1040-X need to file for unreported cash income

[HOPE2]

Hi everyone.

A new client came to me to file Form 1040-X regarding unreported cash income for 2020, 2021, and 2022.

The cash income amounts to around $7,000 for each of those three years, and he is a driver.

I would like to know what the tax audit consequences would be if I file Form 1040-X for him.

Any help!

[TaxGuyBill]

Are you asking about the "risk" of an audit, meaning how likely will there be an audit?

It seems unusual that the taxpayer suddenly want to add unreported income to his tax return.  Did you ask WHY it was not originally reported and now WHY he wants to report it?

Will adding this income cause him to owe more tax?  Or will adding this income INCREASE his refund, such as EIC, the Additional Child Tax Credit and/or the Covid sick credit?

[HOPE2]

Thanks @TaxGuyBill 

Yes, I am asking the risk of an audit. I asked him WHY you did not report it timely, said : I forgot it and he is thinking regarding social security benefit since he is 62.

If cash income adding to tax return, he should pay more tax and no refund will be increased by EIC or other credits.

[poolcleaner]

Did he file an extension for 2020?  

[IRonMaN]

 "I forgot it and he is thinking regarding social security benefit since he is 62"

Sounds to me like you don't have a very honest client.  It sounds like his memory is getting wishy washy either because of age or his memory is trying to balance out taxes with long term benefits.  Personally, I would tell this client to have a nice life.  Life is too short for tax preparers when they are stuck dealing with clients that like to play games with their taxes.

[BobKamman]

@IRonMaN Don't hurt yourself jumping to conclusions.  My first question would be whether he's a US citizen, and if so for how long.  He may have a green card and has just discovered that part of the citizenship application process involves a check of tax compliance.  Or, he may have been in this country less than 10 years and just discovered that he is not eligible for Social Security benefits (and maybe Medicare?).  

Or is he a retired first responder, with 40 years of service not covered by Social Security?  Granted, his benefits would be reduced because of the public-service pension, unless he has deferred collecting that until after SS benefits begin.  (I know, he's supposed to report that, but how many retirees do?)  

Without knowing any of the facts and circumstances, my advice would be to collect a few of those before turning away an honest man.  

[HOPE2]

Thanks@Bob

I think the only reason he wants to have 4points for each year and has to pay tax, he is a citizen. His original Sch C net income has around $200 something and all expenses are correct.

[TaxGuyBill]

The amount of 'forgotten' income for each year coincidentally corresponds with the exact amount to get four Social Security credits?

Run.

This guy is fraudulently hiding is actual income on prior tax returns and/or he is trying to commit Social Security fraud (and even if his original income was correct, he is trying to get the credits fraudulently when he likely could have received them legitimately).

[BobKamman]

How is it Social Security fraud if he has decided to be honest about his income?  Especially since it's too late to correct 2020's earnings record.  

[HOPE2]

Thanks, no; he filed the original tax return.

[IRonMaN]

"How is it Social Security fraud if he has decided to be honest about his income?"

But what is the "honest" amount of his income?

[George4Tacks · Accepted solution]

I think you need to make an ethical decision - Is this client giving you true and correct figures for his income and expense OR is he just gaming the system by getting those SE quarters to qualify for Social Security. You are signing the return and need to be comfortable doing so.