First, the underage aspect was never mentioned in the second video because the people basically said that they didn't want to know anything about it and that everything would need to be documented with a complete paper trail.Originally Posted by Steve Amrein
Second, one of the things that I have always found interesting is the intersection of crime with taxation. Remember that Al Capone was imprisoned for failure to pay taxes on his ill-gotten gains, not for the crimes that he committed to make money.
In this case the actor begins by requesting tax advice. The advice he is given is actually pretty good. They were told to set up a business as a sole proprietorship and to deposit all receipts into a bank account and declare the income. They were advised to keep track of all expenditures and to deduct them from revenues to calculate the taxable profit and then to file tax returns making sure that there was a good paper trail for everything done. The woman was told that she could expect to be reported and to have the police called unless her activities were very discrete and did not bother neighbors. When asked about employees, the counselors said that those revenues also needed to be reported and that paperwork needed to be in order. The issue of the employees being illegal aliens and being underage was not brought up since the counselor made it clear that all paperwork needed to be in order.
All of that advice was good and consistent with the law. What they didn't do was to throw the couple out because they said they were involved in prostitution. I have no problem with that. Attorneys don't throw criminals out who come seeking representation and will answer questions that they are asked concerning what is or is not illegal.
The problem in the Baltimore office was that the couple was being advised to lie. That did not happen in the Washington office. Figuring out how to classify a business activity using the IRS categories is a challenge even if your occupation is legal. I see nothing wrong with a prostitute calling herself an "entertainer" in filing an income tax return. I'm just happy if the taxes are paid. The IRS used to have a category specifically for reporting illegal income. There were some court challenges on whether or not that violated 5th amendment protections and I do not think that category still exists. Prostitutes, drug dealers, contract killers, etc., are all required to pay income taxes. Even though the original crime may be a matter of state law, failure to pay taxes is a federal crime. How can it therefore be wrong to advise such people on how to comply with the law.
The only area where I heard the counselors possibly cross the line related to purchasing a house for the prostitute. They suggested that the man could buy the house and rent it to his girlfriend. As landlord he could deny knowledge of what was being done there. They also said that if he wanted to avoid arrest and protect his own reputation, he should not visit the property ever except to collect the rent. If he wanted to continue seeing his girlfriend they said it should be at his own house or in a different location. The counselors did not bite when the man asked if they could fabricate prior year returns to satisfy banks. Instead, the counselors said that all paperwork had to be in order. By the way, there would have been no problem if the couple filed income tax returns and paid their taxes for prior years. There would only be fraud if they prepared returns that were never filed and then gave those to a bank to secure a loan.
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