Tanisha Trice, T. C. Memo. 2023-15, filed 2/13/23, got some SSDI, and a SSA-1099. The 1099-SSA showed some “deductions.” But whether those “deductions” were included in the (unreported) income IRS claims Tanisha got, and to what extent these “deductions” impacted the Section 25A(a)(2) Lifetime Learning Credit Tanisha claimed, is for Judge David Gustafson to decide.

And Judge Gustafson obliges me yet again, by proving that a lawyer can always find an ambiguity. Any lawyer that can’t, should find another way to make a living.

Tanisha admits to getting $13K of unreported SSDI, of which $11K (85%) is taxable,  but wants the whole $2K of Lifetime Learning Credit she claims. IRS says she got $15K, and the taxable number is $13K, not $11K. But the 1099-SSA says $3298 was “deductions for work or other adjustments.” No other explanation proffered.IRS wants summary J, but Section 6201(d) puts BoP on IRS, as Tanisha claims she only got $13K, and she doesn’t know what those “deductions” are. Third-party forms like 1099s can be disputed by recipients thereof, and if disputed in good faith, which Tanisha does, then BoP shifts.

IRS treats those “deductions” like FICA/FUTA/ITW on a W-2. Yes, the taxpayer didn’t get the money, but they are still included in taxable income. Form 1099-SSA does lend credence to that approach. And withholding $487 for Medicare tax is clearly income, so that adds to what Tanisha got.

Judge Gustafson: “However, neither the Commissioner’s motion nor the Form SSA–1099 shows what the other $2,811 of ‘deductions’ was nor whether the Commissioner’s approach achieves the correct tax treatment. The other ‘deductions’ that SSA supposedly ‘withheld’ here were not income or employment taxes. Rather, the form is explicit that zero taxes were withheld; and the amounts are described as ‘deductions for work or other adjustments’, which is not a sufficient explanation.” T. C. Memo. 2023-15, at pp. 10-11.

Tanisha has correspondence from SSA concerning wages she may have received that reduced the amount SSA paid her, so maybe she shouldn’t be taxed on the $2811. But Judge Gustafson doesn’t so hold. That’s a fact question for trial, as is the exact amount of reduction of Lifetime Learning Credit.

Takeaway- Watch those 1099s. Sometimes they show less than meets the eye.