Favoritism because of son.

[Zigner]

That was an example...

I do not know how to explain it to you to make you understand why its illegal. Obviously you did not understand my previous examples. Bottom line, ghost employment reduces the taxable income of the business/business owner. It allows the business owner to change non-deductible, personal expenses into deductible, business expenses. Yes, the person receiving the money may pay taxes on it (or may not depending on their tax attributes) but it will be at a lower rate than the business/business owner. This is illegal.

In most states, some forms of ghost employment are actually felonies. Do some googling if you want confirmation of what I am saying.

LdiJ - please don't patronize me. I understand EXACTLY what you are saying. The concepts are not difficult, but I'm asking for citations to back up your assertion that it is against Federal law. I do understand that, in this case, citations may not be easy to provide.

For the record, I HAVE been googling and most information I have seen that is state-specific relates to Indiana. Even then, it doesn't relate directly to what you are stating.

ETA: I apologize for the hijack. I think we all agree that the situation the OP has mentioned is not illegal. LdiJ - I'm not trying to attack you. I really do want to research the matter of ghost employees to find applicable laws, but I'm not finding specifics.

 

[LdiJ]

LdiJ - please don't patronize me. I understand EXACTLY what you are saying. The concepts are not difficult, but I'm asking for citations to back up your assertion that it is against Federal law. I do understand that, in this case, citations may not be easy to provide.

For the record, I HAVE been googling and most information I have seen that is state-specific relates to Indiana. Even then, it doesn't relate directly to what you are stating.

ETA: I apologize for the hijack. I think we all agree that the situation the OP has mentioned is not illegal. LdiJ - I'm not trying to attack you. I really do want to research the matter of ghost employees to find applicable laws, but I'm not finding specifics.

The problem may be the terminology. Ghost employment really isn't officially what it is called but its the general term everyone uses. I am not sure what would be the best terminology to use for the purpose of googling.

Also, its not the practice per se that is illegal, its the results of the practice. In my examples, it results in tax fraud. In another example it might result in bidding fraud (hire someone that is of minority status in order to get bidding preferences for a job, but the person will never work or manage the company) AND tax fraud, or some other form of fraud.

Leona Helmsley (owner of a big, fancy, NYC hotel) went to prison for a form of ghost employment. She had people on the business payroll who were doing work for her personally.

So, maybe its better to say that its illegal if it results in any kind of fraud, but to be honest, its virtually always going to result in tax fraud and social security fraud. The owner of the business will always be getting a bigger tax break than what taxes will cost the receiver of the money, (and in some cases, will result in the receiver not paying any taxes at all and receiving refundable credits) and the receiver of the money will always be receiving social security credits that they never actually earned.

 

[Zigner]

The problem may be the terminology. Ghost employment really isn't officially what it is called but its the general term everyone uses. I am not sure what would be the best terminology to use for the purpose of googling.

Also, its not the practice per se that is illegal, its the results of the practice. In my examples, it results in tax fraud. In another example it might result in bidding fraud (hire someone that is of minority status in order to get bidding preferences for a job, but the person will never work or manage the company) AND tax fraud, or some other form of fraud.

Leona Helmsley (owner of a big, fancy, NYC hotel) went to prison for a form of ghost employment. She had people on the business payroll who were doing work for her personally.

So, maybe its better to say that its illegal if it results in any kind of fraud, but to be honest, its virtually always going to result in tax fraud and social security fraud. The owner of the business will always be getting a bigger tax break than what taxes will cost the receiver of the money, (and in some cases, will result in the receiver not paying any taxes at all and receiving refundable credits) and the receiver of the money will always be receiving social security credits that they never actually earned.

Thank you - This is more in line with the way I viewed things. The act itself isn't illegal per se, but can easily turn to that.