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Back Taxes & Under-reporting
Fozwazerus
Registered User regular
Registered User regular
So an interesting piece of mail recently arrived at my old address. It was from the IRS, and it stated that I owe 800 USD in back taxes from 2006. I have not seen this mail yet, but it is being mailed to my current address now.
I called the IRS, and they said that I earned around 5000 USD that was under-reported. They told me that I earned this money as an "independent contractor" working for Company A.
In 2006, I was in graduate school and worked for company B. I did not work for Company A at all in 2006.
I worked for Company A from 2003-2005 during summer breaks and was payed under the table. I did manual labor and was paid 7 bucks an hour for 5 hours of work, 1 day a week. During the entire 3 summers that I worked for them, I made maybe 1 grand. It was more of a "hang out with buddies and help do simple work" kind of thing that I wouldn't even consider a job.
What I think has occurred is that Company A reported me as an independent contractor in 2006 to save some tax money. They always have a bunch of guys doing under the table work like I was, and I think they reported a bunch of work that I didn't do under my name. How they did this, I have no idea, since I never gave them my SSN or filled out paperwork of any kind. Maybe that is why it was reported under independent contracting, because that apparently does not get you a W-2.
I do not feel that I should be responsible for this money. Why should I pay for someone else's mistake? I talked to the owner recently, who is still kind of a friend (distant friend), and he claimed to have no knowledge of any of this. I didn't confront him with demands for payment or threats, but it may come to one of these eventually. The money is due next month, so I have a little time to consider my course of action.
My question is: What should I do with my "friend" from Company A? Should I demand the 800? Should I pay it myself? Should I report his wrongdoing? I don't want to be a dick and make things hard for him, since his business is already pretty difficult, but I'll be damned if I pay 800 dollars for nothing.
I called the IRS, and they said that I earned around 5000 USD that was under-reported. They told me that I earned this money as an "independent contractor" working for Company A.
In 2006, I was in graduate school and worked for company B. I did not work for Company A at all in 2006.
I worked for Company A from 2003-2005 during summer breaks and was payed under the table. I did manual labor and was paid 7 bucks an hour for 5 hours of work, 1 day a week. During the entire 3 summers that I worked for them, I made maybe 1 grand. It was more of a "hang out with buddies and help do simple work" kind of thing that I wouldn't even consider a job.
What I think has occurred is that Company A reported me as an independent contractor in 2006 to save some tax money. They always have a bunch of guys doing under the table work like I was, and I think they reported a bunch of work that I didn't do under my name. How they did this, I have no idea, since I never gave them my SSN or filled out paperwork of any kind. Maybe that is why it was reported under independent contracting, because that apparently does not get you a W-2.
I do not feel that I should be responsible for this money. Why should I pay for someone else's mistake? I talked to the owner recently, who is still kind of a friend (distant friend), and he claimed to have no knowledge of any of this. I didn't confront him with demands for payment or threats, but it may come to one of these eventually. The money is due next month, so I have a little time to consider my course of action.
My question is: What should I do with my "friend" from Company A? Should I demand the 800? Should I pay it myself? Should I report his wrongdoing? I don't want to be a dick and make things hard for him, since his business is already pretty difficult, but I'll be damned if I pay 800 dollars for nothing.
Fozwazerus on
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I am not a lawyer or an accountant, but i'm fairly sure that yes, if they are filing tax documents under your name for work done by someone else, that is a Bad Thing. I don't see why you would have any reason not to report your "friend", especially if the alternative is ticking off the IRS.
Call the IRS back, describe the situation and what you know, and ask for advice on how to proceed. They may be able to give you copies of the paperwork that's causing all this too, i'm not sure.
It is going to go down like this: either he pays for it, or I report it. If he pays I don't really care about the abuse of my name. I would prefer that he didn't get into deep shit for it, but if it comes down to that, I will report.
The IRS will track down who owes them money. It's their job and they're good at it. But they're reliant on receiving the right information from citizens, and that's not always correct.
As a point of interest, I received a similar bill from the state I'm living in, stating that I owed $500 from 2002 taxes (I received the mail in 2006). I lived in 2 states, so had to adjust my income based on the percentage of time lived in each state. While my taxes were correct, I hadn't sent in the *other* state's tax return to my state, so they assumed I simply only paid 33% of what I should've paid.
It took MONTHS to get it figured out that the only problem was that I hadn't sent in the other state's returns. I was talking to a different person each month as I filed amended return after amended return, hoping each time that it would finally sort things out. It turns out that I had overlooked a tax credit and ended up getting $27 back. So the story ends up being that my state bugged me for money because their forms were confusing, and because they though I owed them money they ended up having to pay me instead.
Anyway, don't give up -- if you didn't earn any money from Company A in 2006, then don't pay it. Track down your bank statements, call up the IRS and find out what Company A claimed in their tax forms.
You typically don't get in deep shit with the IRS. They get their money and that's that. How they get their money can sometimes be unfun (taking your property), but that's usually the extent of it.
If the situation is as you described, seek out one of my legal comrades in your local area to help you negotiate with the IRS to clear up this discrepancy. Since you admitted to what amounts to tax fraud in your OP (and yes, even on a small scale, tax fraud is tax fraud, including getting paid under the table) the last thing you want to is to divulge that to the IRS…unless you would like to enjoy the simple pleasures of an audit. Your friend may be screwed regardless of what you do, but at least you can clear up your own involvement.
Well, in the end it's up to you, but if you let him pay you the money and drop it at that, you're basically letting him get away with an illegal act - and you don't know for sure that it won't happen again (or that they didn't already do it again to you in 2007 or this year), or that they won't do it to someone else.
As someone posted while I was typing this, they're not exactly going to throw him in jail or something (unless they find worse abuses in the process), they just want their money however they have to get it.
Personally, I wouldn't get a lawyer for this until I was sure I needed one. Since all they're doing is looking at 2006 returns, I would call up the IRS and tell them "I didn't work for this company in 2006, there has been some sort of mistake," and work it out from there (without admitting you did under-the-table work).
I talked to the owner again today and got some pretty bad feedback regarding the situation.
He claimed that I allowed him to do this, that he sent me a W-2, and that it is my fault for not paying taxes. He was recently audited, which is what apparently led to this fiasco, and they fined him many thousands of dollars for improperly reporting a bunch of stuff involving workers in 2006. I think he was trying to give me a guilt trip by telling me about his problems. I would have been more empathetic had he taken responsibility for this instead of pushing it back onto me.
Second of all, the IRS told me that this isn't something you would get a W-2 for, so he is outright lying with his first statement. Independent contracting work does not use the W-2, it uses another type of form which I don't know anything about (according to the IRS.) Of course I forgot the name of the form that they told me, but they will be including that in the package that they are mailing to me.
I will be calling the IRS again and telling them what you guys suggested: "I did not work for this company in 2006, there must be some kind of mistake." I will then see what actions they advice, and go from there. After the response that I got from this "friend," I am pretty pissed and will not be protecting him.
Unfortunately, I would say you're probably going to end up needing a lawyer on this one (like CoJoe said). See if there are any tax clinics near you that provide legal assistance for cheap/free (since it sounds like you're not exactly rolling in dough).
Ouch, some "friend". I can only hope that I never have a friend kind enough to pass his illicit debt onto me without my knowledge and then tell me that I basically asked for it.
If you know a lawyer, it may be time to call them to action.