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What is the best way to report tax evasion?

Was this the correct way to handle employee back taxes due to an employer trying to get away with tax evasion?

  • Here's a semi-brief explanation of the situation... A family purchased a hotel from a well-known hotel chain, and still uses that hotel chain's name. They live in the hotel, and they were paying many of their employees in cash, without deducting taxes. Some employees had been receiving under-the-table pay for several years, while other just several months. When someone threatened to report it to the hotel chain's corporate office, the owner immediately 10-99'd every cash-paid employee for back-taxes, or so that's what he told them. Should the employees be help responsible for the back taxes, or should the hotel owner be held responsible since he knowingly evaded taxes, and never made them sign forms as being independent contractors? Also, should the employees have been 10-99'd or was there another form they should have used since the hotel owner was the responsible party for not deducting their taxes in the first place? I thought 10-99's were for independent contractors. His employees (maintenance men, front desk staff, and housekeeping) were not independent contractors. Others who requested paychecks were given paychecks with tax deductions, everyone else paid no taxes.

  • Answer:

    Report the owner to both the IRS and US Dept of Labor as well as state dept of revenue. They are violating so many employment laws!!!

crazy_cr... at Yahoo! Answers Visit the source

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It would be a rare situation where someone working at a hotel could legally be 1099'd. They'd normally be employees, with the owner required to take out taxes, pay the employer taxes, and give them a W-2. So giving them 1099's doesn't get him of the hook. If someone reports him, and that's pretty likely since otherwise the employees will have to pay extra tax, he's going to be in trouble. He'd be wise to talk to an Enrolled Agent or a CPA asap to see how to fix this mess he has created.

Judy

The employees had a responsibility to report the income when they got it. If they received bogus 1099-Misc forms or no W-2, the correct method is to file an SS-8 with the IRS and a form 8919 with the tax return--thus paying the employee share of the fica/mc with their tax return, but not the employer's share. If they reported the income as schedule C income, they should file the SS-8 and when the IRS finds in their favor, amend the prior year return. If the employees convenently forgot to include the income, they need to amend immediately and set up a payment plan. they will owe tax, penalties, interest and at least a 20% accuracy penalty. Fraud isn't an excuse. And yes, the IRS can go back at least 6 years on their returns, if not longer (there is no statute on fraud).

Quick Answers

It doesn't sound like these employees are independent contractors (the ones who should receive a 1099 for their work). These employees should all file the SS-8 (http://www.irs.gov/pub/irs-pdf/fss8.pdf) before filing their taxes this year. Unfortunately, they are going to be responsible for their own half of social security and medicare, which should have been withheld along with state and federal taxes. They should consult an accountant to try and work with the IRS for a payment plan.

AB

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