Corporate Officers Held Personally Liable for Fraudulent 1099s in California Appeal

In a significant win for accountability, the Fourth Appellate District affirmed that corporate officers—not just the company—can be personally liable under IRC §7434 for willfully filing fraudulent 1099 forms. After engineer Hovik Nazaryan settled a stock dispute with FemtoMetrix, Inc., the company’s CFO and president classified his settlement shares as "non-employee compensation" on 1099s, despite agreeing in writing that the shares would be treated as founder’s stock. The trial court found both officers and the company liable under §7434, and the appellate court affirmed, holding that corporate agents who knowingly cause a company to file fraudulent tax documents are fair game.

This case is a sharp reminder: if you're advising clients on settlement classifications or tax treatment, one "misclassified" form can lead to a fraud claim and personal liability. Our litigation support team is ready to help your firm navigate these landmines before they become lawsuits.