A Sea Of Red

So, a small business owner who I am accompanied with asked me to do a few things for her company. Consulting things really, but I came across a rather serious problem.

She wanted an overall evaluation of her business and a hard line value of her business, including the property. There is someone interested in buying and she gave them a price of 900k. I told her she was nuts because her books only show her bringing in around 120k a year. I explained to her that this small business was not worth what she wanted at the time and then she shows me another book of her business. This in itself is worth 150k a year for the last 15 years but is all paid by check to her. So, in other words, she is not reporting the 150k on her taxes and claims to make no salary.

She wants to give this book to a bank to show the worth of her business but that would end up giving her away to the IRS.

Now, should I inform her about this or should I tell her not to give it to the bank? I am torn bc this person is addicted to money but also it is really none of my business. Can you imagine 150k a year for 15 years not reported. Anyone want to give me a guess as to what the penalties and back taxes would be?

I think what you're asking is "should I let her unwittingly self-report her fraud?"

I'd sit down, go over your review, advise her that what she's doing is illegal (even though you know she knows that) and tell her exactly what will happen when she hands over the financials. For good measure, tell her you can't support that type of activity (if that's how you feel).

That way you've been honest, and the ball is in her court as to whether she wants to do what she has to in order to get the 900k or if she wants to soldier along making 150 under the table.

BTW: I'd be willing to bet a ton of small businesses in this country operate this way. Tons of guys I know that "don't draw a salary" but live a lot better than I do. Personal veh(s) for husband and wife that the business pays for, "home office", various "business related expenses".

Is she hot? Just sayin....

Purple Haize wrote:Is she hot? Just sayin....

No. She is 59 years old.

Her 32 year old daughter is also a nasty looking whore and always makes it a point to feel me up when she sees me and I have given her the "dont touch me *****" every time.

Why would you not tell her? What she does with that information is her business but if you've been hired by her it's your job to give her correct information. I don't see the problem.

jmdickens wrote:
Her 32 year old daughter is also a nasty looking whore and always makes it a point to feel me up

TMI for crying out loud!!!

I need to clarify:

I have made it clear to her she isnt reporting her extra income properly.

But, legally It can be argued that I should report her myself. I am really considering just telling her to not report it and hope for the best. Sure this happens all the time, but i guess I am letting a bit of personal feelings on the matter cloud my judgment.

Not Reporting a salary in a small business is common practice.

Dickens, She cant keep running the business this way if she ever plans to sell it. My suggestion is to have her :

A) pay the penalty of back taxes, which is unlikely in this case (it would cost too much)

B) have her agree to take a salary for the next 3-5 years, and then reconsider.

jmdickens wrote:I need to clarify:

I have made it clear to her she isnt reporting her extra income properly.

But, legally It can be argued that I should report her myself. I am really considering just telling her to not report it and hope for the best. Sure this happens all the time, but i guess I am letting a bit of personal feelings on the matter cloud my judgment.

What are you legally required to do? Is there "attorney/client privilege"? Seems to me that if you advise her not to report, you then become complicit and potentially liable if this come to a legal conclusion. Don't put yourself in a position to take any heat because of her!

What legal responsibility do you have to report her?
I would never advise not reporting as flamehunter said it could come back to bite you. But you could explain to her the options she has, letting her do what she wants. Recommending anything other than the letter of the law starts to be risky from a liability stand point (as I'm sure you know).

Send all the documentation you have to the IRS, post-haste!