The U.S. Tax Court today issued a “reviewed opinion” in a case concerning the disclosure of third-party taxpayer information to absolve an employer of its tax liabilities.
The case is: Mescalero Apache Tribe v. Commissioner, 148 T.C. No. 11 (April 5, 2017). Read the Tax Court’s opinion [PDF 84 KB]
The case is a worker classification case about hundreds of workers whom their employer—an Indian tribe—treated as independent contractors but whom the IRS reclassified as employees. The tribe moved to compel discovery of the IRS’s records of those workers for whom it was unable to obtain a signed Form 4669, Statement of Payments Received—a certification by the employees that the compensation received from the tribe was reported on their individual tax returns and all taxes for that calendar year have been paid. Evidence that the underlying tax has been paid by the worker relieves the employer of its liability for having failed to withhold required employment taxes. The IRS argued that the information sought in discovery was protected from disclosure by section 6103, and even if disclosable, it was not discoverable.
The Tax Court today held that the disclosure of the worker’s tax return information to absolve an employer of its section 3402(a) tax liabilities is not barred under section 6103(h).
The Tax Court further held that the fact that the burden of proof is on the taxpayer to show its workers paid income tax does not make their confidential return information nondiscoverable.
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