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Morality Tale — Why Now?
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Morality Tale

From one of his slogs through wingnuttia, Thers offers up a sad tale of IRS persecution.

The most important thing a tax accountant ever told me was if you decide to attempt to play games with the IRS, do it on the expense side. If they don’t like the expenses and disallow them, you will only get hit with interest and penalties. If you don’t report all of your income, you can go to prison.

I could have reduced my tax bills over the years in perfectly legal ways, but many of them required more time and paperwork, and I would rather do other things with my life.

What the woman in Thers tale of woe apparently didn’t know was that most businesses generate Forms 1099s for stringers and contractors. They need the 1099s to back up their deductions. The woman certainly received her copy of the 1099 and ignored it at tax time. The 1099 is like a W-2, the IRS gets a copy, and they expect to see your copy when you file your taxes. If you don’t report the income, you are in deep yogurt, and should expect to be audited at a minimum.

I certainly hope that this woman doesn’t owe more than $1000 in taxes on her unreported income, because things get nasty at that point.

8 comments

1 Badtux { 05.17.13 at 10:24 am }

Well, she very much could have not received her 1099 if the income was below the reporting limit or her 1099 got lost in the mail. Thing is, if she didn’t receive her 1099, she is *still* responsible for reporting her income. That’s been in the IRS code, like, forevah. I’ve been in a consulting role several times over the years, and have always made sure to save every check stub (or make a copy of every check) that I received as payment, just in case the maroons on the other end forget about the 1099 or sent it to the IRS but forgot to send it to me. There’s actually been a few times when I didn’t hit the limit with a client for it to be reported via 1099 but I *still* reported it because I deposited those checks in the bank and I’m not an idiot, Accounting 101 taught me that if the amount I deposit in the bank is greater than my reported income, something’s wrong, and I merely assumed that IRS Enforcement managed to pass Accounting 101 too. Which apparently this dippy lady didn’t :twisted:.

As someone whose father, a small shop owner who was the sole employee of his shop, was audited three years straight by the IRS because they couldn’t believe he wasn’t pocketing money from the till (everybody does it, right? I suppose the fact that he cursed out the first IRS agent to suggest he did it had nothing to do with three straight years of audits either, yah, Daddy was a jerk), these tales of “persecution” are making me giggle. Persecution? Really? No. The IRS being on the roof of the building across the street with a telescope aimed at the till making sure that every transaction got recorded, then charging in to make sure that the take matched what they saw through the telescope, *that* is persecution. But three years of that kind of shenanigans and not a penny difference between what they saw and what was reported and they went away because, look, Daddy was a jerk, but he wasn’t a criminal — he reported every single cent that he earned. And finally the IRS had to admit defeat and slink off. Because if you didn’t do anything wrong, that’s jack-all that the IRS can do to ya.

Whatever happened to the right-wing mantra of “if you did nothing wrong you have nothing to fear”? Oh wait, that’s only if you’re a brown person being stop’n’frisked or at an airport. Alrighty, then!

– Badtux the Snarky Penguin

2 Bryan { 05.17.13 at 5:42 pm }

The real point about the 1099 is that even if you don’t report it, if it was paid by a legitimate business they will report it one way or another, and the 1099 was the most common form of reporting. If she wrote a piece for the Wall Street Journal, their accounting department would have issued one even it she didn’t make the $500 limit, because it is easier to track internally and for tax purposes.

I always hated it when I would help someone as a favor to a real client and they paid in cash. The state of California was worse than the Feds about cash, but many wealthy Mexicans living in SoCal did everything with cash. The Mexican computer guys were the same way, buying thousand of dollars worth of parts, many made in Mexico, at US wholesalers with bundles of cash.

In any case, she probably was paid with checks, and it was definitely a business, no matter what she made. She also needed to file schedules C and SE, and pay the self-employment tax.

The IRS takes a dim view of people who ‘forget’ to report income, and she should expect to receive ‘special attention’.

The enforcement division really hates it when they don’t find anything wrong, because it means that the pattern they have been using to spot problems is wrong, and they don’t want to accept it. They audited by older brother for years and usually ended up increasing his refund. He did side jobs, but kept good records on them. The refunds were normally the result of not taking deductions that he thought were dodgy, but the IRS allowed.

I was on pretty good terms with a couple of IRS guys in when I was in SoCal, which is when I learned that Congress has screwed up the tax code so badly, that they weren’t sure what was legal in a several different instances. It is difficult to write a payroll program when you can’t get firm answers on limits, or when they tell people to submit things on magnetic media, but the specified media is obsolete, so even if you could create them, the IRS couldn’t read them. [Burroughs 8-inch hard-sectored diskettes in the late 1980s, I kid you not].

3 Badtux { 05.18.13 at 11:43 am }

That specified media thing wasn’t Congress, it was the IRS, which hasn’t kept its published regulations implementing Congress’s laws up to date due to a persistent lack of manpower to do its mandated duty. And the rich and powerful people who own Congress are just fine with that.

Meanwhile, there’s two takeaways from all this: 1) Income is income, and ya gotta pay taxes on it regardless of whether you get it on a W2 or get it thru your own small business endeavor (and yes, writing an article for a magazine is a small business endeavor), and 2) don’t piss off the tax man. The latter of which was my father’s crime that got the IRS all over him like a duck on june bugs (an ex-Navy guy using his Navy vocabulary in a situation might peel paint off walls but doesn’t tend to make friends with the target of such, heh!), but which he ended up paying $0 for because, duh, he obeyed the law.

4 Bryan { 05.18.13 at 3:25 pm }

Under funding and staffing at the IRS is why they aren’t going after the real violators – they can’t afford to. If we spent what was needed to bring the IRS up to strength our tax collections would take a significant jump. That is why it won’t happen. The big tax evaders and the most egregious violators of the 501 c 4 exemption would be investigated, but now they can really only target small business people who aren’t apt to take it court.

Yeah, they may not get your money, but they can certainly steal your time if they are annoyed with you.

5 Badtux { 05.19.13 at 1:41 am }

And the rule “don’t piss off the tax man” is exactly what Ms. Wingnut is doing with her public whining, there’s a *reason* why lawyers tell their clients to keep their mouths shut. If the IRS wasn’t suspicious already, they’re fitting her for stripes right about now :twisted:. I think we’ll need the big tub of popcorn for this show ;).

6 Bryan { 05.19.13 at 9:07 am }

The IRS doesn’t talk about audits. The entire process is secret on their part, and you have no way of knowing what is actually happening when someone says they are being audited. The IRS has s better record on leaks than any of the intelligence agencies.

My impression is that when someone starts complaining about an audit in public it is seen by the IRS as an admission of guilt. No one is going to the media over a mistake.

I think her husband needs to seriously consider his future, because she keeps trying to bring him into it, while the IRS isn’t. She should be grateful that his bank accounts aren’t going to be frozen when the IRS comes for its money.

7 Badtux { 05.19.13 at 11:52 am }

I know someone who was actually guilty of not paying a six-figure sum in payroll taxes that were owed because of improperly using 1099’s rather than W2’s for employees. He didn’t go public. He got himself the best tax attorney he could find, and the IRS, rather than fight it in court, eventually settled for 50% of what was owed on time payments. That’s what happens when you handle it the way the lawyer tells you to handle it.

Ms. Wingnut needs to be talking to a tax attorney, not to the media. But then, that’d require brains on her part, and if she had brains she wouldn’t be a wingnut in the first place. Just sayin ;).

8 Bryan { 05.19.13 at 12:22 pm }

Nothing the IRS does is in public records unless it goes to court. Your financial records are private as far as the IRS is concerned, and unless you are really stupid, you should want them to stay that way.

The old ‘they aren’t employees, they’re contractors’ ploy. That one bites a lot of people, and you had better read the rules and definitions very carefully with the assistance of a tax attorney before you try it, or you are in major yogurt.