — hopefully with a corrected form being done. Try to settle the matter in a reasonable way. Give the other side a copy of your records and computation so they can see if the form needs to be corrected.

Did you hear “10 Rules for making every day a great day: Think that good things will happen. Express gratitude to a loved one. Put your gripes away in a box. Be patient with an annoying person. Do something special for yourself. Reach out to someone who needs comfort. Focus deeply on each moment. Learn from a mistake. Look closely at a flower or tree you haven’t noticed before. Smile.” Dr. Joyce Brothers

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.

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