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socrateaser
socrateaser, Lawyer
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Im in a dilemma. Someone we know is possibly committing fraud.

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I'm in a dilemma. Someone we know is possibly committing fraud. First, they lived in Ohio and got that $10,000 first time homeowners grant that Obama promoted to stimulate the economy when he first took office. This person was told they had to live in their house as their primary residence for 3 years or they would have to pay it back. This person did not live in their house for 3 years - they actually moved to PA and are living with her mother now since 2010, working for her mother's business under the table. They have timers on their house for lights and have a friend "watch" their house so that it appears they still live there, so they don't have to pay the money back. To pull this off, wouldn't they have to put the Ohio address on their federal income taxes? And then how would that work - since they live in PA they should pay state and local taxes but if they're pretending to still live in Ohio to avoid repayment of the $10,000? Another thing, in order to get a PA drivers license she had to be able to get insurance in PA - she is using another relative's address saying that's her own address (when in fact it isn't) so that she can get insurance in PA. Is that fraud too? One other thing - her son is 4 and will start school next year. The school district they live in with her mother she tells us doesn't have all the services her son needs (he's autistic, needs special accommodations). She tells us she is planning on listing another friend's address so he can go to a different school district than the one they live in. Isn't that fraud too?? Should I report this person??? Could she get fines and/or jail time for any/all of this? What should I say to her?? Please advise me what to do here. Thanks.
To pull this off, wouldn't they have to put the Ohio address on their federal income taxes?

A: No, not necessarily. As long as the address on the form is a place where mail can be received by the taxpayer, that's really all that the IRS cares about. However, the fact that a different address than the taxpayer's residence appears on the return, could be used as evidence that the taxpayer is not residing at the address where the person's principal residence is supposed to be, in order to qualify for the $10,000 tax benefit.

And then how would that work - since they live in PA they should pay state and local taxes but if they're pretending to still live in Ohio to avoid repayment of the $10,000?

A: A person must report their state tax liability in the state where they reside, either full or part time. So, if this isn't happening, then that could be tax evasion/fraud.

Another thing, in order to get a PA drivers license she had to be able to get insurance in PA - she is using another relative's address saying that's her own address (when in fact it isn't) so that she can get insurance in PA. Is that fraud too?

A: If the all of the taxpayer's activities are intended to evade liability under federal tax law, then that is the sina qua non of tax evasion.

One other thing - her son is 4 and will start school next year. The school district they live in with her mother she tells us doesn't have all the services her son needs (he's autistic, needs special accommodations). She tells us she is planning on listing another friend's address so he can go to a different school district than the one they live in. Isn't that fraud too??

A: School district rules are complicated and very localized. It's probably not necessary to raise this issue, but to determine whether or not there is a legal problem, would require a lot of research. I seriously doubt that the IRS will care about this one. But, maybe I'm just being a bit prejudiced, because this could result in punishing the child unnecessarily for the parent's bad acts.

Should I report this person???

A: Only you can decide this question. I don't know the circumstances surrounding your concern, and even if I did, the question of what someone "should" do, is a judgment that only the person can make.

Could she get fines and/or jail time for any/all of this?

A: The taxpayer would probably lose some or all of the $10,000 benefit. The IRS doesn't usually start thinking about criminal charges against someone, unless there's at least $25,000 in unpaid taxes at issue -- the cost of criminal prosecution is substantial, even for the government. So, there are internal breakeven considerations that the IRS does not generally disclose.

What should I say to her?? Please advise me what to do here. Thanks.

A: If you want to report the taxpayer, you can do so using this form. In my opinion, there's no point in having a conversation with the person. I would either report them or not, and let the IRS decide if it's worth investigation. Ultimately, however, you must make this decision, because only you understand all of the surrounding circumstances.

Please let me know if I can be of further assistance.
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