Question

Harmon is 30 years old. He is a new client who comes to you because he received a form w-2. He earned $8,500. He has never filed a tax return because his wages have always been paid in cash. Which of the following most accurately states your responsibility as a Tax Professional?
a. Advise the IRS about Harmon’s failure to report income.

b. Advise Harmon that because he was paid cash, he does not have to report those wages because the IRS will never know about them.

c. Advise Harmon that if the IRS has not investigated him before, they will probably not do so now.

d. Advise Harmon he should report his cash wages and file prior year returns, and e plain the consequences for failure to do so.

Answer 1

The correct answer for the question is Option D - Advise Harmon he should report his cash wages and file prior year returns, and e plain the consequences for failure to do so. Per the observance of the question, we understand that Harman has been receiving his wages in cash constantly. Per IRS, the wages that are paid in cash should be fully reported and income tax return should be filed after including such wages as part of the Gross income of the taxpayer. Since Harman has failed to do so, as a tax professional we would suggest him to report his cash wages and file prior year return in addition to e plaining the consequences for the failure to do so. This is the correct answer.

Option A is incorrect. Instead of approaching the IRS to inform about Harmon's failure to report income as a first step, we will consult the taxpayer and ask him to include the cash wages received and file his income tax return of prior years.

Option B is incorrect. Even if paid in cash, Harmon is bound to report his wages and file a return. Hence, this option is not correct.

Option C is incorrect. This is not the legal stand that is required to be taken by the Tax professional. The tax professional should inform Arman to report his wages and file prior returns. As such, this is not the correct answer.