Taxes and bartending have always been a delightful mix

February 29, 2008 1:47 PM

Okay, but what do you do if you haven't reported any income at all?

My friend is a bartender down in San Mateo, California. He has been paid under the table for over a year and didn't report any earnings from this job last year, but reported income from a previous job.

Now, as tax time comes this year, I'm urging him report his income. The problem is he doesn't want to get the place he works in trouble. How can he do this without screwing over his boss?

Bonus questions - what are the consequences if he doesn't report any income, or if he says he made half of what he did?

posted by OrangeDrink to law & government (12 comments total)

He needs to find out what his boss is planning on reporting to the IRS about him. That's a start. If he's under the table, the boss will most likely file nothing.
Beyond this is probably not legal.
posted by kuujjuarapik at 1:59 PM on February 29

He's not screwing over his boss... though he might lose his job. His Boss is screwing him over by refusing to let him act ethically and keep his job.
posted by Jahaza at 2:23 PM on February 29

Yeah get the story straight with the boss and the govt will be none the wiser.
posted by hulahulagirl at 2:23 PM on February 29

If he doesn't get a 1099, or any other tax form from his employer, he can report whatever he wants and it won't get back to his employer. (Ethically and legally, of course, he should report every penny.)

As a freelancer, I have tons of clients who don't 1099 me. I just keep my own totals and that stuff gets reported as "other income" or some such. Year after year I do this with no problems.
posted by iguanapolitico at 2:35 PM on February 29

what are the consequences if he doesn't report any income

In the long term, he may not qualify for SSI and disability.
posted by yohko at 3:31 PM on February 29

Then if the boss files nothing, and he files nothing, is he in the clear? I imagine his bank statements might come back to haunt him.
posted by OrangeDrink at 3:49 PM on February 29

No. If the boss files nothing and he files nothing he is not "in the clear", he and the boss are both breaking the law. But he knows that. If you mean "will he get caught" the answer is "maybe, though not likely" but it goes up substantially if he ever decides to work at a place that pays him legally (or if he ever requires government aid of any kind). He's also screwing the rest of the working poor by avoiding social security withholding such, but again, he knows that.
posted by The Bellman at 3:55 PM on February 29

Probably the best and most comprehensive advice your friend can follow is to be ready for an audit. The default way to be ready for an audit is to do everything aboveboard.

Your friend can declare his income without his employer finding out... even if the employer gets audited because your friend's return raises a red flag, the investigating IRS officials aren't going to compromise your friend by ratting him out. I would bet that this isn't the only "offense" the employer is committing, anyhow.

Or your friend and his employer can work in cahoots. Your friend won't be only person not filing a return this year, so the IRS likely won't have an immediate reason to target him for an audit. But if he continues not filing because of under-the-table pay or he's audited for any reason in the future, he'll definitely need to answer questions about the money he deposited in the bank this year. I'm sure there are any number of lies that could account for that, so your friend should have one nicely prepared.

I know that 71% of all statistics are made up, and you should never believe what you read, et cetera, but I recall reading that in the USA the estimate is less than 1/3 of all tax cheats are caught.
posted by chudmonkey at 4:01 PM on February 29

in the USA the estimate is less than 1/3 of all tax cheats are caught

How can anybody possibly know this? In any case, if it's true, then close to 1/3 are caught, which is not great odds.

The usual ethic here at AskMe is that we do not help you break the law. So, your buddy should not report no income, or half of what he earned (your question). He should report his entire earnings, without trying to protect his employer. There is no middle ground.
posted by beagle at 4:21 PM on February 29

How can anybody possibly know this?

I think statistics about rates of criminal detection/punishment are based on surveys... you ask a big group of people about what crimes they've committed, and deduce a statistical average. If your survey tells you that in a given year a thousand people lied about their income but you determine that only 300 people were caught by the IRS that year, then you've got a workable estimate.
posted by chudmonkey at 4:26 PM on February 29

In further response to beagle, but not to encourage your friend towards fraud:

Even if 1/3 of tax cheats do get caught, it doesn't mean that any individual's odds of getting caught are 1 in 3 - it's not a lottery. Presumably, the IRS proceeds with audits that they feel will produce results. So they likely initiate audits based on the most obvious discrepancies they find. The most obvious discrepancies are probably created by the least prepared or most idiotic of tax cheats. Therefore an individual's odds of evading an audit are defined by their selected lie and strategy, not the overall statistics of IRS auditing efficacy.

Of course, the IRS also selects a number of citizens for audit randomly each year, or so they claim.
posted by chudmonkey at 4:36 PM on February 29

what are the consequences if he doesn't report any income, or if he says he made half of what he did?

You have to sign your tax return and there is this advisory:

"Under penalties of perjury, I declare that I have examined this return, and to the best of my knowledge and belief, it is true, correct, and accurately lists all amounts and sources of income I received during the tax year"

He would be commiting felony perjury per 26 U.S.C. § 7206(1).
posted by MLIS at 7:18 PM on February 29