filing 2003 1040 -- no tax owed

[Skate1968]

Client is a low-income single Mom, head of household. Has not filed in years. Not W2s or 1099s. This was the first year that she received a 1099 for a while.

My plan:
File her 2003 tax return late before 4-17-07. Estimate her modest income from bar tending and report it on her 1040. This should get her an Earned income credit. It should make me look good. No tax will be owed so no penalty for filing late.

Am I correct to think that the IRS wouldn't have a problem with this as long as my estimate of her income is reasonable? (the woman is not wealthy. I have no reason to think she's hiding income. She's never mentioned trying to get a refund from her 2003 1040. this is entirely my idea)


Again, sincere thanks to everyone who has shared their professional opinions with me.

[Snaggletooth]

Incredible, but

Skateboard, it seems incredible, but the attitude of the Washington crowd
including the IRS is that they absolutely LOVE giving out earned income credit.

They know that it can be abused, but the only pressure coming from them to
stop the abuse appears to be forcing more and more requirements on tax
preparers rather than getting off their butt into the field and throwing some of
these cheaters in jail.

[jainen]

this bartender didn't know

>>Am I correct to think that the IRS wouldn't have a problem with this<<

I don't think so, and I don't think it will make you look very good either. The IRS will certainly have a problem with a non-filer suddenly claiming unrecorded income solely to get EIC. They might not do anything about it, but then again they might do plenty, such as coming after you as well as her.

I don't even think your client will appreciate it. Until the 1099 tripped her up she preferred to stay under the radar. Do you suppose that was because this bartender didn't know about income tax?

[Skate1968]

Skateboard, it seems incredible, but the attitude of the Washington crowd including the IRS is that they absolutely LOVE giving out earned income credit.

It certainly seems that way! Look what's on the front page of the IRS website:

"IRS Has $2.2 Billion in Unclaimed Refunds
1.8 million people may lose potential refunds if they don't file their 2003 tax return by April 17.

...By failing to file a return, individuals stand to lose more than refunds of taxes withheld or paid during 2003. Many low-income workers may not have claimed the Earned Income Tax Credit (EITC). Although eligible taxpayers may get a refund when their EITC is more than what they owe in tax, those who file returns more than three years late would be able only to apply it toward the taxes they owe (if any). They would not be able to receive a refund if the credit exceeded their tax."

[Skate1968]

Thanks for posting Janien

>>Am I correct to think that the IRS wouldn't have a problem with this<<

I don't think so, and I don't think it will make you look very good either.

I only meant that it would make me look good at the bar.

I certainly don't want throw a potential flag up to the IRS. But I know this woman and I think she legitimately qualifies for the credit.

Let me mull this over a bit.

[Oxtrainer]

Earned income for Bartender

I have had a number of clients mostly older, singled or widowed who have questioned
why they were getting back more money than they had paid in. Unlike those who
play the system some are appalled at free money. Most of these are receiving a very
small amount being without children. Most of these having worked all their lives are
without a clue. Incredilble but true.

[Jiggers]

Eic

I have elected to have a client pay SE tax even though the farm showed a loss. Because of this they qualified for EIC, though small amount. Even after paying the elected amount for SE, they still netted $200 refund.

[OldJack]

I agree with Jainen. This bartender has not filed because doing so and declaring all her actual income would have caused a tax due and she knows it. Filing for the current year is good but filing for a year that the statute of limitations is about to close could result in immediate audit. Also, if they did decide to audit it would be for all 3 years. Filing a 2003 tax return today keeps the statute of limitations open for audit another 3 years from the filing date. Not a good thing for someone that, as Jainen says, wants to fly below the radar.

[rosieea]

>>Am I correct to think that the IRS wouldn't have a problem with this<<

I don't think so, and I don't think it will make you look very good either. The IRS will certainly have a problem with a non-filer suddenly claiming unrecorded income solely to get EIC. They might not do anything about it, but then again they might do plenty, such as coming after you as well as her.

I don't even think your client will appreciate it. Until the 1099 tripped her up she preferred to stay under the radar. Do you suppose that was because this bartender didn't know about income tax?

I agree wholeheartedly. EIC has been an area of abuse, the IRS is well aware of it, and EIC audits are not uncommon. If you do this, your client had better be able to prove the income.

[Ken]

I have elected to have a client pay SE tax even though the farm showed a loss. Because of this they qualified for EIC, though small amount. Even after paying the elected amount for SE, they still netted $200 refund.

Jiggers I hate to say this, but I did the same thing back a few years ago before I found out it was illegal.
The IRS wants you to take all the deductions a person has as well as all the income, and not juggle it around so the client will get the EIC.

[Jesse]

If she does get in an audit her "employer" could suffer the consequences as well. I'm sure she is not the only "employee" that is not on the payroll.

[Jiggers]

Elected SE for EIC

Jiggers I hate to say this, but I did the same thing back a few years ago before I found out it was illegal.
The IRS wants you to take all the deductions a person has as well as all the income, and not juggle it around so the client will get the EIC.

There was no jiggling of the books to do this. The farm actually has a loss, due to depreciation or Section 179, and the taxpayer wanted to elect to pay into SS, mainly to keep eligible for disability income, just in case.

The client was surprised at the refund, and so was I, the first time.

I researched this is OK.

[Skate1968]

Thanks very much to everyone who responded.

If she does get in an audit her "employer" could suffer the consequences as well. I'm sure she is not the only "employee" that is not on the payroll.

I'm aware. But this would be her former employer -- a dive bar which became someplace to avoid. Some would be surprised that the place has not been shut down.

[Skate1968]

If she does get in an audit her "employer" could suffer the consequences as well. I'm sure she is not the only "employee" that is not on the payroll.

Thanks for responding, and yes I'm aware that this might cause trouble for her former employer(s). But I've witnessed other activity which could get her former employer in even bigger trouble. I don't think that I need be concerned with whatever risks her former employer takes. (she left on bad terms anyway)

So at least there is one aspect of this situation which doesn't cause me concern.

[Oxtrainer]

Earned income for Bartender

I tried to edit my first post this morning but it did not process somehow.
Any way I wanted to say that altho there are many who don;t know about EIC surely
bartenders should know about it and also bartenders can recieve sbstantial tips.
Tips might involve SE tax and you may be opening a can of worms. In any event
surely you have enough info now to make your own informed decision. Good luck
with it.