IRS gets John Doe summons for gig economy tax investigation
Friday, December 27, 2024
Some individuals who worked for an online site providing answers as experts in various fields soon could be hearing from the Internal Revenue Service.
On Monday, Dec. 23, a federal court in California authorized the IRS to serve a John Doe summons on JustAnswer LLC.
The federal tax agency is seeking information about U.S. taxpayers who were paid for answering questions during the years 2017-2020 on the Covina, California-based company’s digital platform. The public can go to the site to get questions answered by professionals such as doctors, lawyers, veterinarians, engineers, and tax professionals.
On-demand gigs: In cases like the JustAnswer site, those providing the answers are contract workers, not employees. They take the gig work on-demand, providing services or goods through a digital platform, such as a website or a mobile device app.
The digital platforms commonly serve as intermediaries, connecting sellers or service providers with customers, while also processing payments.
U.S. District Judge Dolly M. Gee for the Central District of California stated in her court order that there was a reasonable basis for believing that U.S. taxpayers who were paid by JustAnswer to answer questions as experts may have failed to comply with federal tax laws.
The Department of Justice (DoJ), in announcing the issuance of the order, also pointed out that there is no indication that JustAnswer has engaged in any wrongdoing in connection with its digital platform business. Rather, it noted that the IRS uses John Doe summonses to obtain information about individuals whose identities are unknown and who possibly violated internal revenue laws, such as by not reporting income they received.
In the JustAnswer John Doe summons, the company is directed to produce records identifying U.S. taxpayers who have used its platform to earn income, along with other documents relating to their work.
John Doe summons details: The JustAnswer court action is one used in many prior IRS investigations.
While the John Doe moniker makes it sound like the IRS is simply casting a wide net that will haul in everyone, it is a bit more specific. And it must meet certain legal standards.
The California-based Brager Tax Law Group offers the following summary of the John Doe summons process.
A John Doe Summons is an IRS summons authorized by Internal Revenue Code Section 7609(f). Unlike other IRS summonses it does not list the name of the taxpayer under investigation because the taxpayer is unknown to the IRS. The term John Doe summons achieved notoriety in July 2008 when the procedure was used to crack the back of Swiss secrecy laws and ultimately ended up in UBS turning over the names of about 4,500 holders of Swiss bank accounts to the IRS. It ushered in the current regime of stepped enforcement of the foreign bank account reporting rules. It also resulted in the Internal Revenue Service’s Offshore Voluntary Disclosure Program (OVDP), and numerous criminal tax fraud prosecutions, as well as criminal prosecutions for willfully failing to file Foreign Bank Account Reports (FBARs) on Form TDF 90-22.1.
The law firm also details what the IRS must do in order to convince a federal judge to approve a John Doe summons.
Unlike other IRS summons which can be issued by the IRS virtually at will, a John Doe Summons must be approved by a federal district court judge. The judge may approve only if:
1. The summons relates to the investigation of a particular person or ascertainable group or class of persons,
2. there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of the tax law, and
3. the information sought to be obtained from the examination of the records or testimony (and the identity of the person or persons with respect to whose liability the summons is issued) is not readily available from other sources.
Gig worker compliance questions: The gig economy has been a boon for many. It grew during the COVID-19 pandemic, as people lost full-time jobs, or had their hours reduced and replaced those lost earnings with nonemployee, on-demand work.
But as the gig economy has expanded, it also has created tax compliance concerns.
“The gig economy has grown in recent years and with it, the concern for tax compliance issues has increased,” said Deputy Assistant Attorney General David Hubbert of the Justice Department’s Tax Division. “This John Doe summons demonstrates that working with the IRS we will use all the tools available to us to ensure that no matter how U.S. taxpayers earn income, they are properly reporting it and paying their taxes. Those who choose to be on the forefront of the gig economy must be aware of, and abide by, all their tax obligations.”
IRS Commissioner Danny Werfel reiterated the gig economy challenges that his agency faces, as well as the IRS commitment to ensuring tax compliance by all.
“Like their fellow Americans who earn income through traditional means, U.S. taxpayers who earn income from digital and other platforms that comprise the gig economy need to pay their fair share of taxes,” said the IRS' Werfel. “The world is getting smaller for tax cheats, and we will work collaboratively with our partners to vigorously enforce the nation’s tax laws.”
Tax Felon Friday: The John Doe summons for information about JustAnswer experts may or may not eventually end up catching any tax scofflaws. But it earns recognition as this week’s Tax Felon Friday feature because it also is a good reminder to all of us who get side income.
If you earn more than a specific amount from a contract or gig job, the payer must issue you a formal earnings statement, and copy that document to the IRS. These typically are IRS Form 1099-NEC, Nonemployee Compensation, or Form 1099-K, Payment Card and Third Party Network Transactions.
1099-NEC forms are sent if you make $600 or more in a tax year from the gig. The earnings for 1099-K issuance is supposed to be $600, too, but confusion about the law that changed the reporting amount (and other things) led the IRS to make $5,000 the earnings threshold for 2024 that will trigger the sending of a 1099-K.
No form, no matter: Even if you don’t get a 1099-NEC, 1099-K, or any of the many other 1099 versions, if you got taxable earnings of any amount, you are required by law to report that money on your tax return.
This includes income from part-time, temporary, or side work; income not reported on an information return form, such as Form W-2, a 1099, or other income statement; or income paid in cash, property, goods, or digital assets.
The IRS has information and tips for individual on how to comply with tax obligations. You also can find a synopsis in my posts Tax responsibilities of gig workers and 5 tax tips for freelancers, gig economy workers.
The IRS also has guidance for digital platform providers about their tax reporting and filing requirements.
And while we wait to see what the JustAnswer John Doe summons reveals, you can catch up on tax miscreants who have been charged and/or convicted by checking out the ol’ tax blog’s special Tax Felon Friday page.
You also can find tax crime posts, notably those that were published long before I gave them a special end-of-week feature moniker, in where else, the tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.
You also might find these items of interest:
- Don't fall for Form 1099-K myths this tax filing season
- Report all your income even if you don't get a 1099 form
- Tax statements you need to file your return (2023 tax year version)
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