Have a Tax Question? Ask a Tax Expert
Hi. My name is ***** ***** I will be happy to help you.
How they run the business? As partnership?
Unless the business was incorporated, the profit should had been reported on their individual tax return, subject to self-employment tax. Self-employment tax is social security and medicare tax for self-employed individuals. If you friend had received any type of compensation for running the business, the social security tax had been paid by your friend. The IRS will not intervene based on the court decision. If the boyfriend reclassify her as an employee, issue her W2, and pay all the social security tax, she would have to amend her tax return for all those years and claim back the self-employment tax. But the problem is the 3 year statute of limitation. She would lose most of it. It would be for her own advantage not to do so. And if she never reported any income, she would still have to amend all the returns, claim the in come and pay back all the income tax plus interest and penalties.