Information Returns

Civil Damages for Fraudulent Filing

A person may bring civil actions for damages against persons filing fraudulent information returns (W-2, 1099, etc) purportedly for payments made to that person.

The action must be brought within the later of 6 years after the filing of the fraudulent document or 1 year after it would have been discovered.

The award is limited to the greater of $5,000 or the sum of actual damages, the costs of the action, and reasonable attorney's fees.

Effective for fraudulent information returns filed after enactment.

Requirement to Conduct Reasonable Investigations

In any court proceeding, if the taxpayer reasonably disputes an income item reported on an information return, and has fully cooperated with the IRS, the burden of producing reasonable and probative information concerning the deficiency as well as the information return itself is placed upon the IRS.

Effective on the date of enactment.

Litigation Costs and Attorneys' Fees

IRS Must Establish Substantial Justification

Shifts the burden of proof to the IRS to show substantial justification for its position against a taxpayer if the taxpayer has prevails in litigation.

If the IRS cannot show substantial justification, the taxpayer may then recover attorney's fees from the action.

If the IRS failed to follow its own published guidelines, it is presumed not to have substantial justification.

Effective for proceedings commenced after the date of enactment.

Increase Limit on Attorney's Fees

Increases the allowable statutory rate recoverable by prevailing parties for attorney's fees from $75 per hour to $110 per hour and is indexed for inflation after 1996.

Effective for proceedings commenced after date of enactment.