We received a letter from the IRS that my husband did not claim over $60,000.00 in contract labor for one client for tax year 2010. My husband never did this work, his father did (who incidentally has the same name but different SS#). His father IS a contractor while my husband works for a local retailer. My husband doesn't work for the family business at all.
What do we do? How could this happen? I am literally sick over this as I cannot fathom this mistake.

Why be sick, so just explain what it is, provide names and address of who is doing the business. Ask his father to provide his EIN number if that is how the business is reported.

Be sure dad did not use his sons social security number.

Contact the client and ask how they reported the income if you need to.

Just answer the letter honestly with as much documentation as possible.

A lot of IRS clerks are low on the totem pole, shuffling papers all day long, and they make mistakes. (I know! )
Make a copy of the letter and send it back with a short note at the bottom from your husband with his full name (is anything at all different in names, Sr, Jr, middle initial) and his SSN. And THIS IS MY FATHER, NOT ME!

After about 3 months you will get a reply saying that they have decided to 'waive your liability.' They will never admit they are wrong. I wish I had framed the letter I got. It isn't funny when it's happening but I can sort of laugh now.