1099 issue - income reported by payor but was never received by payee

Jan 26, 2017 1 Replies
C

Has anyone had any experience with a taxpayer receiving a 1099-MISC for what has turned out to be a "PONZI" scheme?



The taxpayer (now client) received 1099-MISC showing income for 2015, but, in fact, did not receive any income during the year from this payor. Cash basis taxpayer.



This was not reported on 2015 tax return (schedule C) now client has received a CP-2000 notice for under-reported income.



The payor(s) are locked up and have been charged with fraud.



Any thoughts or suggestions about how to respond to the inquiry?



Thanks Cathy


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A

Gather all the evidence you can find that supports your comment that the entity that issued the 1099 was operating a Ponzi scheme. Check the box on page 5 of the CP-2000 that says you do not agree; attach a signed and dated statement that explains your position and include a references to the AUR # on page 1; reference your attached evidence; keep a copy; mail it to the address on the response form before the deadline noted on page one.

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