It isn't every day that I discover a new tort after having practiced law for more than twenty years. So, it bears mentioning. I've been aware of the underlying improper tactic for a long time, but didn't know about the statutory remedy for it until now. The basic concern is that you can cause a tax mess for someone if you create a Form 1099 or K-1 which you issue to someone to them saying that they have earned income when they haven't, and there are very few limits on creating a 1099 or K-1 in the first place.
[Internal Revenue Code] Section 7434(a) provides: “If any person willfully files a fraudulent information return with respect to payments purported to be made to any other person, such other person may bring a civil action for damages against the person so filing such a return.” . . .
[There is a] surprisingly large amount of case law on this section to address a variety of common issues that arise in these lawsuits. For a good overview of these issues see Stephen's useful blog post here.From TaxProf Blog.