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According to the IRS have I been reporting "income" incorrectly?

Oak Park, IL |

In the IRS publication "IRS Processing Codes and Information" for 2013, (Document 6209, available online from the IRS website) in "Section 2 - Tax Returns and Forms" there in a table listing all the returns and forms from the IRS (pg. 25). In this table each return and form has a Tax Class listed with a code numbered 0-9 for each class. The Tax Class numbers identify the type of return or form used. These Tax Class numbers are explained in "Section 4 - Document Locator Number" under their "2 DLN Composition" (pg. 61-62). For W2's, W4's, and 1099's the tax classes are listed as "5", but 1040's are listed as tax class "2".

The tax class "5" is identified as "Information Return Processing (IRP), Estate and Gift Tax", but tax class "2" is identified as "Individual Income Tax, Fiduciary Income Tax, Partnership return". Note: I ask that you verify the information I've presented before responding to my question. Document 6209 is available online from the IRS website. According to the IRS's own handbook for processing returns have I been reporting estate and gift tax information (W2 and 1099) erroneously as income on my IRS 1040's? Addendum 9-30-2013: I ask this question in order to determine my legal obligation to report "taxable income" correctly as it relates to the income reported on a W2 or 1099 form so I would not risk perjury when I sign an IRS 1040 return.

Attorney Answers 3

Posted

The document you refer to is for Official (IRS) use only. The codes listed in the document are not intended to create obligations on taxpayers to report information on certain returns. W-2 forms are forms used by employers to report wages and taxes withheld to the IRS and other taxing authorities. The wages reported thereon are clearly income and have nothing to do with Estate or Gift taxes. Information on 1099's usually relate to possible taxable income. Estate and Gift tax returns report gifts made during lifetime and inheritances and other property transferred as a result of someone's death. If you receive a gift from someone, it is not income for income tax purposes the donor, not you, is responsible for filing a gift tax return if one is due and paying any tax if the gift generates a tax. As far as estate tax is concerned the executor or administrator of the estate is usually responsible for filing any estate tax return that might be required. An estate, including life insurance, would usually have to be worth in excess of $5 million dollars for and estate tax return to be required. There are other situations where an estate tax return may be advisable. If you are worried about whether you are reporting all of the income required on your tax return you should discuss that with a tax attorney or with a highly qualified CPA

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8 comments

Asker

Posted

Thank you Atty. Wagner for responding to my question. Let me start by stating that I will pay all taxes that I am liable for. I have no intent of evasion nor am I attempting to negate any authority of any taxing body. My inquirey is only to determine my liability. I accept that I may not understand how the IRS calculates what portion of income may be taxed and how incomes may be classified as taxable by the IRS which is why I'm further confused by their publication. I do recognize that the document refers to internal IRS procedures that I am not expected to perform. But, this publication is offered to the public by the IRS to understand how the IRS determine by their procedures tax liability. Although the information may not be "intended to create obligations on taxpayers" the knowledge that the IRS procedures separate these forms (W2 and 1099) from the defined Tax Class of the 1040 return does put into question the "income" reported on the W2 and 1099 forms applicability towards what the IRS defines as "taxable income", the terms "income" and "taxable income" not being equivalent or interchangeable. The term "Tax Class" does separate the tax schedule of incomes as is indicated by the division, for example, of the Tax Class 2 for "Individual Income Tax, Fiduciary Income Tax, Partnership return" as opposed to the Tax Class 5 for "Information Return Processing (IRP), Estate and Gift Tax". This appears to be a clear division of assigned tax liability recognized within the IRS. If the Individual Income Tax, the Fiduciary Tax, and the Partnership return are assigned by the IRS a different Tax Class from the Information Return Process, the Estate Tax, and the Gift Tax, they can not be equivalent in tax class or be seen as conveying the same tax liability. It is the IRS that assigned a Tax Class to the W2 and 1099 then equates them to estate and gift taxes while the 1040 form has a different Tax Class that equates it to an income tax. The question in its simple form; An apple is not a billiard ball, why must I treat them as the same thing?

Thomas J. Wagner

Thomas J. Wagner

Posted

Rest assured, wages reported on a W-2 form are taxable income and not gift or inheritance. Payments reported on 1099's are usually income of some sort that may or may not be taxable according to the instructions and codes printed on the 1099 form itself. For instance, the 1099-INT has a box for non-taxable interest which is income that is not taxable. If you are preparing you own tax returns, follow the instructions to the best of your ability that come with Form 1040 and with whatever 1099's you get. If you are still not sure have your return prepared by a well qualified CPA or Tax Attorney

Asker

Posted

Agreed that W-2 form wages are not gift or inheritance and that the 1099 form can include non-taxable incomes, there is no dispute. But as shown there can also be no dispute that the W-2 and 1099 forms are of the same Tax Class as the Estate and Gift Tax as per the IRS, and this Tax Class is not the same one as assigned to the 1040 form and "income tax" as per the IRS. Each information form describes a class of liability associated with a tax that has an unequal liability. Still we have apples and billiard balls.

Thomas J. Wagner

Thomas J. Wagner

Posted

I stand by my previous answer.

Asker

Posted

You then leave apple and billard balls as they are. I've made no claim that W-2 reported incomes are untaxable, only that they have a different IRS assigned Tax Class that you've been unable to refute.

Thomas J. Wagner

Thomas J. Wagner

Posted

Its not a question of apples and billiard balls. Any codes that the irs assigns to forms or paperwork can't change the laws passed by Congress (the internal Revenue Code). I am simply suggesting that you should ignore codes that have no meaning or relevance to you.

Asker

Posted

If you present me with an open door I will cross that threshold. Until now we were only discussing the internal processes of the IRS and how they classify the information they collect and we've remained on topic. You've introduced issues outside of that discussion. I can and will respond only if you agree to continue from your last response. If not we can leave it where it was.

Asker

Posted

I've offered Atty. Wagner sufficient opportunity to continue off topic if he wishes but it appears that he has declined. Very well, in this discussion we'll not stray off topic. Had his comment been directed to some documentation, Code, or law that opposed issues of the topic, not generalized, we may have been able to continue with that discussion. I will agree with Atty. Wagner that everyone should be aware, as well as cautioned, that there are issues outside the topic discussed that should be considered before filing their taxes. My position remains that the IRS has assigned a distinctly different Tax Class to the W-2 form and 1099 form than it has assigned the Tax Class of the 1040 forms, and that each Tax Class has a different tax liability. My opinion appears to be confirmed by the IRS Document 6209, "IRS Processing Codes and Information" for 2013, in its "List of Returns and Forms" on page 25 and its definition of Tax Class on page 61. In addition, Atty. Wagner has been unable to disprove my position or refute my opinion. For Atty. Wagner's position and opinion you may reread the previous or he may state it for himself. Atty. Wagner is welcome to rejoin this discussion. His participation has been very helpful and much appreciated.

Posted

Your question is far too complex to answer in this simple online forum. You should consult with a tax accountant or CPA.

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Asker

Posted

Thank you Atty. Goldstein for responding to my question. You may be right, a tax accountant or a CPA may be able to help.

Judy A. Goldstein

Judy A. Goldstein

Posted

I hope my answer was helpful.

Asker

Posted

I have always found responses to my questions, yours in particular, to be helpful. I still await an answer from an attorney to this question. If I can determine my legal obligation to report "taxable income" correctly as it relates to the income reported on a W2 or 1099 form I would not risk perjury when I sign an IRS 1040 return. You've made it clear that you can't provide a competent answer to the question I pose here and I accept that.

Posted

I agree with attorney Goldstein. You question is too specific for this Q & A forum. Talk to a tax attorney or a CPA.

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1 comment

Asker

Posted

Thank you Atty. Kulerski for responding to my question. I had hoped that a tax attorney on Avvo would answer. And yes, a CPA may be able to help.

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