Saturday, March 11, 2006

A TAXING QUESTION

Last weekend I sat down to organize my tax documents. My full-time job is at Emerson College, but a handful of other organizations also pay me to speak or to write during the course of any given year. Each one that pays me more than $600 is supposed to send me a 1099 form, indicating how much they paid me during the preceding year, by Jan. 31. Most do, but some don't.

If they don't send me the form, there's a chance that they haven't reported the payment to the Internal Revenue Service and that I could get away without paying tax on that income. Even so, I still report the payment. It has never crossed my mind not to.

I made the money. I owe taxes on it.

If doing the right thing weren't enough to motivate me, would I really want to gamble that the IRS hadn't heard about the payment? Would I want to risk having agents swoop down to audit me? I loathe the two hours that it takes me to get my tax materials organized -- imagine my distress should I be, gasp, audited and then, yikes, fined.

A freelance graphic designer from Dedham, Mass., writes that she finds herself asking the same question every tax season: "Do I claim all the money I made from companies who don't supply a 1099?"

For her that's a sizable amount, totaling roughly $10,000. She always answers yes, she says, but other self-employed people tell her that they don't claim all of their earnings.

"The general consensus of people I ask is `don't,"' she writes.

She knows that the IRS offers anyone who reports a tax evader a reward of as much as 15 percent of the amount recovered, a bit less if the reported evader is already under audit. It's no urban legend -- check Section 7623 of the Internal Revenue Code.

"I'm not going to tattle on my colleagues," she hastens to add, "but it raises the ethical question of whether I should."

Unless my reader has more to go on than the braggadocio of some peers at tax time, the right thing to do is to continue to be honest about her own income and to let the other matter lie. Her colleagues' comments could be true, but then again they could be an odd form of showing off how powerfully they are "sticking it to the man" -- "the man" in this case being those IRS agents who strike fear in the hearts of many at tax time. She doesn't know, and there is no ethical merit in turning in every braggart who suggests that he or she has outwitted the law.

If the reader finds hard evidence that someone is cheating on his or her taxes, then she has every reason to turn in the cheater. Tax evasion is not only illegal but also unfair to the rest of us who pitch in our fair share year after year. It's not "tattling" to report someone who's illegally trying to get a free ride at the expense of the rest of the citizenry.

If doing the right thing is not enough, there's that reward. Sure, the IRS caps it at $10 million -- but show me a freelance graphic designer who's making that kind of money, and I'll show you someone who's up to something much shadier than simply under-reporting income.

6 comments:

Anonymous said...

I agree, it is an ethical duty to report illegal activities.

1. Certainly being witness to a major crime carries an ethical and legal obligation. For example, testimony that may lead to the clearing or conviction of a murder, as the unibomber's brother had done.

2. But where do we draw the line? If we witness someone comitting a misdemeanor we may get upset or angry yet not report it to the authorities. For example, someone littering, speeding, etc. As much as we don't like it, it's not practical to report these instances or for the police to follow up and try to convict someone.

3. With respect to the IRS, they tend to have a bad rap for being "bad guys" or playing unfairly. In some cases, this may be a deserved image, in many cases it is probably not. I think many people are reluctant to report incidents to the IRS because of the greater harm they may potentially cause our friends or acquaintances.

Anonymous said...

You know, I think we are in a world now where nothing is a secret. Yes, report an incident that is of major proportions, or is a threat to all of society and the safety of people. All other small non-violent insignificant events, absolutely NO. It's a waste of time. Lets concentrate on bigger issues like the child predators, racism, terror, gangs, health care, academically challenged schools (public, private, and colleges, and dumb politicians.

Carroll Straus said...

you wrote:
If the reader finds hard evidence that someone is cheating on his or her taxes, then she has every reason to turn in the cheater. Tax evasion is not only illegal but also unfair to the rest of us who pitch in our fair share year after year. It's not "tattling" to report someone who's illegally trying to get a free ride at the expense of the rest of the citizenry.


what is the evidence is taht the husband of a client is the Ta evader...? and it is tot clear if she is an "innocent spouse" for IRS purposes...???

so far, I have stayed Mum. In fact, the client and I parted ways after I alerted her to her risk... I think she freaked.

Mark LeBar said...

Obviously, I do not doubt the claim that tax evasion is illegal, nor the claim that it is not prudent. But I wonder about the claims as to morality and fairness here.

To begin, wouldn't the claim as to the fairness of the burdens on others depend on the fairness of the tax code? And given the mess that is, and the political pressures to which it responds, what are the chances that it actually is fair? Doesn’t pretty much everybody think it should be otherwise, would be fairer otherwise? So who thinks the legal demands of the tax code are fair? And if they are not, what basis is there for claiming that those who evade them are committing an act that is immoral or unfair?

Given how unlikely it is that the political process (so much like sausage-making) would actually arrive at some distribution of the tax burden which is already such as to be considered fair, the likely thought is that the distribution of taxes are fair because they are the results of the political process. But that idea is pretty difficult to defend, too. What is it about a political process (including a democratic process) that makes the demands of a political majority — whatever they are — fair? There are numerous answers to this question, but most are pretty problematic, and none are simple. What sort of assumption must one make about such a story in order to support the claim that those who evade taxes are dodging fair demands upon them?

I myself think these questions are quite difficult to answer. That doesn’t mean there is no answer, of course, but I think it enters into the kind of question considered here in an important way. Someone who is contemplating reporting someone they believe is evading taxes — in particular on moral grounds, as suggested in the article — must be satisfied, not only that they are likely evading the law, but that they have good reason to believe that the legal demands are just and fair, and that the judgment of the evader they plan to report cannot plausibly be thought to be in reasonable disagreement on this point. That seems to me a pretty steep moral peak to ascend. I’m not sure I’d have the courage to claim that others should attempt it, in particular when what is at stake is a protracted dance with a legal system of at least questionable moral probity.

Anonymous said...

WHAT IF SAY YOU HAVE A LAWYER WHO IS REPRESENTING YOU AND YOU HAVE GAVE HIM SAY 10K IN A CHECK BUT STILL OWE HIM LIKE 7K AND THEN HE COMES TO YOU AND ASK FOR THE REST IN CASH ALSO SAYS ITS FOR TAX REASONS SHOULD I HAVE REPORTED HIM? BESIDE HE DID NOTHING TO HELP MY CASE SO SHOULD I LOWER MYSELF TO RAT HIM OUT OR IS IT JUST POINTLESS?PLEASE WRITE OUT THE REPLYS ON THIS TOPIC AS I HAVE TO BE ANONYMOUS FOR FEAR OF SOMEONE TRYING TO GET MY PROBATION REVOKED THATS WHY I FEAR TELLING THIS AND HAVE TO BE ANONYMOUS.. THANK YOU

Anonymous said...

I have a hard time believing that the IRS will catch all that evade taxes, for example, I know of a couple who have bragged that they do not pay taxes, as "they are under the radar" and they make around $100,000 a year. The person's son who is in business with him, pays under the table, so they say the gov't won't catch them. They just recently bought a very nice moble home and put it in someone else's name, so in case they "they would lose everything" my husband and I have always pay and can barely make it from paycheck to paycheck, yet they live "high on the hog" and have yet to be caught.

Can reader turn lost vacation into charitable deduction?

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