Yes, you should snitch on those brag­garts

Antelope Valley Press - - BUSINESS - SINGLETARY­[email protected]

WASHINGTON — In my house, ABC’s “What Would You Do?” is must-see TV.

It is a hid­den-cam­era show that looks at how peo­ple re­act when pre­sented with cer­tain sit­u­a­tions. For ex­am­ple, upon notic­ing some­one is steal­ing items at an open house, would you seek out the real es­tate agent and report the thief ?

Dur­ing a re­cent on­line dis­cus­sion, a reader pre­sented a sit­u­a­tion that would be perfect for the pro­gram.

“I have a co-worker and friend whose money prac­tices drive me in­sane,” the reader wrote. “He spends ev­ery penny, and mocks me for be­ing fru­gal. Now he’s telling me all of the sketchy pur­chases that he deducts on his taxes, claim­ing they are work ex­penses. This in­cludes restau­rant meals dur­ing the work­day (‘we talked about work!’) and cloth­ing bought for a pre­sen­ta­tion at work. I want to report him to the IRS.”

In­deed, IRS Pub­li­ca­tion 529 ex­plic­itly says “lunches with co-work­ers” is a nond­e­ductible ex­pense. So, should this person snitch? OK, the word “snitch” isn’t fair, be­cause it in­sin­u­ates that the in­for­mant try­ing to do the right thing is, in fact, wrong. It’s bet­ter to char­ac­ter­ize the person as a whistle­blower.

If you sus­pect or know of an in­di­vid­ual or business that is fal­si­fy­ing ex­emp­tions, de­duc­tions or, for that mat­ter, not re­port­ing in­come, you can file IRS Form 3949-A. You can find the form at irs.gov or or­der it by phone at (800) 829-0433. Al­though you have the op­tion of writ­ing a let­ter to the IRS, us­ing the form is usu­ally best, ac­cord­ing to IRS spokesman Eric Smith.

“Pro­vide as much in­for­ma­tion as you can about the person, what you be­lieve they did and how you know what they did,” Smith said. “The same is true if the sus­pected vi­o­la­tions in­volve a business.”

Smith said that — al­though you’re not re­quired to do so — it’s help­ful to pro­vide your name and ad­dress. “We keep in­for­ma­tion about any­one who pro­vides in­for­ma­tion con­fi­den­tial,” he said.

The agency will not share it with the person or business you are re­port­ing.

Amer­i­cans over­whelm­ingly say that it is not ac­cept­able to cheat on your taxes (85%) and that every­one who cheats should be held ac­count­able (90%), ac­cord­ing to a 2018 IRS sur­vey.

It’s im­por­tant to note that the co-worker is in fact cheat­ing if he is claim­ing de­duc­tions he knows he’s not en­ti­tled to take. How­ever, tax rules are com­pli­cated and can leave room for in­ter­pre­ta­tion.

In gen­eral, tax­pay­ers can deduct 50% of the cost of business meals if cer­tain cri­te­ria are met. The meals can’t be lav­ish or ex­trav­a­gant and they must oc­cur in the course of con­duct­ing business, ac­cord­ing to Su­san Allen, se­nior man­ager for Tax Prac­tice & Ethics for the As­so­ci­a­tion of In­ter­na­tional Cer­ti­fied Pro­fes­sional Ac­coun­tants.

“So if you’re hav­ing a meet­ing with a po­ten­tial client, that might meet the thresh­old,” Allen said. “If you’re go­ing to lunch with a co-worker and just talk­ing about your work­day, that likely would not meet the thresh­old.”

Em­ploy­ees can no longer deduct cer­tain out-of-pocket costs thanks to the 2017 Tax Cuts and Jobs Act, which put an end to a num­ber of un­re­im­bursed job ex­penses (ex­cept for tax­pay­ers who fall un­der a spe­cial cat­e­gory, such as Armed Forces re­servists).

Prior to the act’s pas­sage, em­ploy­ees could deduct the cost of clothes for work, but only if they were manda­tory — such as uni­forms or pro­tec­tive cloth­ing like a hard­hat or work boots.

If the cloth­ing could have been worn out­side of work — like a business suit or dress — you weren’t al­lowed to deduct the ex­pense be­cause it was con­sid­ered ev­ery­day wear.

In this reader’s case, there’s not enough spe­cific in­for­ma­tion to file a report. The con­cerned co-worker couldn’t pro­vide a lot of the de­tails asked for on the IRS re­fer­ral form.

“Un­for­tu­nately, many of the tips we re­ceive are not that use­ful,” Smith said. “But good in­for­ma­tion from peo­ple in the know re­ally can make a dif­fer­ence. That’s why it’s so worth­while that any­one sub­mit­ting an in­for­mant report be as spe­cific and com­plete as pos­si­ble.”

If you have con­crete ev­i­dence about a tax cheat, in­form the IRS. Fraud im­pacts us all. For in­stance, shoplifter­s aren’t just hurt­ing the bot­tom line of busi­nesses. When they steal, prices rise for all cus­tomers, and that makes the steal­ing “your” business. The same with tax cheats.

Just as a re­minder, ev­ery tax­payer signs their tax re­turn un­der penal­ties of per­jury, points out Mik­los Ring­bauer, a cer­ti­fied pub­lic ac­coun­tant based in Los An­ge­les.

You may not have enough in­for­ma­tion for a whistle­blower com­plaint, but you don’t have to stay silent when some­one is brag­ging about sketchy or fraud­u­lent tax de­duc­tions.

Tax eva­sion is un­fair to the vast ma­jor­ity of tax­pay­ers who — whether they like it or nor — pay what they owe.

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