Was our tax system meant for such nonsense?

[imrthr]

Senator seeks tax on pimps, prostitutes

Grassley: 'It's a no-brainer to have the IRS go after sex traffickers'

 

Tuesday, June 27, 2006;

 

What Is This? Republican Sen. Charles Grassley of Iowa is hoping to stamp out the sex trade by taxing pimps and prostitutes, then jailing them when they don't pay.

 

The Senate Finance Committee is expected to vote Wednesday morning on the pimp tax. The bill also calls for more jail time for sex workers.

 

If passed, the provision will authorize at least $2 million toward the establishment of an office in the Internal Revenue Service Criminal Investigation unit to prosecute unlawful sex workers for violations of tax laws.

 

"Recent headlines have focused on sex trafficking in connection with the World Cup in Germany," Grassley said. "This vile crime is under our noses in the United States, and it's a no-brainer to have the IRS go after sex traffickers. Prosecuting these tax code violations can get these guys off the street and yank from their grasp the girls and women they exploit."

 

Grassley said the problem is "especially horrible" when underage girls are involved.

 

Asked if taxing sex workers would legitimize their trade, a Grassley spokesman said the goal was simply to find "yet another alternative to track the money flowing in this industry to get at potential criminals."

 

Currently, the IRS has to prove a prostitute's or pimp's income to pursue a tax law violation. But under Grassley's proposal, a pimp could get up to 10 years in prison for each prostitute for whom the pimp hasn't filed a W-2, which means a pimp caught with 10 unregistered prostitutes faces a century in prison.

 

Carol Leigh, a representative of the Bay Area Sex Worker Advocacy Network in San Francisco, California, called the proposal short-sighted.

 

"Forced labor, kidnapping should be targeted. But this legislation broadly targets the sex trade in general, and could target your local strip club," Leigh said. "We want laws enforced against those who abuse us, against those who are violent, and enforcement of labor regulations. That is the only truly effective way to protect the welfare of the women who work in the industry."

[+ ArVaGuy]

I nearly fell out of my chair when I heard about this on the news. Especially after watching part of the hearings for the new Secretary of Treasury and the questions about closing the budget deficit.

 

Last time I checked, prostitution was illegal in most jurisdictions. I've always felt that we should adopt the practice of many European countries and legalize prostitution. Then the government could tax the devil out of it like they do everything else.

[Guest Fisher]

Actually all income whether the source is legal or

illegal is subject to federal & state income tax.

 

Al Capone was one of many gangsters/criminals who

were sent to prison not for their crimes, but for

tax evasion.

 

If an escort makes more than $400 in a year,

they are required to fill out a Schedule C.

Their net income from Schedule C is also subject

to self employment tax(an additional 15.3%).

 

While I realise that this is just a ploy to either

make political brownie points, or perhaps try to end

prostitution, I actually don't see anything wrong with

escorts paying their fair share of taxes. I have to pay

my taxes. Why shouldn't an escort who makes $40K or $50K

or maybe $100,000+ pay his/her fair share?

 

Cheers,

Fisher

[Guest ReturnOfS]

You should have heard them talk about it on NPR. It was hillarious :+

[imrthr]

>

>While I realise that this is just a ploy to either

>make political brownie points, or perhaps try to end

>prostitution, I actually don't see anything wrong with

>escorts paying their fair share of taxes. I have to pay

>my taxes. Why shouldn't an escort who makes $40K or $50K

>or maybe $100,000+ pay his/her fair share?

___________________________________________________

 

 

You are correct about the taxability of legal or illegal income. The United States Internal Revenue Code states that all income, regardless of the source, unless specifically exempted, is taxable.

 

However, in the case of prostitutes, the mere disclosure of the income and its source and “occupation” puts the “taxpayer” at risk of self-incrimination, social stigmas and criminal sanctions.

 

If prostitution is to be taxed in the U.S., all criminal elements of reporting such income must be removed from the statutes. That is unlikely to happen given the abundance of self-righteous individuals who profess that such conduct is immoral.

 

Additionally, prostitutes are often looked down upon with disdain for their professions. Thus, if a prostitute attempted to comply with the Internal Revenue Code, the consequences of such an attempt, under present law, would cause enormous regret for the person who filed a tax return, and paid income and self-employment taxes on income derived from those “unlawful” activities.

 

Another consideration is, how does one really define a prostitute? Is a prostitute only a person who has a quick or short term relationship with another for money or goods?

 

Many men or women want and accept security by having a relationship with another person who has sufficient income to furnish general comforts of life. Sometimes these individuals do not live with their benefactor and are furnished with money and free housing. These individuals are often referred to as mistresses or “lovers” but are not referred to as prostitutes although there is not much difference in the method of how they support themselves (sex for money and housing). I guess the main difference is that they generally have only one “benefactor” while earning their living.

 

In short, any attempt to stamp out the oldest profession known to mankind is an exercise in foolishness because that profession will always remain.

[Guest bighugbearphx]

>However, in the case of prostitutes, the mere disclosure of

>the income and its source and “occupation” puts the “taxpayer”

>at risk of self-incrimination, social stigmas and criminal

>sanctions.

 

That is correct, IF the escort (or his tax advisor) is DUMB enough to list his occupation as "Prostitute" on the tax return!

 

As you went on to say later in your post, the definition of "prostitute" is somewhat open to interpretation anyway. Any experienced tax pro knows to "muddy the waters" when he or she doesn't want the complete nature of someone's profession to be known, for whatever reason (Often simply because some professions are more prone to audit scrutiny for unreported income).

 

My tax practice has an 80%+ gay/lesbian clientele, so it is not surprising I have done returns for a few male escorts along the way. Except for one, they also had significant documented income (reported to the IRS on Form 1099-MISC) for video work, modeling or massage, although a significant amount of what they were reporting was "miscellaneous earned income" (i.e., escort work). I'd simply list them as a model, dancer, massage therapist or generic "entertainer" on their tax forms. It's common for people with varied (but related) forms of self-employment income to include everything under one heading, and even the most strict IRS auditor can't find fault with that.

 

And one clarification to a previous post: ANY miscellaneous earned income is reportable on a tax return (if you are otherwise required to file one), not just if it totals over $400. The latter is simply the level at which it becomes a "business" for purposes of the Self-Employment Tax, calculated on Schedule SE.

 

One final PS: While I realize most escorts reading this are probably laughing "Report my income? Yeah, THAT'LL happen!" - and I am not dumb enough to think my "entertainer" clients have indeed told me about every dime - showing SOME reasonable income on a tax return is a good idea, for many reasons. One of my former "entertainer" clients, with a lot of undocumented income that he gave me to report, is now disabled, and collecting Social Security disability based on his reported income during those years, which otherwise would not have been available to him. It also comes in handy if you ever need credit or later go for a "real" job after you retire, as many lenders/potential employers now ask for permission to get a report of past years' income from the IRS as a screening tool.

[imrthr]

>

>That is correct, IF the escort (or his tax advisor) is DUMB

>enough to list his occupation as "Prostitute" on the tax

>return!

_____________________________________________________>

You have an interesting view on this matter. However, I do not believe that the escort or his tax advisor would be considered “dumb” by stating the truth which was the purpose behind the proposed Senate amendment.

 

If the tax advisor were to intentionally “muddy the waters” to conceal the fact that the income was from unlawful activities, an aggressive Internal Revenue Service agent could take the position that the tax advisor was aiding and abetting the escort in his unlawful profession.

 

Your point about future social security benefits and other benefits is sound, propitious and well taken.

 

This subject is clearly a case of “you are damned if you do and you are damned if you don’t.”

 

Again, I think that the Senates’ involvement in this subject is foolish and will accomplish nothing even if it passes the Senate Finance Committee.

[Guest bighugbearphx]

>>

>>That is correct, IF the escort (or his tax advisor) is DUMB

>>enough to list his occupation as "Prostitute" on the tax

>>return!

>_____________________________________________________>

>You have an interesting view on this matter. However, I do

>not believe that the escort or his tax advisor would be

>considered “dumb” by stating the truth which was the purpose

>behind the proposed Senate amendment.

>

>If the tax advisor were to intentionally “muddy the waters” to

>conceal the fact that the income was from unlawful activities,

>an aggressive Internal Revenue Service agent could take the

>position that the tax advisor was aiding and abetting the

>escort in his unlawful profession.

 

As has already been established, all income is reportable, including income from unlawful activities. Nothing in tax law requires that I inquire if all income is from lawful activities and, even if I am told, there is no duty to identify it as such on a tax return.

 

You call it "muddying the waters" ... I call it staying within tax law guidelines while minimizing a client's audit exposure. Tomato, tomaaaato. Male escort, entertainer (most of the ones I have met have been very entertaining As an former tax teacher of mine (who was a 30+ year IRS officer) used to say, "it's an art, not a science."

[imrthr]

"As has already been established, all income is reportable, including income from unlawful activities. Nothing in tax law requires that I inquire if all income is from lawful activities and, even if I am told, there is no duty to identify it as such on a tax return."

_________________________________________________________________

 

Although you appear to be a knowledgeable tax preparer, you were not correct when you stated in the quotation above "there is no duty to identify it as such on a tax return." If you search the Internal Revenue Code, you will determine that you are required to disclose in tax returns (that you prepare and sign) if you are aware that any of the income is from illegal sources.

__________________________________________________________________

"You call it "muddying the waters" ... I call it staying within tax law guidelines while minimizing a client's audit exposure."

_______________________________________________________________

 

Please look at your own original posting. It was YOU who used the term "muddy the waters" when you wrote, in part, "Any experienced tax pro knows to "muddy the waters" when he or she doesn't want the complete nature of someone's profession to be known, for whatever reason."

 

You may want to reexamine your interpretation of the Internal Revenue Code in this area so that you do not get too aggressive and cause something to backfire on you and/or your client.

 

Based on the information you wrote in your postings, you appear to be well intending and knowledgeable. Therefore, please do not interpret my criticism of your approach as a criticism of you, the individual. Quite simply, based on what you wrote, your interpretation of THIS specific matter is out of synch with the Internal Revenue Code.

[Guest bighugbearphx]

>Quite simply, based on what

>you wrote, your interpretation of THIS specific matter is out

>of synch with the Internal Revenue Code.

 

I think not.

 

Just to preface, I've been doing this for a living for some time. I've been in practice over 30 years, including a five year stint as Tax Manager of a local CPA firm, have been published, lectured in several states, had a regular gig answering tax questions on the radio one year, and spent five years fielding tax questions and providing tax-related content under contract to Amwerica Online.

 

To my knowledge, there is nothing in the IRC or any relevant authority that requires a paid preparer to disclose that some of the reported income is from illegal activities. But I can be wrong, so I just did an extensive CD-ROM search through the Code and regs, and found nothing even remotely suggesting anything to the contrary. Furthermore, I posted a query on the website of a professional association I belong to, and over a dozen credentialed tax pros have already responded, all agreeing that there is no such requireemnt. To the contrary, one tax attorney pointed out that such disclosures would clearly be a violation of a client's Fifth Amendment rights, and could open the preparer to a lawsuit and challenge to his license.

 

But you seem to be sure of yourself as well, so I'll leave the ball in your court. Provide me with a SPECIFIC cite as to WHERE in the IRC there appears support for your position, and I'll check it out, and be happy to agree with you if I am wrong. Thanks.

[imrthr]

Other than what I am presenting below, I will not waste any more time on your interpretation of the Internal Revenue Code.

 

I also have a great amount of experience with tax law and have taught this subject at a major university for several years. Moreover, I hold many degrees and credentials, including a CPA and a Ph.D.

 

I would never recommend to any client or student that illegal income be disguised on a tax return as anything other than what it is. I recommend you check out the following citation from Internal Revenue Code. I have included a portion of that very long section for your convenience.

 

My initial response on this site was merely intended to comment on how silly it is for the U.S. Senate to take up the proposal to tax prostitution. I certainly did not expect that you would embellish my post by your recommendation to “muddy the water” while preparing an income tax return for a client. Your point about future disability benefits was excellent despite your other interpretations. Good luck to you in your practice.

 

Sec. 7206. Fraud and false statements

1. TITLE 26, Subtitle F, CHAPTER 75, Subchapter A, PART I, Sec. 7206.

STATUTE

 

Any person who -

(1) Declaration under penalties of perjury

Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

(2) Aid or assistance

Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or

[uwsman2]

My recollection is that there is a general "personal services" category to report income, which probably covers a broad universe of occupations. One does not have to state on one's tax return anything more specific than that.

 

It makes sense for every escort to report their income, pay quarterly as other self-employed people do (including paying for social security and medicare tax). After all, they will want to qualify for these programs some day.

[Guest]

>Other than what I am presenting below, I will not waste any

>more time on your interpretation of the Internal Revenue Code.

>

Is that some equivalent of "I'm sorry, you were right?"

[imrthr]

>>Other than what I am presenting below, I will not waste any

>>more time on your interpretation of the Internal Revenue

>Code.

>>

>Is that some equivalent of "I'm sorry, you were right?"

________________________________________________

 

No, it is an equivalent of your not understanding what was posted.

 

Certain tax laws are intrically complex and should not be taken lightly. Your comment confirms your lack of understanding of this fact, otherwise you would not have posted your irresponsible response.

[Guest]

>Your comment confirms your lack of

>understanding of this fact, otherwise you would not have

>posted your irresponsible response.

 

:7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7 :7

[boypayer]

The whole tax code is nonsense! For REAL sense go to http://www.fairtax.org/ Keep an open mind! This idea should really appeal to liberals and "do-gooders" for the poor. Low income people make out better than anyone with the Fair Tax. It is a FAIR idea and puts power back in the people and NOT in the hands of politicians and lobbyists.

[Guest Fisher]

Hi Anton,

 

> I understand that you don't see anything wrong with

> escorts paying their fair share of taxes.

 

Its more than me not seeing anything wrong with escorts

paying their fair share of taxes, it is that they are

required to pay the taxes. In the U.S., with few exceptions,

all income is subject to taxation. I would surmise that

many, if not most escorts in the U.S., do not declare

their income from escorting. Escorts are not the only

ones who evade paying taxes. Anyone who is self employed

and deals manly with cash can easily avoid taxes. However,

besides being the right thing to do, declaring escort

income can have its advantage as bighugbearphx has

stated above.

 

> guess what, the side-effect is that all business

> expenses are deductible (which sounds fair to me).

 

That is also true in the U.S. In fact, you are required

to deduct all legitimate expenses (supplies, transportation,

travel etc). The result: gross income minus expenses

equals net income; net income is subject to both 15.3%

social security and medicare tax and whatever your marginal

tax rate is. In addition, if you live in one of the 44

states that have a state income tax it will also be subject

to that tax also.

 

I have no idea what imrthr is talking about when he seems

to imply that an escort declaring his income is fraudulent

– both for him and his preparer, because declaring your

income and expenses is not committing a fraud – not

declaring the income is committing tax evasion. While

‘prostitution’ may be illegal in most places in the U.S.,

‘escorting’ is not. When a CPA or EA is preparing a return

for an escort, he looks over the records and receipts and

he asks the escort many questions. One question he does

not ask is “Do you fuck or allow your clients to fuck you?”

I have not seen the 2007 Schedule C (The tax form for self

employment income), but that question hasn’t been on it

in prior years and I think it might not be on it next year.

Imrthe did mention that he did teach taxes at a major

university for many years perhaps proving the old maxim

‘those that know - do; those that don’t - teach’ }(

 

 

Cheers,

Fisher

[imrthr]

>

>I have no idea what imrthr is talking about when he seems

>to imply that an escort declaring his income is fraudulent

>– both for him and his preparer, because declaring your

>income and expenses is not committing a fraud – not

>declaring the income is committing tax evasion. While

>‘prostitution’ may be illegal in most places in the U.S.,

>‘escorting’ is not.

________________________________________________

 

I have no idea what Fisher is talking about when he stated I seemed “to imply that an escort declaring his income is fraudulent both for the taxpayer and the preparer.”

 

Go back over my postings. I said that the Senate Finance Committee proposal to tax pimps and their employees is foolish and not workable. I did not say that this type of income should be evaded for tax purposes.

 

I did state that the mere disclosure of the income and its source and “occupation” puts the “taxpayer” at risk of self-incrimination, social stigmas and criminal sanctions. However, I did not state that the income should not be reported.

 

I further stated “If prostitution is to be taxed in the U.S., all criminal elements of reporting such income must be removed from the statutes. That is unlikely to happen given the abundance of self-righteous individuals who profess that such conduct is immoral.” Once again, I did not state that the income should not be reported.

 

In a later posting, I responded to another poster who boasted that he conceals the actual source of prostitution income by his use of “muddy the water” technique, which in reality (according to the Internal Revenue Code and case law) is a form of money laundering.

 

I also stated that “This subject is clearly a case of “you are damned if you do and you are damned if you don’t.” (If you call your illegal income by its proper name).

 

After my initial posting, you and some of the other posters hijacked my post and distorted the substance of it which, as I said above, was to point out the foolishness of the Senate Finance Committee’s proposal to tax pimps and their employees.

 

At the request of one poster, I furnished a citation from the Internal Revenue Code which supports the fact that a false statement on a tax return, whether the return itself is or is not fraudulent, can place the tax payer and/or his preparer at risk for penalties or more, (depending on the reaction of the Special Agent assigned), if a tax return is audited. I provided this citation because the poster did not believe he or his client would be subject to sanctions if he misrepresented the type of income included on his clients’ tax returns.

 

I anticipate the above discussion clears up any misinterpretation you or others may have reached by incorrectly inferring that I recommended not reporting illegal income.

____________________________________________________________

> "When a CPA or EA is preparing a return for an escort, he looks >over the records and receipts and he asks the escort many questions. >One question he does not ask is “Do you fuck or allow your clients >to fuck you?”

___________________________________________________________________

 

I do not think it is necessary for you to resort to vulgarity to make a point particularly when you have misinterpreted my postings.

______________________________________________________________

>Imrthr did mention that he did teach taxes at a major

>university for many years perhaps proving the old maxim

>‘those that know - do; those that don’t - teach’ }(

________________________________________________________________

 

By the way, in addition to teaching this subject, I also work in this field and have been extremely financially successful over many years. Therefore, your comment about "teaching versus doing" has no merit.

[Guest Fisher]

Imrthr,

 

First let me say that I agree with you on the nonsense

of Senator Grassley’s bill. My initial post was simply

to say regardless of the fate/motive of that bill,

prostitutes are currently required to report their

earnings.

 

I also did not intend to, nor do I believe that I hijacked

this thread. If your intent was solely to point out the

foolishness of this bill, then perhaps it should have been

posted in the political forum. Since it was posted in the

Lounge – a general forum, I took the topic of the post to

be not only a discussion of the specific bill (a political

matter), but also a broader discussion on the subject of

whether/how prostitutes should declare their income. This

is not hijacking or straying from the original topic.

 

> I have no idea what Fisher is talking about when he

> stated I seemed “to imply that an escort declaring

> his income is fraudulent both for the taxpayer and

> the preparer.”

 

If I misinterpreted what you stated, I apologize. When

reading through the various postings (especially when

other posts are being quoted) sometimes confusion or

misinterpretation can occur by either the poster(s) and/or

the reader(s). I took the substance of your posts to be

that there are grave risks socially and legally for a

prostitute who reports his income. Moreover, since you

never state any caveat such as: nonetheless they still

have to report the income – I came to conclusion (perhaps

erroneously) that you therefore believe this it would be

better if this income were not reported – if I am mistaken

I apologize.

 

I do agree with you that the term “muddy the waters” is

inappropriate and could be construed as advocating

unethical and possibly illegal behavior, which would

have serious consequences for any circular 230 individual.

 

I guess my disagreement with you began when you cited

the regulations regarding fraud and false statements –

seemingly to imply that unless you put prostitute as

the occupation, you are committing a fraud

>>“This subject is clearly a case of “you are damned

>> if you do and you are damned if you don’t.” (If you

>> call your illegal income by its proper name).

I, however, believe that you can state income earned

from prostitution without committing fraud or putting

yourself in any legal jeopardy. For example:

 

- You have an individual who gives full body-to-body

massages with release – would not his Schedule C be

similar to an LMT who gives non-sexual massages? Both

would list their profession as masseuse and state their

gross income and their expenses. Is their anything

fraudulent or unethically about those returns?

 

- You have an individual who is a stripper – now he

definitely has to file a return because several of

the clubs that he dances at sent him 1099 misc’s. In

addition to the fees/tips that the dancer received at

the clubs which are listed on the 1099s, he receives

additional tips of $200 each for numerous private shows

at nearby motels. Where is the fraud in stating his

profession as a dancer and reporting all of his

income/expenses on the Schedule C?

 

- There are also other professional descriptors that

a prostitute could use that are not fraudulent, but

that also do not imply criminal activity - model,

escort, companion.

 

>> "When a CPA or EA is preparing a return for an escort,

>> he looks over the records and receipts and he asks the

>> escort many questions. One question he does not ask is

>> “Do you fuck or allow your clients to fuck you?”

 

> I do not think it is necessary for you to resort to

> vulgarity to make a point particularly when you have

> misinterpreted my postings.

 

The point I was trying to make was: that in a tax return,

you do not have to be that graphic in order to avoid fraud

or false reporting – you don’t even have the broach the

subject of sex in order to prepare an accurate return for

a prostitute.

 

>>Imrthr did mention that he did teach taxes at a major

>>university for many years perhaps proving the old maxim

>>‘those that know - do; those that don’t - teach’

 

This was inappropriate. I was being a bitch, and I apologize.

While I may disagree with you on a few points I actually do

not question your knowledge on the subject.

 

Imrthr, if a may ask you a question:

You are preparing a return for a 23 year-old single man. He

works as an administrative assistant. He hands you a W-2 –

box 1 states: $23,500. IAW due diligence, you ask him if he

has any other income. He states that every week or two he goes

down to the local gay bar, picks up a guy, and has sex for

money. He made $8,000 last year. How would you handle (or

advise your students to handle) this return?

 

(1) Refuse to do the return.

(2) Ignore the $8,000 and fill out a 1040EZ with only the W-2 income.

(3) Create a Schedule C for the $8,000 (if you do this what do

you put on line A: Principle business or occupation).

(4) Do something else

 

This is not a trick question, and I am not trying to trip you

up, and I am not trying to ‘test’ you. I am very interested in

how you would respond. Since I may have misinterpreted your

postings, I am a little unsure of how you would respond to the

above situation and would welcome your response.

 

Cheers,

Fisher

[imrthr]

“I came to the conclusion (perhaps erroneously) that you therefore believe it would be better if this income were not reported – if I am mistaken I apologize.”

____________________________________________________________

It is not necessary to apologize. I appreciate that you realize I did not advocate intentionally omitting income from a tax return.

_______________________________________________________________________

“I guess my disagreement with you began when you cited the regulations regarding fraud and false statements – seemingly to imply that unless you put prostitute as the occupation, you are committing a fraud”

and

“This subject is clearly a case of “you are damned if you do and you are damned if you don’t.” “(If you call your illegal income by its proper name).”

____________________________________________________________________

I can understand why someone could be confused by some of my statements. However, my statements were aimed at Senator Grassley’s unworkable proposal which I attached to my initial post. Please recall, his proposal had to do with taxing prostitution by way of requiring a “pimp” to issue a Form W-2 to employees who perform sexual services under the control of the pimp.

 

The article did not address a self-employed individual prostitute.

 

Among other things, I stated that unless the current statutes are amended to legalize prostitution, a prostitute could be open for various criminal and social sanctions if one were to identify such income on a tax return. I also said that considering the opinions of the majority of Americans concerning prostitution, it is unlikely that statutes will be changed to correspond with Grassley’s amendment, if passed.

 

Grassley’s proposal is federal and, thus, would be at cross purposes with all state laws as they now stand. In the article, Grassley referred to prostitution as “This vile crime is under our noses in the United States - - .”

 

Over many years, I have represented clients at the appellate level and tax court. During those years I have seen challenges by the Internal Revenue Service to issues that were even more bizarre than prostitution income.

 

Given what I have seen and experienced, together with review of case law while representing clients before various tax agencies, I do not want to place myself in a position where I am in conflict with the Internal Revenue Code section I cited in one of my posts above.

 

What I attempted to do by posting the senator’s proposal on this site was to allow readers to see for themselves, another example of how our tax dollars are wasted on foolishness by the apparently bigoted Senator Grassley.

_________________________________________________________________________

 

“I, however, believe that you can state income earned from prostitution without committing fraud or putting yourself in any legal jeopardy.”

_____________________________________________________________________________

If the income is a mixture of prostitution and massages, as you stated in your hypothetical, I believe there is little chance of sanctions for most practitioners if a client is identified as a masseur. However, if all the income is from prostitution, I believe you could have a problem if you intentionally concealed the fact that the return contains illegal income. This is one of the reasons I stated “you are damned if you do and you are damned if you don’t.”

_____________________________________________________________________________

In connection with your multiply choice question, I find that my answer is unique to me and would not apply to most who work in our profession. As I feel certain you know, tax professionals are held to a certain degree of standard based on their experience and education.

 

In my case, I have taught this subject for many years and have concurrently worked in this field and hold more credentials as do most tax professions. Therefore, I do not have the luxury of pleading ignorance, making a mistake of fact, judgement or interpretation that other professionals (e.g., a CPA, E.A. J.D. et cetera) have while working with similar tax situations.

 

In my case, if I knowingly made a false statement by intentionally concealing material illegal income on a tax return I signed, I could be used as an example by IRS to show that my behavior was out of synch with the IRC.

 

Remember Martha Stewart, Leona Helmsley and others who were used as examples of violations of certain federal laws? Those people are celebrities. There are countless professionals sitting in prison or who have paid fines and/or penalties over similar instances of their intentional disregard for rules and regulations of the IRC.

 

In view of my situation, based on the information you provided in your multiple choice scenario, I would necessarily decline to prepare the return. This, of course, does not mean that a return should not be filed or that some other qualified credentialed professional could not prepare that same return.

 

You offered an interesting and intelligent response to this complex and confusing matter. I hope I have helped you and others realize that “big brother” does not always apply rules evenly to all.

 

Cheers to you, too.

[Guest bighugbearphx]

>>Other than what I am presenting below, I will not waste any

>>more time on your interpretation of the Internal Revenue

>Code.

 

Back when you posted this, I had decided to give you the "last word" on this, even though your generic cite simply addressed general accuracy / non-reporting issues. The truth is that, as I argued, there is NOTHING in tax law that specifically states you must IDENTIFY illegal income as such on the tax return (which I pointed out was a violation of the taxpayer's fifth amendment rights.) Apparently, others here have agreed.

 

I would never NOT report income that I became aware was received. (I have refused to prepare tax returns when potential clients were dumb enough to ask me to do so.) Furthermore, I would not MATERIALLY misstate what was the source of income, such as stating earned income as some kind of investment income.

 

My point about "muddying the waters" was exactly what was subsequently illustrated, in lumping income from "private clients" in with a taxpayer's related profession as a model, massage therapist or entertainer. I would never use the term "escort" on a tax return, even though it doesn't - of itself - necessarily suggest an illegal act; it does suggest an occupation which would be highly suspect of unreported income, and there is no need to expose someone to that. Instead, I would take the position that someone who escorts can be considered an "entertainer" (for purposes of categorizing their Schedule C income). I recognize that some may not be comfortable doing this, but I don't believe it violates either the letter or spirit of applicable tax law. And I'd be comfortable defending that in audit, in the odd event it ever was questioned.

 

Bottom line: Tax laws are complex and often subject to different interpetations within the context of what is stated. Or, putting it another way, tax preparation can sometimes be as much of an art as a science. The trick is to find an "artist" who has a firm grasp of applicable tax laws, and doesn't "shade" things beyond your comfort or the resonable interpretations of tax law.

 

PS: One poster mentioned about expenses being allowed as deductions against income, which is generally true. However, here in the US, while income from illegal activities is clearly reportable on a tax return, there is authority that allows the IRS to disallow deductions for otherwise ordinary and reasonable expenses if related to *illegal* acts. Obviously, there's a huge gray area of judgement in trying to guess what specific expenses might be challenged, which I would imagine will vary based on their exact nature and perhaps relation to other related (legal) earned income. Just be aware of the distinction, and discuss it with your tax advisor.

[boypayer]

My name is not John and neither am I a Baptist. I feel, however, as a voice in the wilderness must. I refer to my original post on the subject (#102231). I say again : Go to http://www.fairtax.org for good sense.