The family that tax protests together gets audited together?

September 22, 2008 1:42 PM

Members of my immediate family have decided to decided they're going to stop paying federal income taxes. Should I be worried the IRS will come after me, even though I refuse to join their protest?

I was talking to a member of my immediate family (mother/father/sister/brother) last night. They informed me that for various reasons related to the current financial crisis, he/she will no longer pay their federal income taxes, along with another member of my immediate family. He/she is self-employed, so they'll continue to pay Social Security and Medicare, but not the income tax itself.

I've tried talking them out of it, reminding them that the government does not look lightly at willful tax evasion and at the end of the day it's more likely than not they'll catch up to you eventually, but he/she won't budge.

I'm worried about the hassles I may end up with thanks to their decisions. I'm worried that if they decide to do this and do it with impunity, the IRS will figure the whole damn family needs to be hassled. I trust my accountant and TurboTax and have never knowingly underpaid, but I still worry the government will make my life a pain. (I'm a little more worried that my relatives will be found out, lose their assets and homes, and show up on my doorstep one morning, but I can deal with family better than men in suits giving me the audit from hell.)

Is this a valid worry? If it is, what steps should I take to firewall myself against their decision?

(Please don't make this a "government is evil don't pay taxes" debate. The question is whether, as a direct relative of people engaging in tax protest, the Feds may come hassle me.)

posted by anonymous to work & money (13 comments total)

No, if you're a taxpayer in good standing. I'm pretty sure the IRS only has standing to make the names on the return miserable.

Something to send your family: Wesley Snipes got 3 years.
posted by rhizome at 1:48 PM on September 22, 2008

Tell them not to speak another word about it to you. You don't want to know anything.

I'm not sure at what point the men in suits come to your door, but I know they came to my grandparents' door looking for my dad back when he had tax problems. And they were just that - problems, not willful tax evasion.

They wanted to know if he was living there, and if my grandparents knew where he was. That was the extent of it, as far as I know, but my grandparents were PISSED, and I guess they were extremely intimidating.
posted by peep at 1:50 PM on September 22, 2008 [1 favorite has favorites]

IANA IRS agent, but I don't think you need to worry much about this particular eventuality. My impression from conversations with professionals is that the IRS are a very reasonable bunch. The IRS might decide to look at your returns to see if you're a tax protestor too, but if your finances are in order, as you say they are, you should have no trouble demonstrating that to the IRS.

On the criminal side, I guess it's possible that you're under some kind of obligation to report your tax-dodging relatives. I really have no idea whether that's the law. Your accountant probably knows.
posted by grobstein at 1:53 PM on September 22, 2008

You should be fine. Additionally I believe there's a reward for turning in tax evaders, so...
posted by 0xFCAF at 2:29 PM on September 22, 2008 [2 favorites has favorites]

No. The only people whose taxes you're liable for are your spouse, if any, and your dependent children, if any. You are not liable for your parents' or siblings' taxes.
posted by Sidhedevil at 2:46 PM on September 22, 2008

Here's the IRS page on reporting tax fraud and here's the policy they use to determine your reward. I'm not suggesting this as a "screw your family" measure, or a means of blackmail, but things will seriously go much better for them if they get caught after one year rather than ten - the IRS will charge them fees and interest based on the total amount they evade, and the sooner they get honest again, the smaller those penalties will be. Since they're not listening to your reasoning, you should try to get them to listen to a federal agent.
posted by 0xFCAF at 2:50 PM on September 22, 2008 [2 favorites has favorites]

Having been caught up in IRS tentacles due to extended family I can speak to this.

Let's make a distinction between technical liability and IRS behavior.

If you are under 30 you have no idea what underlies the fear of the IRS. Tales are legion of the IRS going after whomever they can squeeze using tactics that would never hold up in a court of law (but did in tax court). Agent were completely willing to ruin everybody related to the person they were after in order to collect what they believed was owed.

Maybe things have improved in that regard but historically revenooers have not been especially picky about who pays.

I'm just saying going after relatives isn't unheard of and that if the IRS isn't doing so now doesn't mean it won't in the future.

That said, the IRS has tried over the past several years to put a friendlier face on an organisation that for decades behaved an awful lot like storm troopers. Let's hope it continues.
posted by trinity8-director at 3:06 PM on September 22, 2008

The Tax Court is a court of law. It has the same laws as any other court, just different jurisdictions. The Tax Court certainly does not sanction IRS behavior that other courts would not. Stop hating on the Article I!

So. You will only get caught up if you have shared ownership of assets, accounts, etc., or if you are in any way involved in how they make their money or how they hide it. If you have inherited a house, for example, and you hold it along with your sister and your cousin, and your cousin evades taxes, the IRS can levy on the house. The IRS CANNOT take your part of the house, though. They can force the sale, but they will pay you what you are owed out of the proceeds. Not to say that it's a fun process, but the IRS does not steal from people who don't owe it anything, because that would be stealing.

If you are in a position that your finances are in any way intangled with any of these people, you will do well to untangle yourself now. Don't own anything in common, don't hold any of their assets for them, don't take gifts of value from them (i.e. don't help hide their assets). Otherwise, don't worry about it.
posted by ohio at 4:16 PM on September 22, 2008

(the foregoing Article I rant was directed at trinity8, not at the poster. sorry for any confusion)
posted by ohio at 4:17 PM on September 22, 2008

Well, under the last major round of tax reform, we got innocent spouse relief and taxpayer advocates, among other features. The first recognizes that even in the case of joint return by married persons, one may be deliberately committing a crime and the other may be completely ignorant of it. The Taxpayer Advocates Service is an "independent" IRS bureau responsible to Congress for making sure that taxpayers can get someone on their side in the event of a dispute. My parents had to use them one year when the IRS "lost" the social security form on their return, and some flunkie processed it separately and charged them for the tax due, even though on the 1040 it all dropped out and they had not only paid no tax that year, but received a refund. The IRS tax collection people had no authority to review the error, and like any collector were tasked with persuading us that the way to solve this problem was to pay the tax. They can be remarkably tenacious, even about $1000 or so. The Taxpayer Advocate was able to find the correct people to get a mental non-midget to see what happened when that form was slotted into the 1040. I guess we never really felt the collection process was over because it just stopped (what is the sound of another shoe not dropping?), but we did have a letter in hand saying they no longer owed any tax for that year.

Anyway, it's nowhere near kinder and gentler, but it is somewhat declawed from the days of yore. But for deliberate tax evaders there is no mercy -- I know someone who did a stretch in Club Fed for being the lawyer for a high-flying real estate dealmaker who may or may not have tried to defraud the IRS in a wash sale of property. The other guy is still in. For having her signature on one of the documents as a notary public, my friend, who worked for the lawyer, had serious pressure put on her by the FBI in their quest to turn her state's evidence. She honestly didn't know anything, but there were fingerprints and information about her finances presented to her in an interrogation as if she may have somehow profited herself. (I firmly believe she's innocent, and the dealmaker was guilty, but the lawyer probably knew better.)

So you might on the one hand be able to explain yourself out of the way, but on the other if they suspect a broad conspiracy there's no telling who they might investigate or put the screws on.
posted by dhartung at 4:40 PM on September 22, 2008

IANAL, but I think you'll be fine.

On the other hand, you should watch the lecture "Don't Talk to the Police" before the IRS shows up at your door asking questions.
posted by Jahaza at 6:48 PM on September 22, 2008 [2 favorites has favorites]

You know, if it comes to it at some future date, pointing this thread will probably be useful in exonerating yourself of any consequent fallout from your family's ethical decisions. I'd probably find a way if you haven't already to make some record of the fact, privately, to yourself, that it was actually you who posted it.

Of course, I am neither a lawyer, nor American.
posted by stavrosthewonderchicken at 9:21 PM on September 22, 2008

I know from the direct experiences of relatives that you will be fine. Just keep paying your own taxes and the IRS won't hassle you. In the specific case most relevant to you, neither the sister nor the parents of the non-tax payer in question ever heard a word from the IRS.

On the other hand, your non-income tax paying relatives will be in for a world of pain when the IRS catches on. It may take a year or two, but the penalties and interest on what will be owed will be significant, and the IRS will pursue them without mercy.
posted by gudrun at 10:03 PM on September 22, 2008