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Off subject of collections to taxes


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A friend of mine has worked for cash for years with no 1099, boss don't pay work comp or anything. Has not filed income taxs in years. He needs to start paying taxes for his social security. I have these questions:

1. If he files without 1099, will his boss get in trouble?

2. Since he hasn't filed in years, then all of a sudden does, does that put him at high risk of audit?

3. Does it put him at risk for any other problems?

Thanks in advance for any info.

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Last time friend filed was about 2008 or 9.

Friend really has no business records. The guy he works for has a legit company and I'm sure he keeps good records to benefit himself to keep him flying under radar, other than that not sure.

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All your friend has to do is file all of his returns 2008, 2009, 2010, and 2011.

If he has the money to pay what he owes Uncle Sam, then he needs to pay at the time of filing.

However, if he doesn't have the funds; he should pay 2011 taxes in full and work out an installment agreement with the IRS. They actually are pretty good to work with - but I strongly suggest going to a local IRS office rather than doing something over the phone. The difference in their reps in person and over the phone is huge. In person you can work with them on a reasonable payment. Over the phone they are not so cooperative.

Once your friend files the actual returns and makes the arrangements, he will feel much better.

BTW, your friend is not an employee if he is being paid as a 1099 person - he is an independant contractor and is resposible for his own taxes and SS pmts into the system. If your friend is actually an employee, then he needs to change the method of compensation from his employer. How the IRS determines if he is an employee or not is a well established list (search IRS.gov) of items. This is a whole new issue - he ought to straighten out his IRS issues first, then address this issue.

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Not filing and paying the taxes when due puts him at risk for huge penalties. Since there was no withholding, I am assuming that he does owe taxes which will result in a failure to file penalty as well as a late payment penalty and interest.

Now if the IRS catches up with him rather than him going to the IRS, there are criminal penalties for not filing. However, if he goes to the IRS and gets back into the system, they will not do criminal charges and help him get back into the system. Also, the 3 year clock for limiting audits does not start until you file your return. Hence, the IRS could come knocking 10 years later.

Now if does not have the records, he needs to gather the records. He can request a 1099-Misc for each year from that person IF he got more than $600 for his work. The worst part is that without records, he will not be able to take the deductions off of income to lower his taxes.

As for the person he did work for, the IRS may or may not catch up to him. They cannot determine from a Schedule C how much you made and whether it came from 1 person/organization or hundreds of persons/organizations. Now if the IRS audits the person he did work for and finds that the person took a deduction for paying for such work, they could nail him for not sending a 1099 AND once he sends it out, they will nail your friend next.

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Pretty much what I thought, however you guys did put in some new twists for me to try and explain to him.

He justs says " Well I didn't make any thing till 2011". I try to tell him he's dancin' with the devil, but he won't listen.

Thanks all for the imput.

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He needs to be careful of the "I didn't make anything" defense with the IRS. Especially if he has no other family member bringing in money for food, rent, car payments etc.

Naturally he can deduct all of his business expenses, but he may be audited so he needs to prepare his returns carefully. In this case, it may pay him to hire an experienced CPA to file the returns, even if he only has the money to pay the most recent year.

He is far, far better off to go to the IRS than to let them find him as pointed out before -

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The IRS has had its power reduced over the years due to lack of funding cuts.

From what I've read, the IRS is in a mess and one hand doesn't know what the other is doing. If he files a single tax return, I bet that's the last he hears of it. If it were me, well, I am too much of a chicken to take the chance of not filing in the first place, but I would try just filing one and seeing what happens.

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A friend of mine has worked for cash for years with no 1099, boss don't pay work comp or anything. Has not filed income taxs in years. He needs to start paying taxes for his social security.

Well that's nice of him, apparently he had no problem defrauding the goverment until he decided that he wanted the benefits the rest of us have paid for all these years. Your "friend" is a tax cheat and a criminal. I applaud his magnificent character, a revelation which is obviously motivated by personal desire. His employer has also engaged in criminal activity for all these years by not withholding payroll taxes, medicare taxes, social security taxes, and state taxes and unemployment taxes as any apply. Not only is your "friend" subject to penalties, but criminal prosecution as well for income tax evasion. If they decide to get into this, they will want to know how he made the money he is now claiming. His records will be subpoenaed (if he has any) and he will be invited to an IRS office for a very nice interview in which he will be asked why he decided not to pay taxes for the last umpteen years. He may leave that interview under arrest.

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The business he is doing 1099 work for has very little risk. The max penalty for not issuing a 1099 is $50, but the IRS believes that the person receiving the money via 1099 arrangement MUST keep good records with a full accounting of monies received. The penalties they can levy on the receiver are significant.

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Kent, I think this may not apply. The IRS is on to the 1099 scam, and THEY will define what constitutes a subcontractor. If this guy goes to work every day and operates as a regular employee, that's what he is. As for the poster, "wow, harsh," you don't know what harsh is until the IRS comes calling.

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Its been a few years since I looked into this in detail, so the IRS rules may have changed, but...

The IRS did have like 19 questions they use to determine if an individual is a "statutory" employee or a 1099 contractor. The questions cover things like "who sets the work schedule?", "who provides the tools required?", "do you participate in company functions?".

Answer yes to any of those questions, and you're a statutory employee...entitled to benefits, subject to OSHA rules, etc. And most importantly, the employer is responsible for withholding taxes and FICA.

Could be the guy could turn the employer into the IRS and collect some past bennies...

(In the late 90's, Microsoft got burned badly for classifing 1099 employers incorrectly).

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