This is tax evasion, right?
January 17, 2011 1:37 PM Subscribe
Help me prevent my step-brother from committing tax evasion/fraud.
So my step-brother gets a W2 yearly which only reports about 20% of his income (about $7-10k). He has an additional income (ie funds for his life expenses) from educational/research stipends that are direct deposited through his place of work / educational institution without reporting, that in the past he has paid income tax on, which I believe is appropriate. He has now gotten it into his head that this money isn't taxable and he plans not to report it this year. How can I convince him otherwise? Also, how likely is he to be audited or otherwise get into big trouble? I'm not a tax expert, and have recommended he discuss this with one, but have a feeling that he's avoiding doing so in the hopes that he can continue to claim ignorance about the need to report this income.
So my step-brother gets a W2 yearly which only reports about 20% of his income (about $7-10k). He has an additional income (ie funds for his life expenses) from educational/research stipends that are direct deposited through his place of work / educational institution without reporting, that in the past he has paid income tax on, which I believe is appropriate. He has now gotten it into his head that this money isn't taxable and he plans not to report it this year. How can I convince him otherwise? Also, how likely is he to be audited or otherwise get into big trouble? I'm not a tax expert, and have recommended he discuss this with one, but have a feeling that he's avoiding doing so in the hopes that he can continue to claim ignorance about the need to report this income.
http://www.irs.gov/individuals/article/0,,id=106778,00.html
How Do You Report Suspected Tax Fraud Activity?posted by msbutah at 1:52 PM on January 17, 2011
If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out Form 3949-A online, print it and mail it to:
Internal Revenue Service
Fresno, CA 93888
If you do not wish to use Form 3949-A, you may send a letter to the address above. Please include the following information, if available:
* Name and address of the person you are reporting
* The taxpayer identification number (social security number for an individual or employer identification number for a business)
* A brief description of the alleged violation, including how you became aware of or obtained the information
* The years involved
* The estimated dollar amount of any unreported income
* Your name, address and daytime telephone number
Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential.
typically, to receive an educational/research stipend, one must fill out a w4. My stipend has taxes withdrawn, and every penny is reported on my w2.
His earnings are recorded somewhere. It'll bite him in the ass.
Also, until the Republicans kill the economic stimulus bill, it might be in his interest to do his taxes. He could actually receive money, rather than pay. This depends on his income, of course.
posted by chicago2penn at 1:53 PM on January 17, 2011
His earnings are recorded somewhere. It'll bite him in the ass.
Also, until the Republicans kill the economic stimulus bill, it might be in his interest to do his taxes. He could actually receive money, rather than pay. This depends on his income, of course.
posted by chicago2penn at 1:53 PM on January 17, 2011
I don't know anyone who has been audited except for my Dad when he was making $250k+
and my friend who listed about $5000 in charity donations.
Just let him do it. He'll either get audited or get a letter sent to him telling him he did it incorrectly. I doubt he would get in trouble because he sounds younger and doesn't make a lot (judging on the numbers). Also, there were times where I was young and didn't know I had to pay taxes on my unemployment... or when I withdrew my 401k a long time ago. I was just sent a letter.
If you really feel like he will go to prison for not filing his taxes correctly, then research the information and print it out for him. That's about all you can do short of reporting him.
posted by KogeLiz at 1:59 PM on January 17, 2011
and my friend who listed about $5000 in charity donations.
Just let him do it. He'll either get audited or get a letter sent to him telling him he did it incorrectly. I doubt he would get in trouble because he sounds younger and doesn't make a lot (judging on the numbers). Also, there were times where I was young and didn't know I had to pay taxes on my unemployment... or when I withdrew my 401k a long time ago. I was just sent a letter.
If you really feel like he will go to prison for not filing his taxes correctly, then research the information and print it out for him. That's about all you can do short of reporting him.
posted by KogeLiz at 1:59 PM on January 17, 2011
i should clarify - I was sent letters with my refund, explaining why my refund was different than what I had on the paperwork, what I did wrong and what they did to correct it.
posted by KogeLiz at 2:00 PM on January 17, 2011
posted by KogeLiz at 2:00 PM on January 17, 2011
Tell him not to be an idiot and then let him do whatever he's going to do. He won't go to jail, he'll just get billed by the IRS and he'll have to pay it off.
posted by goblinbox at 2:03 PM on January 17, 2011
posted by goblinbox at 2:03 PM on January 17, 2011
I did my taxes wrong one year about 15 years ago, where I left off a $3,500 stipend that I needed to pay Federal taxes on. Just completely forgot about it.
All that happened to me was that about 2 years later, the IRS discovered the mistake, and sent me a letter saying that I owed X amount, and to call this number if I needed to set up payment arrangements. Which I did, and I paid it off promptly.
posted by spinifex23 at 2:11 PM on January 17, 2011
All that happened to me was that about 2 years later, the IRS discovered the mistake, and sent me a letter saying that I owed X amount, and to call this number if I needed to set up payment arrangements. Which I did, and I paid it off promptly.
posted by spinifex23 at 2:11 PM on January 17, 2011
Girlfriend had education income that she didn't report several years back and, despite making nearly nothing, was audited, and had to pay the taxes she would've owed, plus a penalty.
Getting audited isn't just for rich people.
posted by toomuchpete at 2:17 PM on January 17, 2011 [3 favorites]
Getting audited isn't just for rich people.
posted by toomuchpete at 2:17 PM on January 17, 2011 [3 favorites]
He has now gotten it into his head that this money isn't taxable and he plans not to report it this year. How can I convince him otherwise?
Show him official IRS documents?
Taxable Income for Students:
posted by muddgirl at 2:18 PM on January 17, 2011 [2 favorites]
Show him official IRS documents?
Taxable Income for Students:
If you received a scholarship or fellowship, all or part of it may be taxable, even if you did not receive a Form W-2. Generally, the entire amount is taxable if you are not a candidate for a degree.My husband receives a stipend, but does not fill out a W-4 or W-2. We must report that income and pay taxes on it as if he were self-employed.
If you are a candidate for a degree, you generally can exclude from income that part of the grant used for:
* Tuition and fees required for enrollment or attendance, or
* Fees, books, supplies, and equipment required for your courses.
You cannot exclude from income any part of the grant used for other purposes, such as room and board.
posted by muddgirl at 2:18 PM on January 17, 2011 [2 favorites]
Also, he may have to pay taxes on a quarterly basis. My friends on NSF and DOD fellowships had to do this. Another thing to remember, and this is annoying, is that the deductions for supplies are very very limited. Check the IRS site for more details(not going to navigate the IRS site on my phone!)
posted by rockindata at 2:31 PM on January 17, 2011
posted by rockindata at 2:31 PM on January 17, 2011
Also, he may have to pay taxes on a quarterly basis.
I think his other option is to withhold more from his W-2 paycheck to cover the untaxed amount. At least that's what my spouse and I plan to do.
posted by muddgirl at 2:51 PM on January 17, 2011
I think his other option is to withhold more from his W-2 paycheck to cover the untaxed amount. At least that's what my spouse and I plan to do.
posted by muddgirl at 2:51 PM on January 17, 2011
Send him muddgirl's link, for sure. He probably gets a form (1098-T maybe?) that's basically a W-2 for this kind of income--I know I have.
But other than that, not too much you can do, other than hope he does it right (or, I guess, hope he doesn't get caught). Personally, I don't think I'd start a fight about it.
posted by SuperNova at 6:49 PM on January 17, 2011
But other than that, not too much you can do, other than hope he does it right (or, I guess, hope he doesn't get caught). Personally, I don't think I'd start a fight about it.
posted by SuperNova at 6:49 PM on January 17, 2011
Getting audited isn't just for rich people.
Generally, the IRS stopped doing its "lifestyle audits" in the 1990s after some Congressional hearings on the topic that ended up creating the Taxpayer Advocate Office and made the IRS more amenable to tax debt work-outs like installment plans.
There are audits based on various crowd-sourced triggers they have figured out over the years, like high deductions and no income, that sort of thing. These returns are looked at more closely. So are returns that claim adult dependents, use things like HOPE or Lifetime Learning Credits, Earned Income Credits, and so on. There's a lot of cheating associated with these goodies as you can easily imagine.
They still, however, do basic things with every return they get that amount to a sanity check. Someone who receives any form of documentation for an income -- whether it's a W-2, a 1099, a 1098, et cetera -- should damn well report that income, because the IRS is supposed to receive its own copy from the issuer.
If the issuer is somehow not reporting income over given limits for the type of income your brother is receiving, they're breaking the law and will be caught eventually -- and then your brother will get a bill for ten years' back interest or something like that. It's dumb.
So tell him it's dumb, and then back off.
posted by dhartung at 11:08 PM on January 17, 2011
Generally, the IRS stopped doing its "lifestyle audits" in the 1990s after some Congressional hearings on the topic that ended up creating the Taxpayer Advocate Office and made the IRS more amenable to tax debt work-outs like installment plans.
There are audits based on various crowd-sourced triggers they have figured out over the years, like high deductions and no income, that sort of thing. These returns are looked at more closely. So are returns that claim adult dependents, use things like HOPE or Lifetime Learning Credits, Earned Income Credits, and so on. There's a lot of cheating associated with these goodies as you can easily imagine.
They still, however, do basic things with every return they get that amount to a sanity check. Someone who receives any form of documentation for an income -- whether it's a W-2, a 1099, a 1098, et cetera -- should damn well report that income, because the IRS is supposed to receive its own copy from the issuer.
If the issuer is somehow not reporting income over given limits for the type of income your brother is receiving, they're breaking the law and will be caught eventually -- and then your brother will get a bill for ten years' back interest or something like that. It's dumb.
So tell him it's dumb, and then back off.
posted by dhartung at 11:08 PM on January 17, 2011
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posted by dfriedman at 1:45 PM on January 17, 2011 [1 favorite]