3

Let's assume I am helping a very close friend of mine who owns a small family restaurant. She has 2 people working for her and she treats them as independent contractors. Under current conditions I am quite sure IRS would reclassify them as full time employee's and fine her (sole proprietorship). AFAIK, IRS does not know about this yet, but if they wanted to find out they easily could by expanding the audit.

I am giving her tips on what options she has and what would be pros&cons of each option.

Also I helped her to talk with IRS over phone to solve the other tax audit. IRS agent over phone wrote down my name while I represented her - I guess this is standard procedure.

Can I get into trouble for giving tax advice to a friend (e.g. there is this dreaded Trust Fund recovery Penalty)?

Things to consider:

  1. I am not getting paid for explaining things or giving a tip to her.
  2. I am not licensed and I am not lawyer.
  3. Her business does not make enough money to afford real legal consultation.
  • "Also I helped her to talk with IRS over phone to solve the other tax audit..." How did you describe yourself to the IRS? Did they ask if you were "representing" your friend? Did you say you were representing your friend? – BlueDogRanch Apr 12 '16 at 3:33
  • @BlueDogRanch IRS agent asked me what is my relationship to the business owner. I said that I am simply a family friend; I admitted right away that I am not a licensed CPA. However, I mentioned that I do understand what needs to be fixed in her tax return. – john1234 Apr 12 '16 at 4:30
2

31 USC 330 enables the Dept. of Treasury to regulate those who are in the practice of representing persons before the Department. This results in Circular 230 which is a part of the Code of Federal Regulations. Part 10.3 specifies various types who are authorized to engage in the practice. The meaning of "practice" is not defined in the federal regs or the US code, so it has its ordinary meaning. To "practice" something is to habitually do something as a profession (not necessarily for money). The situation you describe does not in any reasonable interpretation constitute being a "practice". Moreover, except for talking to an IRS agent on the phone, the actions could not be construed as "representing" (and if I am correct in surmising that this was a simultaneous conversation with 3 people on the line, this wasn't "representing" since representing meaning to "do in someone's place", not "help someone while they do"). This contrasts with the typically stricter rules about "practicing law", which forbid filling out legal forms and so on.

1

The taxpayer is responsible for everything that is declared (or undeclared) in tax forms. The IRS will only pursue the taxpayer if there are mistakes or errors. The IRS doesn't care about you or your advice, bad or good, paid or not. The taxpayer may go after you, but the IRS will not.

Where you will get into trouble is if you are helping to commit fraud. I'm not sure if this case rises to that level or not, but it certainly sounds "iffy" to me. An opinion is one thing. An intentional omission, misclassification, or obfuscation is another. Fraud could definitely come back to bite you.

-2

Hold the phone.

It sounds like she is misclassifying employees as independent contractors. If these people "work for her" in a restaurant doing anything like what restaurant workers normally do, they are almost certainly employees. It doesn't matter that her restaurant is "small" or "family." When you treat people as contractors in situations they would expect to be employees, you deprive them of all sorts of rights, like workers comp, minimum wage, workplace safety regulations, withholding and FICA deductions, etc. It's all a "small, family" affair until someone burns themselves on the stove and there is no workman's comp, or gets sexually harassed and has no advocacy from the state, or goes to file their taxes at the end of the year to find that instead of getting a refund, they have to pay 100% of social security and medicare tax. It's a nasty thing to do to do.

If she can not afford to pay low wage workers under the meager rules that decades of struggle are supposed to guarantee, she is breaking the law, and frankly she should not run a restaurant, small or large, family or multinational.

It's her responsibility to follow the law, not yours, and honestly, it is hard for me to imagine a situation in which you would face legal danger from talking her through this. But that doesn't make it right.

  • 2
    Hold the phone. The question was whether the OP can get in trouble for giving advice on a tax form, and not whether the restaurant owner is legally or morally right or wrong. – user6726 Apr 15 '16 at 0:08

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