Is an accountant obligated to report unreported income to the IRS?
April 3, 2014 6:19 PM   Subscribe

Is an accountant obligated to report unreported income to the IRS, if the conversation is not pertaining to the completion of my tax return?

Soon I will be speaking with an accountant regarding my finances. This accountant is not helping me with my taxes at all (I already did them), just helping me to crunch some numbers regarding different employment/income scenarios for me. He was recommended to me by an artist friend of mine as someone who works with freelancers to help them with their finances. My main goal is to figure out how much I need to be earning given my various jobs in order to have enough take-home pay to afford a large raise in my rent.

Currently, 1/3 of my income is under-the-table paid childcare. I'm hoping to phase out of this job soon into more legitimate (i.e. taxed) work, but it will be a few months before that happens. SO, my question is, since this unreported income is a major part of my current finances, can I disclose it without risk? Is an accountant obligated by law to report someone's unreported income?
posted by anonymous to Work & Money (4 answers total)
Obligated? No
Prohibited? Depends
Could be compelled by a court order? Probably

If this person were preparing your taxes, they could refuse to file the return (and sign the paid preparer declaration).

I would not be overly concerned in your situation (tattling on clients is bad business), but if you are, then find a CPA or financial advisor that is also a licensed attorney.

More on accountant-client privilege here.
posted by melissasaurus at 6:51 PM on April 3, 2014 [2 favorites]

I personally would not want an accountant who would engage in shady practices. Who knows what else they might get up to? YMMV.
posted by feckless fecal fear mongering at 8:17 PM on April 3, 2014 [1 favorite]

Shady practices? No, that's the whole point, the accountant isn't doing OP's taxes, OP is not asking the accountant to file a false return, in fact OP is not asking the accountant to contact the IRS on his behalf about anything. OP is just asking about financial-planning things. The concern would be that the accountant is so enthusiastic about his/her cozy relationship with the IRS that he/she would voluntarily turn OP in for tax evasion. There are rewards that apply fo lage amounts, but this is definitely not that, there's just a form to fill out.
The question is, why would an accountant do that? That would guarantee that you and any of your friends would never ever speak a kind word about this person again.

I think you've got nothing to worry about; this accountant works with artists a lot, and has almost certainly seen unreported income in the past. You could pose a hypothetical question "do many of you clients have under the table income?" "how careful do you expect your clients to be in keeping records about payment that doesn't get a 1099?" and see how much of a stickler he/she seems to be.

It might feel safer to you to choose a financial advisor, someone who never files taxes on anyone else's behalf; that sort of leaves the question of the IRS farther out of the picture.
posted by aimedwander at 8:30 PM on April 3, 2014 [1 favorite]

If you were to tell him "I currently receive an additional $x a month - I am reducing my dependence on that money and need to look at scenarios where that's replaced" - that could be family money, etc
posted by mrs. taters at 7:45 AM on April 4, 2014 [1 favorite]

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