How do I (and should I) report a business for possible tax fraud?

March 10, 2011 3:01 AM

How do I (and should I) report a business for possible tax fraud?

I'm job hunting and recently interviewed for a position with a small, specialty food business that appears to be completely legitimate. (It is listed as an LLC; I'm not really sure what that means or what implications it has for this question.) However, during the interview process, I found out that employees are paid in cash with no payroll tax withheld.

This is, as I understand it, illegal. And aside from being illegal, it's also unfair. For all its flaws I love my country, and it pisses me off when people or businesses (big or small) cheat everyone else like this.

The pay, while not glamorous by any means, would still be above minimum wage for the lowest paid employee if proper taxes were withheld, so it doesn't appear to be the case that the owner is trying to "save" a low-paid employee.

After my interview, I looked the business up on Yelp (which I hadn't done before my interview), and the reviews are very polarized. The business does great work, but there are a lot (approximately 40%) of reviews talking about the rude, borderline crazy behavior exhibited by the owner. Based on my limited interactions with her (I was interviewed by an employee) I am inclined to believe them. Suffice it to say, the owner appears to make poor decisions.

Possible further complications: the owner is an (to my understanding, legal) immigrant (Australian). I have no idea what bearing that has on the situation.

My questions:

1) Should I report this? It's been making me sick and nervous since I found out, so I feel that I should. If there is a very compelling reason why I should not, please let me know.

2) How do I report this? I made a cursory investigation into it, and it looks like the IRS wants you to fill out a form. I would like to do this anonymously, lest the owner (who, according to the Yelp reviews, is rather vindictive) poison my reputation in the (well-connected) industry I'm trying to break into.

3) Theoretically, if I were to take the job (I'm not going to), what kind of liability would I be taking on by getting paid in cash? If I report the business/business owner, how and will the employees be penalized?

4) If I report them and the business is actually completely on the up-and-up, they will be OK, right? Sure it'll be a pain in the ass, but will someone get in trouble if I'm wrong? Will I?

For what it's worth, no, this is absolutely not motivated by trying to "get back" at them for not hiring me. Hiring is still going on and there is a very good chance I will be offered the job (but will not be taking it for the above reasons).

This is in Illinois.

Anonymous responses can email me at [e-mail].

Thanks.

posted by anonymous to Law & Government (30 answers total)

Disclaimer: I'm not a lawyer, an accountant, or an American.

will the employees be penalized?

Whether or not income tax and social security are withheld from payroll, the tax liability for the employees remains the same. Any employees who have not declared their cash income to the IRS and paid taxes on it will be liable for those back taxes, plus penalties, plus potentially criminal prosecution.
I would rate the chances that the employees have declared and paid their income taxes as low, so they will probably be liable for back taxes.

If I report them and the business is actually completely on the up-and-up, they will be OK, right? Sure it'll be a pain in the ass, but will someone get in trouble if I'm wrong? Will I?

If they really are on the up and up, then yes, they'll be ok. You won't get in trouble if you're wrong, just stick to reporting exactly what you heard.

Should I report this?

You answered this yourself.

And aside from being illegal, it's also unfair. For all its flaws I love my country, and it pisses me off when people or businesses (big or small) cheat everyone else like this.

How do I report this?

Fill in form Form 3949-A, this form has a field for your name and address but it's optional. Mail the form to the IRS with no return address.
posted by atrazine at 3:40 AM on March 10, 2011

It's certainly illegal, and if no taxes are being withheld then a lot of other things you'd expect to go with a real job, like unemployment and workers' comp, are probably also absent. The employees are not protected if they are laid off or injured on the job, and they are probably not paying their own income taxes, which could bite them in the ass down the road. It's a crap job, but it's probably consensual.

We can't know what will happen to the employees if you report this. If the business is highly profitable and the owner is getting rich by exploiting his employees and avoiding his civic responsibilities then maybe he'll just start obeying the rules and everyone (except him) will win. If the business is barely making ends meet even as it is then the extra burden of actually obeying the law might force it to shrink or even shut down, putting some or all of the employees out of work.

You shouldn't let this particular situation make you sick and nervous. The situation sucks in a lot of ways, but it's not uncommon. It's the ugly way of the world, particularly in a down economy.
posted by jon1270 at 3:49 AM on March 10, 2011 [1 favorite]

I would like to do this anonymously, lest the owner (who, according to the Yelp reviews, is rather vindictive) poison my reputation in the (well-connected) industry I'm trying to break into.

I would be concerned that even if you submit the tip anonymously, the timing of any inquiry made might lead the owner to suspect that it was you. It probably depends on how many people were interviewed around the same time as you; if there were a lot, I wouldn't worry as much, but if there were only a few, that seems like a potential problem. And if you don't know...do you want to risk it, knowing that the owner is vindictive?

That said, I also don't know how quickly the IRS acts on tips like this; it might be that any potential synchronicity between when you were interviewed and when the tip arrived is mitigated by a delay within the IRS itself. But do you want to count on that?

The business does great work, but there are a lot (approximately 40%) of reviews talking about the rude, borderline crazy behavior exhibited by the owner. Based on my limited interactions with her (I was interviewed by an employee) I am inclined to believe them. Suffice it to say, the owner appears to make poor decisions.

I don't think any of this is any kind of reason to turn someone in for tax fraud. In fact, it says to me that you should just get out of this person's way and let them do themselves in.
posted by limeonaire at 6:15 AM on March 10, 2011

- the IRS can (and likely will) turn these people's lives upside down (not just the owners, either - anyone can get caught in their machinery). They are a horrible faceless pityless merciless crapfestival of doom.
- you reporting, anonymously, based on conjecture, is not a heroic act or a patriotic one. If you choose to do this, you should be counted among the snitches. That is definitionally true.
- what does loving this country have to do with anything? this is an emotional response to the boss - flavor it however you'd like but you are not stopping someone from beating their children or helping a neighbor. You are assisting an agency that has it's own investigative arm and ability to hunt down transgressors. If this was a concern for the IRS they'd have handled it by now.
- bring it up to the boss first - write an anonymous letter. That is less cowardly than going directly to the IRS.
- I'm so sorry if this sounds harsh but DO NOT go to the IRS - you are pointing a weapon of mass destruction at people who it doesn't sound like are commiting capital offenses due to your "love of country." What the hell - love some citizens of this country and save them the heartache of having to deal with our government. Be an adult, not a tattletale.
posted by ten year lurk at 6:17 AM on March 10, 2011 [9 favorites]

It sounds like you're motivated in large part by the negative internet reviews you read and by your interactions with this owner. What if you read positive reviews and liked the owner? Would you still want to report?

I think you should stay out of it, regardless of how you answer those questions.
posted by vincele at 6:18 AM on March 10, 2011 [5 favorites]

I don't presume to make a moral judgment on what is best for the employee, lower net wages up front, the employee getting paid more but having the responsibility of paying both sides of the taxes, or the employee taking the cash and not sharing with Uncle Sam. That is between the employee and his decision making algo.

Not knowing enough about the job, there certainly are some situations where this arrangement is not only legit, but actually the proper method. But, based on the wages being near minimum wage, I would bet the employee-employer relationship is being framed incorrectly. From a legal perspective, and I am not a lawyer, if there is any risk it goes to the employee for setting up the relationship improperly and secondarily, depending on how the employees filed their taxes, to them as well. While the IRS certainly has a preferred person from whom it gets its money, what they really want is their money and will go after people with secondary responsibility as well.

From a practical standpoint, turning this company in may actually hurt the employees much more than the employer. If the wages are near minimum, then the taxes on that amount are not large and I doubt the employee is getting rich. She may be making a nice living off of the business, but if the premise of the business is to launder tax money by breaking even and clipping SS tax, it is a bad business. If the business is shut down, these low wage folks are out of a job. They all know the situation in which they are in. They accepted the job with these terms so they either accept the risk or they don't think they have risk. Certainly, some people are quite comfortable self insuring. I do for certain things. I am old enough whereby I do not self insure for health insurance. But, I don't buy insurance on my cell phones, or I took the collision off my 4 year old car so I know that I am accepting the risk of crashing my car and smashing by phone in the crash and having to outlay the money to replace them.

So, I would say if you are at all concerned about what is right or wrong from a tax perspective, turn them in. THe IRS will sort it out and the chips will fall where they may. If you are concerned for the employees, find out what they want before you turn them in. You may be acting counter to their best interests unless you think you know what is in their best interests more than they could know.
posted by JohnnyGunn at 6:19 AM on March 10, 2011

"If you choose to do this, you should be counted among the snitches...I'm so sorry if this sounds harsh but DO NOT go to the IRS - you are pointing a weapon of mass destruction at people who it doesn't sound like are commiting capital offenses due to your "love of country." What the hell - love some citizens of this country and save them the heartache of having to deal with our government. Be an adult, not a tattletale."

This is among the most misguided posts I've ever read here. The owner is breaking state and federal law which protect workers and provides for the revenue that enables US and state governments to operate. In my experience, the IRS is pretty fair and direct, and as a taxpayer I want them to be when they are dealing with tax evasion. Real life is not some TV show about the mafia and you shouldn't act like it is.

The OP should report this business anonymously.
posted by iknowizbirfmark at 6:59 AM on March 10, 2011 [24 favorites]

Anyone who works there and doesn't report the money they are paid on their taxes (which will almost certainly be every single employee) will also be in trouble. They will need to pay back taxes to include the social security and medicare portion of their wages along with penalties and interest for prior year taxes. Businesses that do this frequently mistreat their employees and don't pay them worker's compensation because the employees are afraid to report them due the chain of events that will follow where everyone suffers. On a macro level, there is also the problem that businesses who fail to pay the taxes they owe are competing on an unlevel playing field with businesses that do and ultimately may drive other legitimate business owners out of business. There is no easy answer. Personally, I would lean toward ignoring it because there is harm that will ensue to relatively innocent third parties (the employees), but I'm aware of numerous situations where ex-employees have reported this activity to the IRS and I would guess that unless the owner hires mostly illegal aliens, they will eventually get reported by someone, if not you.

And the "tattletale" stuff is juvenile.
posted by Lame_username at 7:04 AM on March 10, 2011 [1 favorite]

Not knowing enough about the job, there certainly are some situations where this arrangement is not only legit, but actually the proper method.

The odds of this are infinitesimally small. Perhaps there is a situation in which a consultant is paid in cash and the correct 1099 forms are filed, but the odds of that happening in a food service context are essentially nil. These folks are essentially never going to be found to be independent contrators.

Furthermore, the only value this has to the employer is if they are also committing tax fraud on the income of the business and concealing income or misrepresenting their expenses, otherwise their business would appear to be excessively profitable and they would owe a significant portion of the tax that they should have paid on behalf of their employees to the IRS as tax on profit.
posted by Lame_username at 7:12 AM on March 10, 2011

I'm glad you are an adult who is considering a reasoned response and not ten_year_lurk.

If you just have a suspicion something is off, but can't really prove anything, and you are simply annoyed by the "rude, borderline crazy behavior exhibited by the owner," that's not a good reason to move forward, as there are actual reasons why tax would not be withheld by the company in question. For instance, independent contractors are responsible for paying taxes themselves rather than having them withheld by their employer.

But If you have evidence that the business is breaking the law, you need to report it to the IRS, anonymously if you can. And paying their employees in cash is definitely a red flag.

I know you worry about the fallout for the employees, and I don't blame you in this tough economic climate. But keep in mind that the business definitely knows the legalities and is ignoring them and that could be just as damaging, if not more so, to the employees in the long run. As Lame_username says, they are doing this because it is to their benefit to cheat the system and are very likely to be denying their employees their rights as well, like overtime, worker's comp or benefits they should be getting.

Also, the employees are complicit in this illegal behavior. Think about it: would you agree to take money under the table? No, because you know it is wrong. Not merely because of the illegality, but because we now have a tax gap of ~300 billion dollars as a result of tax evasion.
posted by misha at 7:27 AM on March 10, 2011

I know someone who, many years ago, reported his boss for this. He was promised the job would be legit, that taxes would be taken out, that FICA would be paid. The IRS told him he'd be responsible for the taxes and FICA. He got screwed out of a year of Social Security taxes, and his former employer was a big fat liar.

You could write up some info, and leave fliers at the bakery for the employees. Some employees prefer under-the-table wages. I think it's a foolish preference. Some employees may not understand the big picture. You could suggest that the SEIU or another union recruit there.

I recommend you keep this in mind when you vote. That you consider how candidates treat businesses, and how we should govern so as to encourage fairness. In my experience, the IRS is a big meanie, and doesn't have a shred of compassion, or a sense of proportion, so reporting this would likely hurt the people you wish to help.
posted by theora55 at 7:36 AM on March 10, 2011 [1 favorite]

I would like to do this anonymously...

Well, it's a scale. How much of "the right thing" do you want to do? How much do you really want to be a stand-up citizen? Do you keep quiet, do you report anonymously, do you sign your name, etc. It's not entirely clear from your question that you know illegal activity is occurring. You have reason to think. Maybe you do know, and it just isn't clear from your question. That's one thing to consider. Another, and a flip side, is that it isn't your job to investigate these things: That's the authorities' job. If you report what you suspect to be wrongdoing, and the authorities investigate and find that all's kosher, then the system works.

As for doing it anonymously because you're afraid of retribution...yeah, that's an issue alright. It's a personal decision that many, many people have faced before you. Since you opened the door ("and should I...?"), I'll chime that I'm an honor-code person for the most part. If there's some genuine hardship—like, you're reporting gang activity and afraid for your life—then cool, that's why anonymous tips exist. Where's the line between that (fear for safety) and just plain ol' cowardice? Personal decision. I know what I'd do, or wouldn't. Do what would make your kids proud.
posted by cribcage at 7:40 AM on March 10, 2011

I'm not sure why you seem to be interpreting this as a sleazy owner screwing their employees. The employees have at least as much to gain from being paid under the table; they are the ones dodging the payroll taxes.

If this is truly an under-the-table deal, then they're all cheating the government/public. This is a symbiotic relationship: the employees can skip out on their taxes because the IRS doesn't know they're employed, and the employer can skip out on its taxes because the IRS doesn't know it exists. I would report them.
posted by equalpants at 7:41 AM on March 10, 2011 [1 favorite]

Report them. Whether you do it covertly or overtly makes no difference to the righteousness of that act. "Taxes are the price we pay for civilization."
posted by NortonDC at 7:48 AM on March 10, 2011

posted by ten year lurk at 9:17 AM on March 10 [+] [!]

This guy is 1000% wrong. Contrary to recent teahadist sentiments like this, taxes are there for a reason and tax cheats hurt us all.

Say if one of those employees were to lose a limb on the job, and try to collect workers comp or Social Security Disability. They would be out of luck, as the proper tax payments were illegally dodged. Maybe those employees bear some responsibility (actually I'm almost positive they do), but they could be very low information workers getting abused by the boss. The point is, that's not for you to decide the legality of the situation, there are entire agencies of the government devoted to this exact situation which rely on citizens identifying offending businesses and individuals. Let them do their job. You already pay for them to do it anyway.

You have no legal duty to inform that I'm aware of, but doing so does not make you a "snitch", it makes you a responsible citizen.
posted by T.D. Strange at 7:53 AM on March 10, 2011 [5 favorites]

unfortunately, i don't live where the IRS operates in an even handed fair manner.
also, a "reasoned response" isn't going to the feds but going to the boss or some employees.
why are you so compelled to get the authorities involved in a matter that is literally none of your business? The whole shared tax burden stuff is all well and good but weigh it against the potential damage you may do - which is to say you have no idea the potential damage you may do.
I get that my opinion isn't as high-minded and academic as some of the others and that is because i have personally seen the IRS come through like a whirlwind and obliterate my family's savings and freedom, based on what i believe was very bad information. Ten years on and we are just barely digging out.

also go ahead and confront the employer or inform employees that's totally right on - why immediately go to the authorities? what is wrong with that?

*T.D. Strange: i love the implicationthat i'm in the tea party like that would somehow negate my opinion here. i'm not - i just don't think that the system works and have personal experience - i truly believe that there is never justification to handing people over to the wolves before giving them a chance to explain or correct.
posted by ten year lurk at 7:59 AM on March 10, 2011 [2 favorites]

ten year lurk at 10:59 AM: It's good that you disclosed your personal bias. What you might call "obliterat[ing] my family's savings and freedom", impartial observers might call "enforcing the law". It's up to the OP to decide if he want to fill out the reporting forms, but doing so is not being a "snitch" or employing "weapons of mass destruction". If the IRS or another agency decides to take action based on his reporting, it's probable that they would've done the same thing eventually anyway once wrongdoing was uncovered at some other time. OP shouldn't feel any remorse about filing an anonymous report (which might amount to nothing or find no wrongdoing anyway) if that's what he decides to do here.
posted by T.D. Strange at 8:27 AM on March 10, 2011 [1 favorite]

Lurk, I speak as a small business owner who pays is payroll taxes like a responsible citizen:

Take your snitch talk and walk over to 4Chan. You sound ridiculous.

As a business owner, I can tell the OP, without hesitation, to report that cheat to the IRS. Paying payroll taxes is hard and expensive, and this guy choosing to not do so means he's cheating against not only his country but against the other businesses in his local community. He's choosing to shirk a burden that is rightfully his, and in doing so is screwing over his employees in ways it will take years to recover from. He is operating on much looser margins and is running a huge and unfair advantage over his competitors.

Screw him. Any negative consequences are on the business owner. He made his choices with wide-open eyes and decided to take his chances with the IRS rather than play by the rules. Screw him.
posted by BigLankyBastard at 8:28 AM on March 10, 2011 [9 favorites]

There is a good chance that everyone involved is not paying their taxes. That is illegal, and it is unfair to the rest of us that they shouldn't have to pay their fair share. Ignorance is not a valid defense. Obviously, if you work, you have to pay taxes. Using terms such as snitch is juvenile, and does nothing but belittle the OP. There is nothing wrong with reporting a situation that you think is not right. If you see someone stealing money out of a cash register, is reporting them to the authorities being a snitch? Maybe, but who the hell cares? It's just a name.

People who flout taxes like that suck, and they deserve whatever they get. I pay my taxes, so should you. Turn 'em in, do it anonymously. If it makes you feel better, do it.
posted by Geckwoistmeinauto at 8:51 AM on March 10, 2011

Only one person has made passing mention of the following fact: the fact that these employees are being paid under the table means they have no security if and when their job goes away. If they're laid off and apply for unemployment insurance, they will be turned down.

The IRS very well may asses some of those employees with taxes. The IRS is also not totally blind to the hardship it causes, and if these folks were making minimum wage their tax liability is honestly not that huge anyway.

N-thing everyone else's dismissal of lurk's opinion. We obviously don't know the facts of whatever his or her dispute was, but tax court exists for a reason. And anyway, having a personal anecdote about how your interaction with the IRS went poorly is in no way a good reason to henceforth support tax fraud. Especially if you were in fact innocent of such fraud - the only reason the IRS has to engage in enforcement activities and thus wrongly penalizes someone is because so very, very many people are guilty of tax fraud.

The IRS of course makes mistakes and causes undue hardship sometimes, but that's why the Taxpayer Advocate Service exists.
posted by kavasa at 9:14 AM on March 10, 2011 [1 favorite]

Paying payroll taxes is hard and expensive, and this guy choosing to not do so means he's cheating against not only his country but against the other businesses in his local community.

Nthing the deservedly strong criticism of Lurk. First, what you are contemplating is not "snitching." Second, reporting is arguably mandatory. Some attempts to evade or avoid federal taxes are felonies, and people who know about them and conceal them rather than report them may themselves be guilty of a crime--misprision of felony. Third, the fact that you want to do this anonymously also suggests you're doing it for the right reasons, and not because the IRS sometimes pays a portion of any recovery to the reporter.

The business owner sounds like a moron. The IRS is bound to find out about this sooner or later, since this is the exact kind of person who screws (actually, may already be screwing) his employees and since screwed employees, ex-wives, and ex-girlfriends/boyfriends are the top three sources of information for the IRS on tax cheats.
posted by Hylas at 9:40 AM on March 10, 2011

I've only talked about this in passing on metafilter, but here we go.

I am not a teapartier, a conservative, or anything like that. In fact, I'm insanely liberal and generally my policy has been to play by the rules and be upstanding and figure that the government has no reason to prosecute anyone wrongfully.

However, my husband was audited due to a minor mistake on his taxes in 2007--a mistake in the IRS's favor, actually. They (wrongfully) decided he owed them money. It's taken five years even with help from the tax payer advocate and a tax lawyer to get this resolved. We've had multiple bank accounts emptied, liens placed, refiled the same set of taxes four or five times. They say it'll finally be resolved by the end of this month, but they've said that before.

It's been hell, absolute hell. The only saving grace is that he comes from money, and so we had a cushion in his parents to keep ourselves afloat financially. Otherwise, we'd be pretty close to destitute right now. Knowing what I know now, I would never, ever sic the IRS on someone--particularly people working in a situation like food service where they might not have a lot of money anyway.

The IRS very well may asses some of those employees with taxes. The IRS is also not totally blind to the hardship it causes, and if these folks were making minimum wage their tax liability is honestly not that huge anyway.

Seriously, read up on what the tax payer advocate has been saying to the IRS for years. They wrongfully pursue people all the time, and it's usually the people who can least afford it.
posted by PhoBWanKenobi at 10:04 AM on March 10, 2011 [4 favorites]

Mod note: This is a followup from the asker.

Thank you, everyone, for your thoughtful answers. Before posting, I was 65/35 on the side of reporting it. I am now definitely going to report this. Anonymously. (A cop-out, perhaps; if I could be 100% certain that my information would not be revealed, I'd put my name to it so the IRS could question me directly. As it stands, however, anonymous it is.)

ten year lurk, it is clear we disagree fundamentally on this issue. "The system" may have many flaws, but it is certainly not going to be improved by ignoring every offender in order to save the few who some may feel are being unfairly persecuted. I have no problem with the IRS disrupting the life of someone who is breaking the law in a way that affects others.

To respond to vincele's questions: yes, absolutely. I went into the interview knowing only good things about the business. They do incredible work and it would be great for me, professionally, to work for them. However, the second I found out employees are paid under the table, I knew I was not going to accept any offer. No matter how good the business is on the outside, I do not want to entangle myself with a place engaging in shady practices. I only included the fact that the owner is a known jerk to illustrate that s/he's probably not using the "saved" money to feed starving orphans. (Not that that matters, legally, it'd just make my ethical decision tougher.)

Thank you especially to everyone who pointed out that the employees wouldn't be receiving worker's comp/unemployment/other benefits of being legally employed. I hadn't even considered that. Clearly, this is a huge problem.

As far as the employees potentially being affected by my reporting this, my concern only extends as far as them being penalized despite doing everything right on their own end. If they are paying taxes on their earnings, great. If not, they're guilty, too, and while it sucks that they could potentially get in trouble (being, to a certain extent, victims in all this), no one is stopping them from doing the right thing.

I will be holding off on reporting this for several days while I consult with some close friends; if anyone has anything else to add to the discussion, I'm definitely open to hearing it.

Thanks again.

posted by cortex (staff) at 10:11 AM on March 10, 2011

I doubt this will help at this point, but you might want to look at statements like this one made by the taxpayer advocate on the effect of punitive measures on individuals penalized by the IRS, and again, keep in mind that it's the employees and their families who are likely going to be most affected by this, and that tax problems of this sort might stop them from being able to obtain legal employment in the future. Again, like you, I wouldn't have assumed that the IRS were big faceless life-destroying meanies (well, without good reason!) until I dealt with them directly.
posted by PhoBWanKenobi at 10:21 AM on March 10, 2011

The greater the harm, the greater the duty to report it. I think the harm here isn't that great, not compared to the harm the IRS might do, so I probably wouldn't report it. You don't know things are operating illegally. It's also possible (and somewhat common in some industries) that someone who works there isn't a citizen, and is working illegally. If that's the case, a consequence of reporting might include deportation. That's not something I'd want to bring about. Simplistic statements like, "if they'd followed the rules, they wouldn't be in this mess," read like denials of responsibility to me. But do what you think is best.
posted by smorange at 10:48 AM on March 10, 2011 [2 favorites]

Mod note: less sarcasm more helpful, please.
posted by jessamyn (staff) at 10:55 AM on March 10, 2011

Actually, you sound like one of the reasons you are reporting this is to help these workers, not for the tax revenue implications. You are presuming they want to trade off cash for benefits such as unemployment comp. I think there is no way to know if they want your "help" or not. If you follow up your decision to report, know that it is for the tax implications not necessarily helping the worker. The workers could be unhappy with this.

You are in a difficult spot, but know that there are certainly very real financial risks to some very real lives from the decision. I applaud your willingness to do what YOU think is the right thing regardless of the consequences.
posted by JohnnyGunn at 11:16 AM on March 10, 2011

Honestly, while I realize some people are not very sophisticated about taxes, these workers should know that how they're getting paid isn't right. Jesus, if you've ever worked anywhere in your life in the US, you should know this. Sooner or later the thing will come crashing down; someone will get audited (it could be the business, or any individual worker). As for the situation of the workers, "bad news doesn't get better with time," and if I were working there and honestly didn't know this, I'd rather find out sooner than later.

I don't think it's your responsibility to report this, but neither do I think you'd be the "cause" of the trouble if it were exposed. Sooner or later, it will be.

The owner's status as an immigrant doesn't affect the legality of this.
posted by randomkeystrike at 2:51 PM on March 10, 2011

1. If the owner is anything like what he sounds like to me (specifically, he sounds like a previous small-business-owning-boss of mine who also evaded any rules he could and could not hide his vindictive erratic behavior from the general public) he quite probably has a very me-versus-the-whole-world attitude and will try to make sure his employees take as much of the financial hit to the business as he can get away with.

2. I don't know about unemployment in IL generally, or for IL food-service or this company more specifically. If the job market is tight, some or many of the workers may not be there because they chose it over a legit tax-paying job but because it was the only job. One or more of them may be facing a very rough job market on top of being audited by the IRS while being unable to collect unemployment after the owner cuts his overhead by a person or two.
posted by K.P. at 3:44 PM on March 10, 2011

You might also want to report this to your state tax agency too. States don't have the luxury of printing money and they are all desperate for revenue. There is also less bureaucracy at the state level and they might move faster as well. He's probably not paying sales tax or unemployment tax either, both of which are done at the state level.

I have no problem with minimizing taxes but this is flat out illegal. The workers know full well what's going on and they shouldn't be surprised when they finally get hit with back taxes and pretty nasty penalties.
posted by JohntheContrarian at 4:49 PM on March 10, 2011