Worried My Boss is Cheating on Her Taxes!

Dear Robin:

I am a law clerk in a small-to-mid-sized law firm and concerned my boss’ actions may have negative repercussions on my career and possible criminal implications. She blatantly cheats on her taxes by running tens of thousands of dollars in personal expenses through the firm. This is an “open secret” and from what I’ve heard has been for years.

My questions are:

1. Am I obligated to report this to the IRS?

2. Am I obligated to report this to my state bar association?

3. If I knew about this fraud and she is prosecuted, can I be held liable as well since I knew about the fraud?

Thank you for your time.

Worried 

Dear Worried:

Thank you for your letter and for chatting with me on the phone.  As I made clear when we spoke, I cannot give you legal advice.  Please see my disclaimer: I’m Not Your Lawyer So Don’t Even Go There, Man!

It’s also important to note I am no tax expert.  Not by a long shot.  

In fact, although I vaguely recall landing a solid “B” in Tax when I went to law school 47 years ago, that may have been because I was much less addled in my 20s.  I have several readers who know their tax law so Tax People, please weigh in by leaving a comment!

That being said, let’s examine what your boss is doing before I advise you.  Even a non-tax-expert like myself can spot activities that don’t pass the “smell test.”

Naughty Boss!

1. She runs nearly all her personal expenses through her firm, including her housekeeper, chef, gardener, purchases for her home and vacation homes, food, and on and on and on…

2. She has family members on the payroll as employees who both draw a salary and have a corporate credit card but who in fact do not work at all for the firm.  One such family member took a nice vacation to Europe and the entire trip was paid for with a firm credit card.

3. She has investment properties and runs expenses for those through her firm as well.

4. Other family members not being claimed as employees also use firm credit cards.

5. She has a very suspect “non-profit” that does not support any organizations or pay out any money in grants despite the stated goals of the non-profit.  Instead, she collect donations and there they sit, earning interest.

6. She teaches clients how to partake in the same type of business deduction/personal expenses tax fraud.  You gotta love a lawyer who takes “legal advice” all the way to “illegal advice.”  Now that’s a full-service firm!

Reminder: I’m No Tax Expert!

I know I mentioned that above but it bears repeating.  

When I got your first email I did some research and my opinion is your boss is following neither the letter nor the spirit of the tax code.  However, there may be very legitimate reasons she does “business” this way.  To the extent there are such legitimate reasons, I cannot illustrate them due to my aforementioned lack of expertise in this area.

Get it?  I really don’t know tax law.  But I do know this:

There’s a big difference between a tax avoider and a tax evader, and that big difference can either land you in the catbird seat paying as little tax as legally possible or somewhere very different:

Federal prison. The Big House.  The Slammer.  The Chain Gang.  The Big Yard.

While I enjoy watching Orange is the New Black as much as anyone else, I don’t think prison looks like a fun place to be. I’m pretty sure your boss wouldn’t fare too well in there either.

Federal tax evasion is a felony.  For more on the fun and games you can have with the government if you cheat on your returns, please click here: 

Tax Fraud, Statutes and Penalties.

Poster - Women's Prison (1955)_10

 

Advice for Worried

1. Am I obligated to report this to the IRS?

Probably not.  However, I am not giving you legal advice.  I’m just telling you what the Magic Google Machine told me. If you are really concerned, ask a criminal law professor when you get back to school in September.

2. Am I obligated to report this to my state bar association?

No.  You are not a member of the bar yet and thus have no such obligation.  That is my decidedly non-legal advice. However, such a report might be fun to make!

3. If she is prosecuted, can I be held liable as well since I knew about the fraud?

I don’t believe you can be held liable for your boss’ (possibly) illegal behavior so long as you were not part and parcel to the (possible) fraud.  You also don’t even know for certain whether any fraud is actually occurring.  It is the job of the IRS and its auditing agents to make that determination, not yours.

I will remind you I AM NOT GIVING YOU LEGAL ADVICE.  Lawyers in a position to know, please chime in with your comments!  You can leave them anonymously.

And speaking of anonymously, I’ll leave this here for you:

Squeal Like a Pig!

The link above leads to an IRS website and forms enabling the average Joe or Jody to report suspected business or personal tax fraud.  You mentioned your boss is a horrible bitch and abusive to her staff and nearly everyone she comes into contact with so you might consider dropping a dime on her.

Karma works in mysterious ways and sometimes David has to take on Goliath creatively.  If she is indeed committing tax fraud she will be disbarred as well as prosecuted.

Remember: the government couldn’t nail Al Capone on the numerous murders and bootlegging charges they had hoped but instead put him away (for a mere 7 years, unfortunately) for tax evasion.  

Please let me know what happens and be more selective the next time you take a job.  You mentioned your employer has a horrible reputation so in hindsight you can probably see that no job would be better than this job.

Readers: leave a comment and share, share share!

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This Post Has 11 Comments

  1. TLM

    Wow. The boss sounds like a real winner. I can’t believe someone would take those kinds of risks and then be shitty to their staff. Why hasn’t someone turned her in already? I’m no tax lawyer either, but you just know that this is really not good.

  2. David Bergman

    More great advice from Robin DesCamp. She’s right (as I read it). Squeal………….and LOUD. You’re dealing with the IRS. You mentioned Al Capone. The IRS is at least 1,000 times as crooked and so much better than that infamously lauded depression era master at organized crime. I’m sure many would agree that given enough ammo, the IRS could be taken down on RICO alone.

  3. Keith Stone

    I wish I could do more for “worried”… this is not right. So many things in this world are built this way now adays… I hope this person “does the right thing.”

  4. Vicki

    Sounds to me like a busy-body employee. Does she have any actual fact of wrongdoing or is she looking for some way to get her boss in trouble? Just because expenses are run through, and paid by the business, doesn’t mean they are coded that way. Maybe these expenses are being categorized as dividends. Does this employee work in the accounting department of the law firm? If not, she needs to mind her own business. The employees in the accounting department are the ones who could possibly get in trouble if they have knowledge of wrongdoing (like payroll taxes not being paid). What this owner does with running expenses through her business is between her and her tax accountant, and ultimately the IRS.

    Yes, I am a small business owner and I could withstand an audit at any time. In fact, my accountant sometimes jokingly says “I hope you get audited.” because of how well I keep my books. Sometimes personal expenses are run through the business, coded as dividends. And sometimes purchases (charges at various vendors) are for personal use, again coded as dividends. I would be not too pleased if any of my employees took it upon themselves to determine that I was doing something wrong. How I do my books is none of their business. And although I could pass any audit, state or federal, it doesn’t mean I want to spend the time it would take and the stress it would cause to prove it.

    1. askdescamp

      Interesting points, “Vicki!” I wonder, what is your perspective on family members being on the payroll and firm credit cards paying for family members’ personal expenses? As I said, I’m not a tax expert. Clearly you are, or at least you have some creative help!

    2. The Yetti

      Have you considered that your accountant isn’t ‘joking’ when he says he wants you to be audited? Perhaps he can’t stand you.

  5. Mark

    Report the Bitch (bastard?)

    While we struggle to do the right thing, she allegedly is taking advantage due to accounting procedures no doubt gleaned from the Bernie Madoff Institute for Advanced Accounting. If the allegations pan out, you could be awarded up to 30-percent of any back taxes recovered after the IRS Forensic Accountants have their way with her books. (I love what the phrase “have their way” implies!)

  6. Nannette

    You have many protections under the whistle blowers act, many rewards are available when fraud is indeed found. I might suggest you do a little homework is these areas and always let your conscience be your guide. While you might think tax fraud is white collar crime it is in fact a crime; the rest of us tax payers get left holding the tab. My advice turn the bitch in!

  7. Former Accountant

    I would have to respectfully disagree with “Vicki,” as well as note that the lady, she doth protest too much. If we take the employee who wrote you at her word and we are dealing with tens of thousands of dollars in personal expenses being run through the business, the “dividend” argument is suspect.

    She also failed to respond to the issues of family members with corporate cards and being on the payroll and earning salary when they do not in fact work for the firm.

    That’s fraud. Pure and simple. I’ll let Vicki’s attorney explain it to her and her accountant when they are arraigned.

  8. Pingback: Swollen Glands and Tax Cheats | RobinDesCamp.com

  9. LLC

    Robin, given what you wrote today should I assume you are looking into point #5 above regarding the non-profit? Because many people in town have wondered for years about that non-profit and what it is they actually do, which as far as I can tell is nothing.

    Do you know a family court judge serves or served on the board of that non-profit? Seems a little odd.

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