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Author: SageHen99 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: under-the-table income and taxes Date: 11/5/1999 10:48 AM
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Since graduation, a friend of mine has moved back home (dependant of parents), and is doing quite well in the online auction biz. I'm fairly certain that he's not planning to turn in 1/3 of his earnings (or whatever) for taxes, and I'm hoping someone can give me some possible results of this sort of evasion. I'm not looking for morality speeches- *I* know it's wrong and illegal, etc. I'm looking for things I can pass on to him that might help him make a more *informed* decision about what he's doing. (Along the lines of, "The fine for this sort of thing is a bizillion dollars" or "The IRS is really suspicious of 23-year-olds whose mothers still do their laundry.") On the other hand, I can see why he's not *that* worried- it's not like the IRS goes after 14-year-olds for their babysitting money- so what's the difference between them and him? (That's an actual question if someone has an answer- maybe age or income?)

Can someone give me something like worst-case/best-case/likely-case scenarios that would result from his reporting only, say, 25% of his income?
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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20544 of 121585
Subject: Re: under-the-table income and taxes Date: 11/5/1999 11:57 AM
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Maybe you could emphasize the positive. If caught, he wouldn't have to look for a job for several years. He'd have a roof over his head, three square meals a day, as much kinky sex as he wanted and then some, and the chance to make new friends with names like Mad Dog and Jason "Just call me Mr. Chainsaw."

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20547 of 121585
Subject: Re: under-the-table income and taxes Date: 11/5/1999 12:51 PM
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I've never worked with an on-line auction, but it is conceivable that the auction service company would report the proceeds of the sales on a 1099. If they do this (and I'm by no means certain that they do), it's an almost guaranteed letter from our friendly tax folks saying they can't find where the 1099 is reported on the return. Included will be a bill (generally of jaw-dropping proportions) for their idea of the taxes, interest, and penalties due. Your friend's could be exceptionally large, since this is probably self-employment and would include SE tax on top of the income tax.

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Author: elibortPrairiela One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20552 of 121585
Subject: Re: under-the-table income and taxes Date: 11/5/1999 1:36 PM
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Has he asked you for advice? Do you think he might say 'MYOB'?

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Author: vargaj Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20553 of 121585
Subject: Re: under-the-table income and taxes Date: 11/5/1999 1:59 PM
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My take is that the IRS is borderline incompetant to discover this kind of thing. It's still not enough money in IRS eyes. And as far as eBay reporting: they don't require SSN yet, so they have no idea who you are.

Joe Varga

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Author: foolishtomtom One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20560 of 121585
Subject: Re: under-the-table income and taxes Date: 11/5/1999 4:00 PM
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I say you turn the guy in. If fact, anytime you see a business ring up $0 sale on their register, you should turn them in. Why? Because in a very real sense, he is stealing from you!. All of us who pay via withholding are also making up for their theft of revenue from the goverment through higher taxes.

BTW, I've often wondered exactly how much tax revenue is lost each year due to the "under the table" cash economy. Does anyone know if the IRS has estimated this?

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20665 of 121585
Subject: Re: under-the-table income and taxes Date: 11/7/1999 10:45 PM
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<<Since graduation, a friend of mine has moved back home (dependant of parents), and is doing quite well in the online
auction biz. I'm fairly certain that he's not planning to turn in 1/3 of his earnings (or whatever) for taxes, and I'm hoping
someone can give me some possible results of this sort of evasion. >>

Potentially? Jail time. But more likely big taxes, fines and penalties when he's caught.

<<I'm not looking for morality speeches- *I* know it's
wrong and illegal, etc. I'm looking for things I can pass on to him that might help him make a more *informed* decision
about what he's doing. >>

If he gets caught, he'll get hammered. Simple as that. While he may not be REPORTING the income, I'll bet he's putting his income in the bank. And it won't take an IRS Einstein to "follow the money" trail through the bank, and assess additional income on unreported income.

<<(Along the lines of, "The fine for this sort of thing is a bizillion dollars" or "The IRS is really
suspicious of 23-year-olds whose mothers still do their laundry.") On the other hand, I can see why he's not *that*
worried- it's not like the IRS goes after 14-year-olds for their babysitting money- so what's the difference between
them and him? (That's an actual question if someone has an answer- maybe age or income?)>>

Babysitting money is generally small in nature. And if we are talking only "hundreds" of dollars here, it may fall under the same thing. But my guess is that you are talking about THOUSANDS of dollars...AND a specific case of tax evasion. For all intents and purposes, babysitting money is not treated as taxable income to the kids. But this type of "trading" is certainly taxable income...and should be reported.

<< Can someone give me something like worst-case/best-case/likely-case scenarios that would result from his reporting
only, say, 25% of his income?>>

Again...worst case would be jail time. More likely simply hefty taxes, fines, penalties, interest, and just a generally miserable life for a number of years.

TMF Taxes
Roy

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20666 of 121585
Subject: Re: under-the-table income and taxes Date: 11/7/1999 10:47 PM
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<<I've never worked with an on-line auction, but it is conceivable that the auction service company would report the
proceeds of the sales on a 1099. If they do this (and I'm by no means certain that they do), it's an almost guaranteed
letter from our friendly tax folks saying they can't find where the 1099 is reported on the return. Included will be a bill
(generally of jaw-dropping proportions) for their idea of the taxes, interest, and penalties due. Your friend's could be
exceptionally large, since this is probably self-employment and would include SE tax on top of the income tax.>>

An EXCELLENT point!!!

TMF Taxs
Roy

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Author: RooCat Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20674 of 121585
Subject: Re: under-the-table income and taxes Date: 11/8/1999 2:46 AM
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I've never worked with an on-line auction, but it is conceivable that the auction service company would report the proceeds of the sales on a 1099. If they do this (and I'm by no means certain that they do), it's an almost guaranteed letter from our friendly tax folks saying they can't find where the 1099 is reported on the return. Included will be a bill (generally of jaw-dropping proportions) for their idea of the taxes, interest, and penalties due.

When you get a friendly bill of this nature, it is generally for about 1/3 of the 1099 between FIT and SET, not to mention penalties and interest. If IRS goes after Civil Fraud, they can tack a 50% of tax penalty right on the top plus the usual late filing (if he files no return at all), late paying penalties and interest. It's not really a good game to play.

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Author: tinakoz Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20681 of 121585
Subject: Re: under-the-table income and taxes Date: 11/8/1999 10:03 AM
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WAY TO GO FOOLISHTOMTOM

I SAY LET'S TURN THEM ALL IN... WE END UP PAYING THEIR TAXES IN THE LONG RUN.

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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20682 of 121585
Subject: Re: under-the-table income and taxes Date: 11/8/1999 11:07 AM
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I've never worked with an on-line auction, but it is conceivable that the auction service company would report the proceeds of the sales on a 1099. If they do this (and I'm by no means certain that they do), it's an almost guaranteed letter from our friendly tax folks saying they can't find where the 1099 is reported on the return. Included will be a bill (generally of jaw-dropping proportions) for their idea of the taxes, interest, and penalties due.
===========

I dont think the auction service company is required to submit 1099's on this type of transaction?

I really dont know how these online auctions work but I assume the auctioneer is just providing a place for a buyer and a seller to meet and exchange their wares for a % of the sales price.

1099's apply to the funds related to the service portion (IE labor) of a transaction, not to the cost of any tangible personal property that is sold.

IMHO - no 1099 required

Pete

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Author: UUinMN Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20759 of 121585
Subject: Re: under-the-table income and taxes Date: 11/9/1999 9:53 AM
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And now for something completely different...

Income, what income? Just because your friend is selling things online, doesn't mean he has any taxable income. I'll bet he didn't get the stuff for free. There are certainly expenses which could be used to offset the revenue. Cost of acquisition, maintenance, storage, cost of selling, etc.

Without knowing the specifics of what was sold, for how much, with what expenses, it's impossible for you to say if your friend has any taxable income or not. (The flip side is that it could be impossible for your friend to prove he didn't have any taxable income without a good deal of documentation, if it came to that. The warnings from previous posters are all technically correct, however unlikely.)

I suggest you mind your own business.

Michael
Who never reported proceeds from garage sales.

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Author: JABoa Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20762 of 121585
Subject: Re: under-the-table income and taxes Date: 11/9/1999 10:37 AM
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Hm, UUinMN, let's look at Page D-7 of the 1998 Form 1040 Instructions.

Column (g) -- 28% Rate Gain or (Loss)

Enter in column (g)... [the amount] from collectibles gains and losses. A collectibles gain or loss is any long term gain or loss from the sale or exchange of a collectible that is a capital asset.

Collectibles include works of art, rugs, antiques, metals (such as gold, silver, and platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible property.

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Author: UUinMN Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20764 of 121585
Subject: Re: under-the-table income and taxes Date: 11/9/1999 11:39 AM
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You miss my point, JABoa. Revenue and gain are two different things. The seller is entitled to subtract all costs from the sales price. No one in this entire thread had mentioned costs, and I thought it was time to.

With full respect to the posters and the tax code, I remain unconvinced that the seller has a problem.

Michael

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20781 of 121585
Subject: Re: under-the-table income and taxes Date: 11/9/1999 6:51 PM
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<<You miss my point, JABoa. Revenue and gain are two different things. The seller is entitled to subtract all costs from the sales price. No one in this entire thread had mentioned costs, and I thought it was time to.>>

And a very valid point it is. BUT...if the taxpayer doesn't report income, he obviously also isn't report the cost of the merchandise sold. The law is clear that you have to report your income in this type of venture (if it is a venture) in gross...not in net.

<<With full respect to the posters and the tax code, I remain unconvinced that the seller has a problem.>>

Somebody mentioned garage sales. While I report my garage sale income (with no tax ramifications...since the items sold were less than the original cost of the items...thereby generating a non-deductible personal loss), many people don't report those items. But if they were running a business of it (like a flea market or something), they had better think twice about NOT reporting the income and the associated cost of sales.

Just my $.02
TMF Taxes
Roy



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Author: UUinMN Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20798 of 121585
Subject: Re: under-the-table income and taxes Date: 11/9/1999 7:53 PM
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OK, if this is a business, reporting is required. The original poster did say his friend is "doing quite well", so perhaps it is a business. On the other hand, I thought we'd "done quite well" at a garage sale when someone actually paid money for our old, broken-down, uncomfortable chairs.

Michael

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20980 of 121585
Subject: Re: under-the-table income and taxes Date: 11/11/1999 7:14 PM
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<<On the other hand, I thought we'd "done quite well" at a garage sale when someone actually paid money for our old, broken-down, uncomfortable chairs. >>

LOL Michael!!!!

But your point is well taken. The term "done quite well" is certainly in the eye of the beholder.

Thanks for the chuckle...
TMF Taxes
Roy



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Author: ToniABS One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21015 of 121585
Subject: Re: under-the-table income and taxes Date: 11/12/1999 1:28 AM
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Hello,

As you know by know from the previous posts, the answer lies in the amount of income your friend is generating. However, I'd like to add some thoughts.

Your friend is risking a great deal in order to evade paying his fair share in taxes, and it's really not worth it. One thought that occured to me is the scenario where he might sell something to a business that later deducts the expense. If that business is ever asked to provide documentation, your friend's name would come up. Another risk is ANY person who knows about his under the table income or suspects it. If a person gets angry because he or she is tired of tax cheats and realizes that we all pay - that person can always pick up a nearby phone - the call is free. ANY person who your friend might cross may pick up that phone out of retaliation - gee, the call is still free - 1-800-829-8815. And, last but not least, ANY law enforcement agency, who suspects under the table income, can invoke the Agreement which your friend accepted when he registered with the on-line auction house, in order to obtain his NAME, his ADDRESS, his PHONE NUMBER, ETC., ETC., ETC., Gee whiz... Would that convince him???? If not, I've got more...

There is no statute of limitations on Tax Evasion, he'd be paying the original principal, penalties, interest, Civil penaltis, the SE or Social Security / Medicare tax he shortchanged himself, oh, and of course his time. The jail time for Tax Evasion is 5 years. Did he GET IT yet? If you share all this info with him, and he chooses not to take heed, then accept that fact. You've done what you could.

Toni

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Author: ToniABS One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21017 of 121585
Subject: Re: under-the-table income and taxes Date: 11/12/1999 1:59 AM
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P.S. I wouldn't float him any loans either....

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Author: Papilio Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22119 of 121585
Subject: Re: under-the-table income and taxes Date: 12/2/1999 3:49 PM
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Interesting thread. I remember my mom had a garage sale in the 70's and the IRS sent her a notice. Seems they did that for all garage sales that advertised in the paper. However, I heard later that the IRS looks the other way unless it appears you're holding a continuous garage sale (ie a business) all summer. It seems like it would be fairly easy for the IRS to monitor online auctions. A guy who sells a comic book -- well, he ought to report the gain, but he might not attract any notice. A guy who has multiple auctions going for numerous collectibles -- that's a business.

Needless to say, for this venture to continue, your friend must be making a profit, otherwise he would run out of stuff lying around his mom's house to sell and would have to buy more. Unless he's selling stolen goods! In which case, I wouldn't advise reporting the income. ;)



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Author: Papilio Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 22121 of 121585
Subject: Re: under-the-table income and taxes Date: 12/2/1999 3:51 PM
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p.s. he should also make plans to flee the country.

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