I know someone who cashes checks from clients at the clients banks, so the IRS doesn't know?

Question

Can the IRS track these checks with the business name on them? Also this same person has a worker that the IRS doesn't know about because they pay them in cash. Are these things illegal? If so what can be done about it?

The person they are paying is not illegal.

This person does NOT report this extra income from their clients. They say that if they report EVERYTHING then the IRS wants too much money from them!

Answer 1

This doesn't necessarily mean anything at all. Merely cashing a check does not create any tax liability.

Next, being paid in cash does NOT mean that anything illegal is going on. As long as the income is properly reported and taxes paid, no crime has been committed. Unless you have evidence of an actual criminal act, please just mind your Ps & Qs as it is not your concern.

Addendum: What that person says to you means NOTHING. What they DO is what matters and is between them and the IRS. As stated, unless you have actual EVIDENCE of a crime being committed -- not what some blowhard tells you -- keep it under your hat where it belongs! Now, if you're the bookkeeper and have PROOF of tax evasion by the person, THEN the IRS might be interested in hearing from you. Be careful though as if you are in that position and are responsible for paying the taxes and fail to, YOU can also be held liable for the unpaid taxes.

Answer 2

The number one reasons these tactics fail--audits.

If I pay you $1000 for work, I can't deduct the payments unless I issue you a W-2 or 1099-MISC (whichever is appropriate). During an audit, the IRS agent/officer will match up the deduction to the forms and when they don't find them, they will disallow the deduction. When I, the payer, see how how much I'm going to owe, I will get those 1099-Misc forms issued in a heartbeat.

Then the IRS checks the recipient's tax return to see if they claimed the 1099-Misc income (remember, whether or not they got a form, they were required to report the income) and when they don't find it, the IRS will adjust their tax return to include the missing income.

By the time this unravels, the tax bill will double because of penalties and interest--and due to fraud, there is no time limit for the IRS to audit the return.

Answer 3

Cashing the checks at the clients' banks has absolutely no effect on anything so he's wasting his time. If he's not reporting these as income, and not paying tax on this income, then yes it's illegal.

If he's paying an employee in cash but not deducting taxes or paying employer taxes, yes that's illegal - paying in cash is OK as long as the proper taxes are deducted.

Someone can report him to the IRS for what he's doing if he's not paying the proper taxes.

Answer 4

Your friend is not as clever as they think.

These acts are not illegal per se, but will become so if they are not properly reported on your friend's tax return (which it sounds like they aren't).

If the IRS knocks first, it's gonna be a long 2-5 years for your friend.

Feel free to file a Form 211 reporting these items to the IRS. They will investigate and might possibly pay a reward. Available at www.irs.gov.

Remember, all your 'friend' is doing is shifting their tax burden to you (and me).

Answer 5

An IRS Notice of Levy on a bank account attaches to whatever is in the account when the levy is served. Funds put in immediately afterward are not included. IRS does not have the ability to get money from a check you hand carry to the bank it is drawn on.

Answer 6

They are illegal. You could report them to the IRS, or to your city's chamber of commerce. If he is paying someone in cash, than perhaps they are an illegal alien, in which case, you could report that to the INS. Anyways, have fun being a rat.

Answer 7

This person is not very honest. Turn him in to the IRS. Go on their site at: irs.gov