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I know that some businesses accept cash in exchange for services and never declare that income (tax evasion). I understand that it is illegal for businesses to do so. But what about the other end of the stick?

What happens if a person proposes a cash-for-services deal to a business to avoid having to pay taxes on the service? What if the person actually proceeds with the transaction?

Does the client have any legal liability? Or is the liability only present on the business end?

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  • Tax laws differ greatly from one country to another. About which country would you like an answer, as a comprehensive survey of all countries laws on the topic would be overbroad.
    – ohwilleke
    Commented Dec 24, 2019 at 20:50
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    @ohwilleke This is Canada-specific. Question updated.
    – Gili
    Commented Dec 25, 2019 at 21:06

3 Answers 3

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There is nothing wrong with paying in cash; there is something wrong about hiding a transaction that relates to a taxable event. Cash makes that easier.

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Pretty much like buying a knife does not prove the buyer's intent to cut someone's throat, paying/accepting cash does not prove tax evasion.

A contractor person is a one-man business. Tax-wise, there is no difference whether he sells services to businesses or private individuals. Both can pay him cash and leave it up to him to worry (or not) about his taxes.

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  • Payments more than $600 to a contractor in a given year who is not organized as a corporation, and sometimes other payments also, must be reported to tax authorities whether in cash or otherwise, and the payor must get a form W-9 from the payee to comply in most cases. the cash itself isn't a problem, but it can't just be left to the the recipient to worry about his taxes.
    – ohwilleke
    Commented Dec 24, 2019 at 1:00
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    @ohwilleke Good to know how it's done in the US. The OP does not specify jurisdiction though.
    – Greendrake
    Commented Dec 24, 2019 at 1:44
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It's naughty on both ends

Paying in cash is fine. However, the client has to issue a W-2 or 1099 for the money they paid to the contractor.

Which will bring to a screeching halt any hope the contractor had to fail to report the income.

So the contractor goes to the client and says "please do not issue me a 1099." The client says "that's a big ask. Why should I do that?" Contractor says "so I can evade taxes". Client says "ok".

Now you have conspiracy to tax evasion. In Federal law, conspiracy to anything is a felony.

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