Right now we are all in the peak of tax return filing season. As part of the tax return process, many tax practitioners file information returns for the entities they represent. 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.” It allows the subject of the false information return to recover from the person filing the return the greater of $5,000 or actual damages flowing “as a proximate result” of the fraudulent return including costs incurred in dealing with deficiencies resulting from the return, court costs and, in the court’s discretion, “reasonable attorneys fees.”
In Vandenheede v. Vecchio, the U.S. District Court, Eastern District of Michigan, recently granted the 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. The Plaintiff, Mary C. Vandenheede (“Vandeheede”), filed suit against the co-trustees of her husband’s revocable trust for, among other things, filing a false and fraudulent tax form. The facts are as follows: (more…)