From time to time unreported income, failure to report nanny income, failure to deposit withholding tax for nannies, children on company payrolls or family members being claimed as employees for medical insurance purposes come to light.
In the reported New Jersey decision of Sheridan vs Sheridan (247 NJS 552, Ch. Div. 1991) our Judges are instructed to report such tax evasion issues to the IRS. However, over the 15 plus years since the Sheridan decision many litigants, divorce attorneys and, on occasion, even Judges have minimized that admonition.
It is not uncommon to hear comments to the effect that the IRS has more important things to do, the IRS is not going to rely upon the testimony of a disgruntled family member, that "nanny tax fraud" is the rule not the exception and, worst case scenario, no one goes to jail for such tax indiscretions and, if they come to me, I’ll just pay the taxes and be done with it .
In a copy written story in its September 7,2007 edition the New York Times reports the travails of one Mr. Richard Josephson. According to the article, Mr. Josephson was sentenced by a Federal District Judge in White Plains, NY to 5 years in prison (prison time, not probation!) for just such tax evasion violations.
Among other alleged violations, Mr. Josephson apparently:
1. Failed to report or file withholding or social security for a nanny.
2. Put his daughter on a company payroll for a "no show" job
3. Claimed that his wife was a company employee so that she could be included in the
company insurance plan.
4. Reported income in his children’s names
Who was a witness against Mr. Josephson?? His adult daughter! At the conclusion of a four week trial, the jury convicted Mr. Josephson of on a series of tax charges including what the Times article describes as the first ever criminal conviction for failing to pay the so called "nanny taxes".
Perhaps, Mr. Josephson’s plight should serve as a reminder——–do not take such allegations lightly. The IRS and/or a Federal Court may not.