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Wednesday, July 02, 2025

A Scheme to Hide Wages from the IRS Does Nothing But Make a Mess 

Another interesting television court show popped up, and, yes, it involved taxes. As readers know, I have addressed tax issues in television court shows many times, in posts such as Judge Judy and Tax Law, Judge Judy and Tax Law Part II, TV Judge Gets Tax Observation Correct, The (Tax) Fraud Epidemic, Tax Re-Visits Judge Judy, Foolish Tax Filing Decisions Disclosed to Judge Judy, So Does Anyone Pay Taxes?, Learning About Tax from the Judge. Judy, That Is, Tax Fraud in the People’s Court, More Tax Fraud, This Time in Judge Judy’s Court, You Mean That Tax Refund Isn’t for Me? Really?, Law and Genealogy Meeting In An Interesting Way, How Is This Not Tax Fraud?, A Court Case in Which All of Them Miss The Tax Point, Judge Judy Almost Eliminates the National Debt, Judge Judy Tells Litigant to Contact the IRS, People’s Court: So Who Did the Tax Cheating?, “I’ll Pay You (Back) When I Get My Tax Refund”, Be Careful When Paying Another Person’s Tax Preparation Fee, Gross Income from Dating?, Preparing Someone’s Tax Return Without Permission, When Someone Else Claims You as a Dependent on Their Tax Return and You Disagree, Does Refusal to Provide a Receipt Suggest Tax Fraud Underway?, When Tax Scammers Sue Each Other, One of the Reasons Tax Law Is Complicated, An Easy Tax Issue for Judge Judy, Another Easy Tax Issue for Judge Judy, Yet Another Easy Tax Issue for Judge Judy, Be Careful When Selecting and Dealing with a Tax Return Preparer, Fighting Over a Tax Refund, Another Tax Return Preparer Meets Judge Judy, Judge Judy Identifies Breach of a Tax Return Contract, When Tax Return Preparation Just Isn’t Enough, Fighting Over Tax Dependents When There Is No Evidence, If It’s Not Your Tax Refund, You Cannot Keep the Money, Contracts With Respect to Tax Refunds Should Be In Writing, Admitting to Tax Fraud When Litigating Something Else, When the Tax Software Goes Awry. How Not to Handle a Tax Refund, Car Purchase Case Delivers Surprise Tax Stunt, Wider Consequences of a Cash Only Tax Technique, Was Tax Avoidance the Reason for This Bizarre Transaction?, Was It Tax Fraud?, Need Money to Pay Taxes? How Not To Get It, When Needing Tax Advice, Don’t Just “Google It”, Re-examining Damages When Tax Software Goes Awry, How Is Tax Relevant in This Contract Case?, Does Failure to Pay Real Property Taxes Make the Owner a Squatter?, Beware of the Partner’s Tax Lien, Trying to Make Sense of a “Conspiracy to Commit Tax Fraud”, Tax Payment Failure Exposes Auto Registration and Identity Fraud, A Taxing WhatAboutIsm Attempt, When Establishing A Business Relationship, Be Consistent, as the Alternative Can Be Unpleasant Litigation, Sadness on Multiple Levels: Financial Literacy, Factual Understanding, Legal Comprehension, When the Lack of Facts Produces “Rough Justice” in a Tax-Related Case, Is the Tax Return Preparer or the Client Responsible For Unjustified Deductions?, Tax Might Be Boring, But the Underlying Facts Often Are Not, When Tax Fraud Is Admitted in a Civil Arbitration Proceeding Known As a Television Court Show, and When Allegations Go Unproven: Did a Television Court Show Involve Tax Fraud.

This particular television court show was episode 176 of season 10 of Hot Bench, which originally aired on 19 August 2024. I could not find the actual episode online other than behind some unfamiliar pay sites.

The plaintiff and defendant worked for the same contractor. The defendant did not want to fill out a W-9 for the contractor because, as the defendant admitted, he was in arrears on child support and did not want the IRS to know he had wages that could be used to pay the child support obligations.

So the contractor, the plaintiff, and the defendant entered into an arrangement that made the plaintiff, in effect, a subcontractor. Under the arrangement, the contractor would remit to the plaintiff the wages that would have been paid to the defendant, and the plaintiff would pay that amount to the defendant. The plaintiff made the payments in cash because the defendant refused to accept a check.

The plaintiff had three other employees. Those employees filled out W-9 forms delivered to the plaintiff, and the plaintiff paid those employees with checks.

According to the plaintiff, a fourth W-9, in a name other than the defendant’s, was included with the other three W-9 forms, when the plaintiff’s tax returns were prepared by the plaintiff’s tax return preparer. The defendant denied filling out a W-9 form. When asked about this W-9 form, the plaintiff testified he had not looked at it and did not realize it had a name other than the defendant’s name. One of the judges asked the plaintiff if it was not strange that the defendant, who refused to fill out a W-9 for the contractor, would have filled out a W-9 form for the plaintiff.

The IRS and the California Franchise Tax Board sent notices to the plaintiff that taxes had not been remitted for the payments made to the defendant. The plaintiff did not have those documents to present as evidence for the explanations provided by those two agencies. The IRS and the Franchise Tax Board levied on the plaintiff’s bank account. The plaintiff sued the defendant, seeking reimbursement from the defendant.

One judge noted that the failure to bring the documents issued by the agencies made it difficult to conclude that the amounts taken were on account of the payments made to the defendant by the plaintiff. The court found the plaintiff’s explanations inadequate to justify a decision in his favor. The court also pointed out that the arrangement into which the parties entered meant that the plaintiff was coming into court with “unclean hands.” The court also noted that the plaintiff waited three years to bring the lawsuit against the defendant. During the deliberations, the judges observed that the plaintiff could have turned to the IRS and Franchise Tax Board to explain that those agencies had made an error and that he did not have an employee with the name on the W-9 form, and that he had not done so.

For these reasons, the court dismissed the plaintiff’s complaint. That conclusion was not a surprise. As I watched the episode, very early on I knew what the outcome would be, because the unclean hands doctrine was so readily apparent. The defendant could not have been more obvious in declaring a refusal to fill out a required tax form because of a desire to hide wages from the IRS. The plaintiff knew what was being planned and went along with the scheme. Unfortunately, the contractor was not in court and could not be questioned, especially the question asked by one of the judges during deliberations, which was why not simply fire an employee who refused to fill out and submit to the employer a required W-9 form.


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