Discussion:Would you prepare a tax return for someone with a 'morally objectionable' source of income?

For instance: stripper, gigalo, prostitute, drug dealer.

List could include: pay-day loan provider, porn website host, sex-shop/sex-club owner, or please name the most objectionable source of income and tell us whether you did prepare, or refused to prepare the return.

A few years back I had a client in the publishing business. I never knew for sure, but based on my suspicions, I thought they might be a neo-Nazi group. I did prepare the corporate return, but only asked enough questions to get the return correct. I am wondering now whether I should have found out for sure and what I would have done if my suspicions were confirmed.

And YES, I have prepared the returns for various 'exotic dancers'. I never offered to barter services with them, though.

Also for a priest who had a 'full release massage' business on the side. No barter there either. Why do they tell us this stuff? And after they do, do you still shake their hand?

Mr. Pure went into a fit at which the little siege mortar said, 'you oughta go into my Korean massage parlors....you'd better be packing when you walk in there.'

Anyone who emails me can get my story of the drug dealers and little ole me.

I also will not do a return for someone who is crooked, regardless of their profession.

Strippers wouldn't bother me, I suppose. Drug dealers, escorts, call girls, gigolos, prostitutes, yes.

I did have a client who was arrested once. It was a big deal it made the evening news. Not that his business was illegal, but they made him out to be Al Capone. The media coverage was pathetic. There are two sides to every story. Eventually, many of the charges were dropped, if not all. It was quite a joke.

Tom

I then declined to work on that job.

I know the IRS does not care but if you witness or know of a crime and do not report it, doesn't that make you an accomplice?

It would seem like you'd better do the tax return contracted by their lawyer, right?

Met her Tuesday. To my surprise, was more organized than most of my self employed clients, she presented me her P&L and my eyes nearly popped out of their sockets when I saw her assets...err...income. I asked her "is there any other income you earned besides this?" - "no" she said. Finished her return today, called and asked her for "co-worker" referrals. She said no problem, plenty to come.

Completely opposite from my expectations, looking forward to meeting more "entertainers".

Wildcat

As a lawyer, I've had some really scary appointments over the years, but very few of these types have slipped into being clients. The captured crooks are a real delight compared to the ones who get away.

Quoth Illini: "It would seem like you'd better do the tax return contracted by their lawyer, right?" Illini, I think you have the concept there right, but the timing all wrong. A lawyer can't hire you on behalf of a client to do a fraudulant return (which I'm sure you wouldn't do anyway), and then expect the whole affair to be privileged. The return itself is never privileged. Lawyers do hire accountants on a forensic basis when humpty dumpty falls off the wall, and an attempt is made to put the pieces back together again (and privilege would attach in the latter case, under the right circumstances).

However, there seem to be a couple of ethical caveats though.

1) As Crow said, Client communications aren't privileged. Even if you are an attorney, I don't believe communications relating to preparation of the return are privileged either.

2) You'd have to know enough to find out if you'd run a foul of §280E, and I guess such knowledge could put you in legal jeopardy.

3) It would suck to be involved in white collar crime.

I was talking about a similar issue with my brother who is making a career out of political campaigning. So far he only works for causes and candidates he believes in. I'm a lot more mercenary then he.

Exit question: What PAB code would you use?

I've done tax returns for "entertainers;" maybe they were doing more than dancing, but if I don't mind having them in my home office, it's none of my business, so long as I get the numbers right on the tax return.

Wonder Woman USA <one of those loonies in California>

Now, that's spoken by the me who lived a wild & crazy life when I was younger, and feels the like a hypocrite if she judges people for engaging in a less-than-savoury lifestyle.

However, if you look at the new Circular 230, TD F 90-22.1, 5471, 3520, etc., penalties and regulations, we preparers will be massively whacked upside the head if we assist our clients in hiding income. Now, you can say all you want that s/he gave you some good P&L statements, but really, do you honestly beleive every cash payment appears on the statement? Given the nature of the client's profession, you are almost guarenteed that they omitted something. And since you *should* have known that they would omit something by the very nature of the illegal activity, then by helping them prepare their tax return, you have helped them omit the income you *knew* was probably there but didn't have actual proof or evidence. And since you aided and abetted, the penalties will put you out of business.

So it's not a morality issue, it's a business continuation issue. If you take on clients who could bring about the downfall of your business, you are not exercising due care and diligence for your clients who do not engage in unsavoury acts and you are putting your family at risk of losing their home and facing public ridicule. It's unwise to take on a client of this type no matter how nice or how organized they seem to be.

Lizzit

Sweet, we need to pursue a like rule for preparers worldwide! Unite all of yers! The very act of doing the return assures it's holiness and efficacy, rather than the merits or holiness of the preparer or the clay with which he works (the client).

You have to hand it to the Catholic Church for coming up with that one.

It's a tough issue, because the government is actually better off in getting some revenue from these people rather than no revenue at all. In fact, I've heard at a CPE class before that we have a duty to complete a return if asked, though I didn't catch the authority that the speaker was relying on for that one. Of course, I'll throw whoever I want out the door if need be, there are not enough "thought police" around yet to prevent me from doing that.

By the way, in the State of Georgia this year, between a new federal (.61) and state tax (.60 I think), cigarettes will go up about $1.20 a pack. Now, the federal tax will operate nationwide, but all Georgia is doing with it's tax is creating revenue for Ala. and NC, etc. etc. I can actually see how the state's revenue will go down by doing this. When these legislators get under the Capitol dome, they seem to forget how human nature operates.

Why?

Because regardless of the legality or morality of the source of income IT'S TAXABLE and the client has a legal (and I think moral) obligation to file and pay. Everyone has a right to legal advice and representation in America. Everyone.

The ABA Model Code of legal ethics even states that a lawyer will not refuse to provide legal services for any personal consideration (other than economic or that would involve a conflict of interest or might result in a violation of the ethics rules).

But I would first warn the drug dealer that what he tells me in connection with the return prep isn't privileged and that if he confesses to a serious crime I'd likely have to call the cops.

I met one guy after he sold his candy store in South Philly when he was in his mid-fifties and he is still living off the interest he piled up before he met me. I never ask; he never tells. My suspicion is that he ran a book back then.

By the way, florists are the worst. Flowers are perishable. I could go on and on. I won't take them as tax clients. Wasn't it Capone and/or some of his associates that were involved in the florist business in the old Chicago heyday?

O'Banion was his name. Hilarious, he was getting the funeral business from all the people they were wiping out.

Forget the tax reporting -- I know they owe the tax, but isn't it a Catch 22 for a preparer who is not a lawyer? Simply telling the potential client that we do not have privileged communications does not protect us from remaining silent about their crimes to authorties, does it?

Shouldn't we be sending them immediately to a lawyer, and then the lawyer can contract us to do the taxes?

I did have to ask a few years back if the firm I was with would work for the nuclear power industry (the answer was yes) just because morally objectionable does not have to mean illegal.

As far as I'm concerned, a tax preparer is doing a patriotic service to bring a criminal "in from the cold" at least on an income tax basis! I think David's point is pretty good: it's not always the stripper, or the petty purveyor of vice, that is the problem.

But you do have to be careful that you don't walk over the line into a conspiracy with these people. In other words: let me show you how to do your crime more "efficiently", or let me help you further your crime. There, you run into big trouble. Meyer Lansky, the so-called accountant to the Mob, was this type of character. But, I think Meyer took a correspondence course, and never attained his CPA license (smile).

My take is the same as Crow's, as long as you are not helping them hide income, then sobeit. As for bartering Kevin, all depends on what period of my life I happen/happened to be in and what they were bartering for/with <EG>. Like Lizzit, I had an entertaining younger life. Like I tell my kids, it's pretty hard to hide it from me cause I BTDT.

I'd truthfully have more of a issue with the payday loan people and the rent-a-centers that make their living preying off of low income individuals than I would with the entertainer/happy ending giving masseuse or even the low level drug dealer <depends what he sold>. My morality is based on how the things they do affect others. Victimless crimes do not offend me. I personally believe that prostitution and marijuana should be legal. Dang, pixie sticks is more of a gateway drug than pot. lol.

As for mafia related, I'd shy away from that from the standpoint of I've been told that you don't calculate the numbers, they tell you the numbers.

Strippers not reporting everything because it's cash, hmmmmm, guess we should shy away from bars, candy stores, plumbers and everyone else who doesn't strictly get credit cards. And oh yeah, tax preparers, because I know my shop can't be the only one that receives a lot of cash. And the local chiropractor charging $40 a visit. Cash cash cash.

Maybe I'm wrong, but in my opinion, it's the people who earn more money who are the ones most likely to try and cheat. The little guys whines and complains about paying, but ultimately winds up paying because they are more afraid of the consequences.

Oh, and yes, I have a few clients who have done prison time. Couple of them I consider good friends too.

I remember the tax company I used to work for was once so desperate for quality tax preparers that they hired a former town auditor who had been convicted of felony embezzlement from the town and was on work-release programme from the prison. The assumption was he was probably very good with figures. We did have to watch him like a hawk, though, and review his work thoroughly.

All joking aside, ok, most of the joking aside, I totally agree with you from the standpoint of the client and the business they are in and our responsibility when preparing the tax return. I've got a good business and I have a good livelihood that I will not jeopardize for a client I see once a year. Or for a client I see on a more regular basis for that matter.

Now, if we start talking Michael Milken type money, then we might be singing a different tune. Yes, I can be bought, but that figure is quite high and I figure my net has to be about 10 mill per year of time I would have to do and that has to be what I get to keep after they take all the rest back. I am way too pretty for prison and would definitely need some serious cash remaining to buy enough protection until I actually started running the place.

Unfortunately, we have allowed our "legitimate" banks to get into loan sharking (credit card contracts), and outright racketeering (astronomical fees and penalties for minor indiscretions and requests for service). It's extremely disappointing that we have had such a failure of imagination and ingenuity in this country that even our most respected businesses must engage in acts more suited to the petty criminal to make a go of it. And it is a fact that these actions by the banks would have been seen as beyond the pale in the past, and in violation of usury laws that stood us in good stead for hundreds of years. Usury laws permitted a fair rate of interest, and plenty enough profit as a reward to the banker's labor. Now, you put your bank (or it's credit card subsidiary) in S. Dakota, Delaware, or in any of the growing number of like minded states, and you have no usury protection at all. And the U.S. Congress let this happen, and they can stop it.

Just to add a little bit:

On the self incrimination issue, check out GARNER v. UNITED STATES, 424 U.S. 648 (1976) I guess you'd claim the priviledge by listing "fifth amendment" income on the return, or some such thing.

Also you'd need to know enough to know if 162(c) comes into play, which puts you into the troubling knowledge quagmire too.

And there we go talking about self-created goodwill again...

At convention last year we had the criminal division of the IRS do some speaking. I've done a return for a hispanic person I know full well was using someone else's social security number yet they were able to buy a house and raise a family. It bothered me, not sure if I should have done it or not, but when I asked the IRS folks they told me sure, go ahead and do the returns. They also told me to tell illegal alien workers to make sure if they were using false cards to hang on to them and continue using the same one, that they knew full well they were using them and if they ever got their citizenship that they would be sure to adjust the ss to the correct account.

I don't know, too many weirdos out there these days. There are certain people who walk in my door and just give me the creeps, so I let them know that I'm way too busy. It's either that or they want to talk, "for just a minute" - ya, right.. then they say, "well I don't have a lot, it really should cost that much, but when it gorws I'll be making at least a million"... groan...

I have about 7 clients who work in "Gentlemen's Clubs". When they came to be originally I spoke to them about being business owners. They all have a business license and most have SEP's. I did have one who had way too many expenses to pay with the income she was reporting. She qualified for Earned Income and I couldn't get her to change it. I did not prepare her return.

I have never done a tax return for a male stripper. They don't pay me in dollar bills, I got one of the clubs clanedars this year as a Christmas present, one of my clients was voted entertainer of the year, and they love to come to my cleint appreciation night. I think my other clients like it too!

Insider her envelope were 1099's from a couple of the local strip clubs with a GIANT note that said "DO NOT TELL MY FATHER".