Sunday, January 20, 2013

Am I my neighbor's tax keeper?

Most people want things to be fair. If you have to follow the rules, so should they, goes the thinking. So if someone doesn't follow the rules, is it your responsibility to call them on it? Or, in the case of a couple of readers from different parts of the country, is it your responsibility to turn someone in if you suspect they are cheating the government?

A reader from New York has a hard time believing that the Internal Revenue Service will catch everyone who evades taxes. She writes that she knows a couple claiming to make $100,000 a year who brag that they pay no taxes since they are "under the radar."

They say the government won't catch them because the couple's son, who is in business with them, pays them under the table, writes my reader. "My husband and I have always paid our taxes and can barely make it from paycheck to paycheck. Yet they live high on the hog and have yet to be caught."

The same reader reports that someone she hired to work for her will not reveal a Social Security number so she can fill out the proper forms to file on what she paid her. "I want to report her income as soon as possible, so I don't face penalties because she is irresponsible."

Another reader in Ohio writes that her neighbor runs her own service business, but that she has not reported any income for at least five years.

"We live in a good school district and I struggle to pay federal, state, city and school district taxes as a single parent," the Ohio reader writes. "It seems unfair that she would not have to pay her fair share."

But the reader continues that there seems to be some unwritten code "that keeps telling me I should mind my own business and not turn her into the tax authorities, especially since she considers me a friend."

She wrestles with whether turning her into the IRS is the right and patriotic thing to do or if it's in some way wrong in this case.

My take on the right thing to do when facing such questions has always been that the first response, especially when it's a friend telling you of their tax evasion, is to express your discomfort with what they're telling you and encourage them to right the wrong. In some cases, it's difficult, unless you observe the actual documentation, to know if the person claiming to avoid paying taxes is actually doing so or if they get some sort of perverse joy in claiming they're getting away with something that others aren't.

But if there is proof that someone is cheating and direct confrontation either seems unsafe or doesn't result in any change, there are avenues for reporting the cheat. Both the IRS (with Form 3949-A) and the Canada Revenue Agency (through its online Informant Leads Program) provide avenues for reporting.

If there's proof that someone flagrantly cheats on his or her taxes and that person flaunts the fact that they are doing so, then the right thing is to let them know you believe it's wrong and to remind them that breaking the law is generally frowned upon by federal revenuers, as evidenced by the routes given to citizens to report such scofflaws. 

Jeffrey L. Seglin, author of The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business and The Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart, is a lecturer in public policy and director of the communications program at Harvard's Kennedy School. Follow him on Twitter: @jseglin 

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(c) 2013 JEFFREY L. SEGLIN. Distributed by Tribune MediaServices, Inc.


Anonymous said...

A person who will not report their SS # to an employer cannot be tolerated. She is making the employer a crook and the employer is every bit as much at fault. Even if you do not pull tax, there is a 1099 to fill out to keep out of trouble and to do the right thing. She may not earn enough in total to pay tax so it may not hurt her. Plus, depending on her duties, it may be deductable for you. And you keep out of trouble no matter what.

As for those "under the radar", as Jeffrey says, who knows. Many people have deductions that are legit and pay less (or no) tax for that reason. And bragging, while stupid, in itself is not a crime.

And the IRS is pretty good at finding out errors. I just got notifierd from something that happened in 2007. It may have been an error and I do know it was not intentional and now I have no idea what caused it. It was probably something from my dad's estate as he had died a little before that and had no will. So they are more viligent than you might think. Computers do that pretty well.

Alan Owseichik
Greenfield, Ma.

Anonymous said...

You have a friend who cheats on taxes (wants to cheat, has cheated), all these examples, all different endings. Some examples obviously, you can't participate in because of laws; otherwise, mind your own business. You are not your brother's keeper, as far as taxes are concerned. Our society seems to have made little spys out of us, or at least made us feel we MUST advise people about moral things. Believe me, stay out of things that don't concern you.

Charlie Seng

Unknown said...

I agree with your reader in Ohio; it is so unfair for honest taxpayers like us to be cheated on by someone who pull strings on the taxpaying. Neighbors or not, it would be a responsibility as citizen to report or help out anyone with societal problems such as tax problems.

Bobbi Burtch

Allan Morais said...

I don’t really get the idea of flaunting illegal activities to neighbors and friends. Maybe they think people won’t tell because you know them, or they’re just that smug about it. But if someone’s running a business and doesn’t bother to pay their taxes, you really should report them. And I do believe IRS rewards people who report tax violators as an incentive.

>> Allan