Letter from Registered Agent That Stated 1099 Had Been Issued to Taxpayer and Dividends Paid Not Found Sufficient for IRS to Carry Burden Under §6201(d)

The IRS computers regularly issue CP2000 notices to taxpayers based on Forms 1099 that the IRS receives which show income not reported on the taxpayer’s return.  Such matching programs allow the IRS to obtain taxes in what is, for the agency, a relatively “painless” and “low friction” process where they start with the numbers on the Form 1099 and presume that income is taxable to the taxpayer.

However, IRC §6201(d) provides a limit on the IRS’s ability to do no more than send a bill based on a Form 1099 it received.  That section provides:

In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed with the Secretary under subpart B or C of part III of subchapter A of chapter 61 by a third party and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.

A taxpayer was able to make use of this provision to fend off the IRS in the case of Ebert v. Commissioner, TC Memo 2015-5.

The issue in question regarded dividends purportedly paid to the taxpayer on shares of Burlington Northern Santa Fe Corp. (BNSF) by Computershare Investor Services, which was the registered agent for BNSF for 2009.   Mr. Ebert was the registered owner of 1,176 shares of that stock.

The IRS computer had a record that Computershare reporting paying Mr. Ebert $1,410 in dividends on the BNSF stock in 2009.  Mr. Ebert claimed he never received any of these checks, nor did he receive a Form 1099.

The taxpayer had made numerous attempts over the years to contact Computershare and the successor registered agent, Wells Fargo, regarding dividends he wasn’t receiving and other matters related to the BNSF shares.

In response to Mr. Ebert’s argument that he hadn’t received either the dividends or the Form 1099-DIV, the IRS contacted Computershare and received a letter dated February 28, 2014 that stated they had issued a Form 1099-DIV to the taxpayer for 2009 and attaching a copy of that 1099DIV.  The 1099-DIV they attached was properly addressed to the taxpayer’s address.

The IRS sent a copy of that letter to the taxpayer along with the 1099.  The taxpayer immediately called the number shown on the Computershare letter and found there was only a recording at the number on the letter and the number provided no opportunity to inquire about the details in the letter.

The Tax Court found that the taxpayer’s testimony was believable and, therefore, did not find that the February 28, 2014 letter from Computershare was sufficient proof of the receipt of the income by the taxpayer.  With the burden being on the IRS to carry the issue, that meant that the Court found the taxpayer did not owe the disputed tax.