What do you do if a company you worked independently for file w/the IRS that they paid you when they haven't?

Question

A friend of mine is in a bit of a jam. He is an independent contractor and a company he worked for didn't pay him. When they filed their taxes claimed they paid him a ridiculous sum of money (to the tune of 90k) and he is having a heck of a time proving to the IRS that this didn’t happen (In fact, the original agreement was for 1 or 2k I believe, but I am not sure if this was documented any where). He sent them copies of his bank statements but that wasn’t enough. At this point he is deep in debt and can’t really afford a lawyer. Is there something he can do on his own to resolve this? What proof would he need to show that he never received this money? Thanks.

Answer 1

Most IRS enforcement people are reasonable human beings who want to settle cases quickly and fairly. He needs to sit down with the IRS agent in charge of his case, and ask what needs to be done to resolve this. If the person assigned to his case refuses to listen, he should talk to a Taxpayer Advocate, a service within the IRS for just this situation - phone number for this is 1-877-777-4778.

The company should have to prove that they DID pay him by coming up with a cancelled check or some records to show that the money was transferred. He can't really prove they DIDN'T - bank statements don't mean much here, since if he had gotten it, he could have put it in another account (not saying he did, just that the IRS can't say oh, ok, it's not in the account you showed us, you must be telling the truth). Where it might get ugly is if fraud is involved, like the company wrote a check to him and then someone else cashed it. But even then, should be able to be resolved.

Answer 2

The burden of proof is on the IRS regarding income issues. If he says he didn't get the money, IRS has to prove that he did. They will have to go to the company that issued the W-2 or 1099 and get copies of the cancelled checks showing that he endorsed the checks. (This is due to a court case called Portillo.)

You should discuss this with your revenue agent, but you may have to appeal his decision in order to make them get copies of the checks. You don't need a tax attorney or representative to appeal. They deal with individual people all the time. Tell the revenue agent that you want to appeal and he or she will forward the case to an appeals officer. Good luck!

Answer 3

The onus should not be on him (it's difficult to prove you didn't receive money) but on them, to prove that he DID receive it. If they can't show bank deposit slips, or paycheque stubs, then they are the ones in trouble.
He should be able to file an appeal on these grounds. If he can't afford a lawyer, then a public defender can be appointed, but go the appeal route first and simply put in a counter claim that he never received the money and make them prove that he did.
Either that, or he can sue the employer for the money, based on their own statements, made to the tax office.
Good luck!

Answer 4

get a tax attorney lawyer and also a labor attorney FAST!!!!