CCA 200916026: Frivolous 1099-OID return still could be processed
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This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.
Plain-English summary
Chief Counsel considered a tax return using a variation of the frivolous “strawman” scheme. The taxpayer replaced a Form 1099-MISC with a Form 1099-OID that reversed the payer and recipient, then reported the same amount as both original issue discount and federal tax withheld. Despite the false forms and frivolous position, the return contained enough information to calculate the taxpayer's liability. Counsel therefore advised that the IRS could process it.
Ruling snapshot
- Question: Could the IRS process a Form 1040 accompanied by false Forms 1099-OID and 1096 from a strawman scheme?
- Outcome: Advice given: process the return because it reports enough data to calculate the liability, even though it is frivolous.
- Key authorities: IRC § 6011.
Full text (IRS public release)
ID: CCA_2008112109494957 Number: 200916026
Release Date: 4/17/2009
Office: --------------
UILC: 6011.00-00
From: ------------------------
Sent: Friday, November 21, 2008 9:49:50 AM
To: -------------------
Cc:
Subject: Form 1040 with false 1099-OID/1096 attached
-------
You sought the advice of the National Office on a question submitted to you from a revenue agent who received a Form 1040 tax return for processing that contains a Form 1099-OID and Form 1096 that follows a new variation on a "strawman" scheme recently addressed by the Service in a problem alert. The scheme directs participants to substitute any 1099-MISC received with a 1099-OID that lists the original payer as the recipient and lists the taxpayer as the payer. The amount received is reported both as OID and federal income tax withheld on the 1099-OID. The 1099-OID and a 1096 supporting the 1099-OID is then included with the tax return.
It is our position that this return can be processed. Although it is frivolous as is a return listing all zeros, the 1099-OID return reports sufficient data to calculate the taxpayer's tax liability. -------------------------------
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Please let me know if there are any further matters to discuss with this case.
Sincerely,
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