Ethical question

[Julie]

Given the new rules:

Client normally files HOH and claims his daughter as dependent. This year he came in with much less income than normal, most of it unemployment. So I started asking nosy questions, trying to determine whether HOH was appropriate. He was not anxious to tell me, but it comes out that he worked "under the table" for a couple of months, which would add over $3000 to his income. If declared on his tax return, it would add about $1000 to his refund, via EIC, even after SE tax is added. (He was not actually self-employed, but also does not want to challenge the employer, whom he may wish to work for again.)

Now, I know I'm required by law to report all the income I know about, but in this case, the EIC issue might force him to prove that he earned said income, which I'm sure he cannot do if he was paid cash. There may also be a case of UI benefits being received illegally while he was working.

[JerryH]

Report the truth and let the chips fall. Claim any expenses some have some don't. as long as you don't just have income to max out refund with eic and no expenses such as day care without any it shouldn't be a problem. May be more of question if tp doesn't have enough income to support himself. IRS is going after the over 100,000 group anyway. They know if they go after the fraud in eic etc they'll never get their money back.

[BulldogTom]

Let me change the facts and see how you would answer.

Instead of the 3k getting him a tax benefit (eic), it puts 2,999 into the 25% bracket, and the 4% bracket in CA, along with the 15.3% SE tax on 93.5% of this cash. The taxpayer is now looking at an additional tax bill of $1,299 for telling you about the 3K. Would you still file the schedule c and put it on the return?

For the record, I think you need only worry about HOH and can he survive a cash t analysis of providing the support. If he can't, file him as single with the dependent.

The 3K is a non-issue in my book. You know what the law says about income from any source, regardless of the tax benefits or detriments that result.

My 2 cents.

Tom

Lodi, CA

[Julie]

Thanks for the reassurance, Tom. I had already given up on the HOH.

BTW, that wasn't you featured in the Bee's Forum section a couple weeks ago, was it?

Let me change the facts and see how you would answer.

Instead of the 3k getting him a tax benefit (eic), it puts 2,999 into the 25% bracket, and the 4% bracket in CA, along with the 15.3% SE tax on 93.5% of this cash. The taxpayer is now looking at an additional tax bill of $1,299 for telling you about the 3K. Would you still file the schedule c and put it on the return?

For the record, I think you need only worry about HOH and can he survive a cash t analysis of providing the support. If he can't, file him as single with the dependent.

The 3K is a non-issue in my book. You know what the law says about income from any source, regardless of the tax benefits or detriments that result.

My 2 cents.

Tom

Lodi, CA

[BulldogTom]

I don't know if it was me. I wrote a letter to the Lodi News Sentinal that was published a couple weeks back. Had to do with the FEMA flood map designations. Did the Sac Bee pick up my letter?

I don't read the Bee.

Tom

Lodi, CA

[Julie]

Must be someone else then. It was a feature on the election, with pictures and thoughts by a half-dozen people on voting in general. You'd have known if they took your picture.

I don't know if it was me. I wrote a letter to the Lodi News Sentinal that was published a couple weeks back. Had to do with the FEMA flood map designations. Did the Sac Bee pick up my letter?

I don't read the Bee.

Tom

Lodi, CA