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We are being sued by a competing business salon that in complaint filed with court alleges that their "former employees" conspired with us in stealing trade secrets (a.k.a. customer contact list). In reality their former employees are just our tenants and they will give us 1099 form for fixed rents that we collected. We don't share customers or collect commissions.

Now it turns out that the former employer of our current tenants was giving 1099 and not w-2 forms to them. And probably still is giving 1099 to remaining employees. Yet in court document openly calls them "Employees" and not "Independent contractors".

  1. Is there a chance that IRS may look in such cases?
  2. What is the proper way to start process?
  3. Can this tipping be done anonymously?
  4. Does IRS provide awards to tipsters?
  5. Anything that can go wrong with this idea?

P.S. I am not looking for legal advice.

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    I would note that calling someone an "employee" in one context does not imply that the person meets the definition of "employee" in every context. – phoog Dec 6 '19 at 2:41
  • @phoog Good point. Do I understand it correctly that you are suggesting that plaintiff, at least in theory, could try to "save his skin" by saying that he merely just meant some Statutory definition of employee throughout the complaint and not the one under American Common Law that IRS uses for tax purposes? – user389238 Dec 21 '19 at 1:26
  • Mostly I meant that no lawyer is likely to agree that calling someone an "employee" while paying them on a 1099 is inherently suspect. Whether the use of a 1099 is proper depends on factors that have little or nothing to do with the word used to describe the relationship. If the IRS or anyone else goes after them it will be because of those factors, not because they used the word "employee." – phoog Dec 21 '19 at 4:03
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The IRS takes tip-offs from the public and may pay rewards

  1. Is there a chance that IRS may look in such cases?

Yes

  1. What is the proper way to start process?

See the link above.

  1. Can this tipping be done anonymously?

Not if you want a reward. Also, its probably more likely that non-anon tips will be followed up as investigators can seek more information.

  1. Does IRS provide awards to tipsters?

Sometimes.

  1. Anything that can go wrong with this idea?

Well, it's unlikely to help you in your civil trial although you should seek clarification in discovery if the people are employees or contractors. If they are employees then there is an implicit relationship of confidence, if they are contractors that's unlikely to be the case and an explicit NDA may be needed.

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  • Thanks. Wondering what is the plaintiffs strategy to sue former employees then... I called him earlier today and explained that those two persons are tenants. Yet he insisted we send rental contract to him so that he would be 100% sure they are not misclassifiable as employees. Are attorneys really so reckless that they could openly implicate their clients while trying to dig up the exact same dirt on other party they are suing? Or is he just collecting any info defendant may give away? This whole case is odd. – user389238 Dec 6 '19 at 2:00
  • @HansSolo Hire a lawyer. The last thing you want is to be managing your own involvement in a suit that seems fishy to you. The lawyer will be much better able to determine whether it is in fact fishy and, critically, to demonstrate that it is fishy to the judge. The lawyer will also understand the implications of giving any information to the plaintiff. – phoog Dec 6 '19 at 2:38
  • @HansSolo defendants and plaintiffs aren’t allowed to withhold “dirt” or not “give away” stuff. All information either party plans to use in a civil trial must be spelled out to the other well before the trial. – Dale M Dec 6 '19 at 2:55

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