29 F. Supp. 3d 1156
N.D. Ill.2014Background
- Shiner sues Turnoy under 26 U.S.C. § 7434 for willful filing of a fraudulent information return (Form 1099-MISC) alleging a payment to Shiner in 2012.
- Turnoy sent Shiner a check for $149,059.91 with a restrictive endorsement stating it would release all obligations, and Shiner did not cash it.
- Shiner had demanded documentation to verify commissions before payment; Turnoy disputed the amount.
- Turnoy filed a 1099 reporting the $149,059.91 payment in January 2013, before Shiner accepted the check or deposited it.
- Shiner challenged the 1099 as false because there was no payment actually made; the state court later addressed the underlying dispute.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 1099 reflecting payment was false where payment was not actually made | Shiner (Turnoy) argues no payment occurred due to restrictive endorsement | Turnoy contends the 1099 reflects a payment actually made | Yes; 1099 false because no payment occurred due to restrictive endorsement. |
| Whether constructive receipt applied to the disputed payment | Shiner claims constructive receipt occurred regardless of cashing | Turnoy argues constructive receipt did not occur due to restrictions | No constructive receipt; restrictive endorsement prevented payment from counting. |
| Whether filing the 1099 was willful | Shiner argues Turnoy knowingly filed a false 1099 | Turnoy contends lack of intent to deceive | Yes; willful filing established given knowledge of dispute and restrictive endorsement. |
| Whether reliance on an accountant can negate good faith | Shiner contends reliance cannot excuse falsity given known facts | Turnoy relied on advice but did not disclose relevant facts | No; reliance fails under Neonatology test and Treas. Reg. 1.6664-4(c)(1)(i). |
Key Cases Cited
- Bones v. Comm'r, 4 T.C. 415 (1944) (restrictive endorsements negate constructive receipt of payment)
- Walter v. United States, 148 F.3d 1027 (8th Cir. 1998) (taxable income upon receipt of check; constructive receipt rules apply)
- Kahler v. Comm'r, 18 T.C. 31 (1952) (informational payments and receipt concepts under tax law)
- Cavoto v. Hayes, 634 F.3d 921 (2011) (private right of action under § 7434; willful filing required)