Help a Reader: Sunday Edition

Here's an email I recently received from a reader that I thought was a fitting post for a Sunday:

A good friend of mine recently received a car from his in-laws. It's a brand spankin' new Toyota Highlander. As we talked about the car, he mentioned that his in-laws bought the car through their business (dental office) and has given it to them to use. He also mentioned that the reason why his in-laws bought a car was so that they can lower their business income.

Now my friend is an elder in a church while his in-laws are non-believers. My friend's wife (their daughter) doesn't work for them. After mulling the situation over a few days, I felt that this is unethical and need to confront him. Is it even my business to do so? Need your wisdom.

What's your advice for him?

Comments

[KH]

I'd say MYOB. First, because even if you do speak up, what does it accomplish? He's not going to give the car back.

Second, because his explanation of where the car came from seems pretty sketchy and probably isn't the truth. Although it's possible that he was lied to by his in-laws and is just repeating what they said. You don't mention this guy's financial situation--maybe it is precarious and his in-laws just wanted to make sure the grandchildren are riding in something safe (or that the family has a car at all so they can come visit), and so they just gave him a car together with a white lie so he would accept it as something other than total charity. Another possibility is that the dental office will in fact be using the car in 1-2 months---at which time they'll have to give it back.

Whatever the case, it's most probable that the in-laws still own the car. They can do with it whatever they want, including lending it to family members. Why do you feel so strongly that you have to "investigate"?

[JoAnna]

Mind your own business. Who are you to judge?

[Steve]

Four words.

MYOB.

- Steve

[Kevin]

Mind your own business pal. You have no place confronting them.

[Michael Goode]

What the heck is wrong with you people? Do you say MYOB for every felony? And tax fraud can be a felony. IF the friend is a good enough friend to give the details on where the car came from, he is a good enough friend to strongly suggest to him that he not take such a gift.

Another option would be to report the friend's in-laws to the IRS and then you can potentially receive a whistleblower commission from the IRS is their tax fraud is big enough. Although I have to admit this suggestion isn't serious: http://www.irs.gov/compliance/article/0,,id=180171,00.html

[Mark]

I don't think he needs to confront anyone. He doesn't know the facts, but he has a suspicion.

He should gently explain to his friend that his in-laws could get in trouble for tax fraud if they are treating the vehicle as a business expense when it is in fact a personal expense.

I will leave it to someone with legal knowledge to inform us if the recipient is an accomplice to this alleged crime.

[mashford]

If he ask you for advise, then give it. Otherwise, giving your advise may destroy your friendship. I have a feeling that overtime your friend will see the problem and address it themselves.

[Hal]

I'm with the mind your own business. The person has no idea what's really going on, only hearsay. It's not worth it.

[JM]

Yeah, this is tax fraud and considering the recipient had knowledge of it I think he could be considered an accomplice. I would at least tell the recipient that it is tax fraud and that he and his in-laws could get into serious legal trouble if they're ever found out. The MYOB would come in when it comes to reporting them; don't, unless you feel a real moral obligation to do so. The IRS lets you do it anonymously and they sometimes give out cash rewards for it.

I am an accountant, but not a lawyer, FYI.

[Marc]

The asset is owned by the business. There is no law saying they what they have to use it for. If they are deducting mileage as business expense, then a law is being broken. If you are upset - push for tax reform or keep your mouth shut.

[Olivia]

I agree, this is none of your business. If you were the one receiving the gift, then you could tell the in-laws your opinion on the matter. However, since you are not receiving the gift and are not directly involved with the matter, you need to stay out of it. Whether you agree with it or not, it is not your place to get involved.

[Old Limey]

Conversations with a good friend should be held confidential, particularly in a case where obvious tax fraud is concerned. Questionable business deductions are being taken every day by thousands of individuals, but that doesn't make it right. In this case the parents know exactly what they are doing which is taking a risk in order to help out a daughter. It's for them to decide if the risk of an IRS audit is worth taking to help out a child.

You should stay out of it, as others have said, it's none of your business. One would need to know a lot more about your friend's financial situation to make the proper determination. If his family is in good financial condition and it's very important for him to uphold his religious values then he should have politely declined the offer of a very expensive car after knowing that it was purchased for business purposes and presumably neither he or his wife are employees of the business. However if he or his wife performs some services for the business for which remuneration is received and that require the use of a car then everything is above board. The question then would have to do with the extent of any personal, non-business related use of the car.

[BibleDebt]

Unfortunately you will probably not be well accepted if you add your opinion. However, it really is not the right thing to do. Maybe you can offer up a story of a similar thing you may have done in hindsight and let him know how you felt about the situation afterwards.

[texashaze]

This post leaves more questions than answers. There may or may not be tax fraud depending on the details. Bottom line, this is an issue between the kids, their in-laws and the IRS, NOT the friend. He/she should not worry about it and focus on their own problems.

One more point, the IRS leaves many options to LEGALLY claim deductions to lower your tax bill. There is nothing wrong with this. The IRS gets plenty as it is from small business owners... they need all the help they can get.

[Kyle]

Dude, stay out of it. You don't know the details of what's going on.

Now if they bring it up and give you enough details to know whether or not this would really consist of tax fraud, then yes, voice your concerns. But it is not your life or your business.

[Robert]

As Christians, we are instructed to respectfully and gently approach each other if we are involved with unrighteousness (Matt 18:15-22). Why do you think Paul wrote letters to the various churches instructing them? Our society is so accepting of everything these days, but Christians are to hold one another accountable to Christ's teachings.

It's never easy, because no one is perfect, but maybe this guy is telling you about it as a way of asking for advice without really asking.

"Iron sharpens iron, so one man sharpens another." Proverbs 27:17

[bhleigh]

If you are worried about a wrong doing such as breaking the law, shady business practices, or the like, then I would speak to your friend about the car in such a way that you are looking out for them meaning you don't want the friend to be on the receiving end of a shady deal. also, keep in mind that business vehicles can be used for personal vehicles as long as the primary reason is for business. Maybe the car is a loaner until the business needs it, maybe the car is part of a promotion the business wants to run in a few months (imagine cars detailed with business logos and you see what I am talking about), or even, correct me if I am wrong here, businesses can give gifts to individuals just like regular people can give $13K/year tax free.

With this said, I personally wouldn't even broach the subject. Your friend had the good fortune of parents/in-laws who are willing to help them. Stop looking for the negative and embrace the positive.

[Funny about Money]

IMHO, this is strictly none of your business. We don't know all the details. We don't know whether one or both of the kids are on the books as shareholders in the dentist's corporation. If they are, they are allowed to drive the vehicle, even (within reason) for personal use. Says Smart Money's smSmallBiz.com:

"When the heavy SUV, pickup, or van is owned by your C or S corporation, it must be used over 50% for actual corporate business activities (based on mileage) to qualify for the Section 179 writeoff. Unfortunately, personal use by an employee who is also a more-than-5% shareholder (this means you) doesn't count as corporate business use for this purpose, even though the personal-use value is properly reported as additional taxable compensation on your Form W-2. The same restriction holds true for other corporate employees who are related to a more-than-5% shareholder. When the over-50% business-use test is failed, your corporation must depreciate the vehicle using the straight-line method, which means it will take six tax years to fully depreciate...."

That makes it sound as though personal use is permissible. Since you're really in the dark here, it's probably not a wise idea to go poking your nose into the shadows.

[CJ]

What does religion have to do with this issue? Unethical move, yes, but does it change at all if the vehicle was given to a "non-believer"? Agree with MYOB...you are not your brother's keeper.

[Matt]

My brother who is a doctor is audited once every 5 years becasue of his "business" and what he deducts. I do not know my brothers practices and will not get involve in his "schemes"

The tax man will audit and judgement will be rendered on the practices of what the "dentist" does. If the IRS finds "fraud" it the intent of the "business"they will be punished. I would point this out to the friend and question him in that he should check "on his own" into the legality and tax implication of what they are doing so that he is not dragged into a complicated tax mess.

Then let it go in that you have done your duty as a believer.

[CJA]

For the recipients of the car, this could be considered a "gift" within the annual gift exclusion of $13K. Each parent can give each of husband and wife up to $13K per year with no income tax consequences to the recipients. This totals $52K ($13K from each parent to each of them). This Highlander did not exceed $52K, so unless they get additional cash from the in-laws, this is not a taxable gift to them.

For the donors of the car, this is not a taxable gift either, for the reasons set forth above. However, it probably can't qualify as a business deduction unless there is some business purpose for it, and it would still be limited to the business use. This is, however, a tax problem for the in-laws, not the person's friends.

This person probably can't and won't know exactly how the donor/in-laws will characterize this on their taxes. The in-laws CPA has the professional obligation here.

I am an attorney, but you can't rely on these statements for tax advice. See IRS Circular 230.

[Eric]

Scripture is very clear on the qualifications to serve as an elder. These include a good reputation with outsiders and not seeking dishonest gain. (1 Timothy 3:1-7 and Titus 1:6-9). If you are a fellow believer and find yourself in this situation, you have an obligation to go to that person as pointed out by a previous post.

[LotharBot]

You should suggest to your friend that, depending on the specific details of the situation, he MIGHT be participating in tax fraud and that he and his wife should speak to the in-laws about it.

Because you don't know the full details, you have no reason to actually report them for tax fraud. But, seeing as your friend described to you the circumstances of getting the car, it's your duty as a friend of his to let him know about the possibility that he's engaging in something illegal. Don't press him on it, just inform him and let him deal with it on his own. (It's not your job to continue to investigate beyond that point.)

In other words, you should tell him you think there might be a problem, at which point it's no longer your business how he deals with it.

[BillV]

The MYOB folks in my humble opinion are off target here. Lotharbot is closer to what I would say to you. I wouild add the following though:
1. He's a good friend. This means you have a higher obligation to him.
2. You felt the need to post this as a question. To me, this means you know what he is doing is not appropriate--unethical if you will.
3. I have read and re- read your summary. What he is doing is not ethical and it is further complicated by his being an elder in his church. He knows its kinky; THAT'S WHY HE TOLD YOU. (emphasis added) He is looking to you for validation that it is ok. By remaining silent you confirm that it's ok.
4. Change the names and particulars; eg a politician who take a vacation from a lobbyist, or accepts a car.
5. For evil to succeed, all that is necessay is for good men to say nothing.
6. Calm down folks--not saying that FMF's friend is evil. I am saying, this is how it starts.
7. There is no need to confront your friend. You merely need to say: "BillV, I've been mulling over what you told me. And as we are good friends, I want to share my thoughts." And then tell him.
8. Even for us non believers, some of us to believe we are, our brothers keeper.

What you do is your business FMF, but remember that by saying nothing, you validate and give to your friend permission. MYOB'ers please recall that this is a good friend of FMF. That makes a difference

Good Luck.

[Original Poster]

Thanks for the reply. One thing I wanted to clarify is that it is not hearsay but the truth. My friend told me that his mom was buying the car for a tax writeoff and gave him the car to use for his family.

[Brian Deeley]

My initial intuition was "you need to tell him to give back, keeping it is illegal, immoral and unethical" etc. but when I started thinking through the businesses and tax issues, this is totally legit for his in-laws to do. I think a lot of commentors fell into the trap of thinking that the car had to be used directly in the business to be a legitimate expense. Tax laws (more or less) allows Business to give gifts (as well as charitable contributions) as legitimate expenses.

So the real issue isn't the legitimacy of his in-laws business expense, but looking at the friend's acceptance of the car as a potentially taxable gift. By itself, the gift probably fits under the gift limits set by the IRS. However, *this is where I would give the friend some advice about the car* because it might not be under the limits if his in-laws have provided other gifts.

[KC]

I am amazed at the number of "keep your head in the sand" replies.

This isn't an issue of hurting someone, but of helping. If there is possible concerns he has an obligation to bring it up. There is no big deal in giving advice to a friend. HOW he presents it is the only real issue and that should be as a friend. Then drop it.

In the military we were given demerits if we stood by a friend who was out of regulation for not informing him. In the social world I want someone to tell me there is a "bat in the cave" or my zipper is down. In sports tell me if I have the wrong club. In finances, let me know if an investment seems risky. And in tax laws, help me stay our of trouble.

Geesh, people, this is why we are in the mess we are in. I'm not talking about constant preaching, but a mention during a get together is fine, helpful and expected. What kind of friends are we?

[FMF]

BillV --

To clarify, this email/question/situation is from a reader, it's not from me.

[BillV]

Sorry FMF,
It is clear it wasn't you. I read the post too fast. My apologies. Doesn't change my response, though.

50 lashes with the proverbial wet noodle.

[ParatrooperJJ]

Perfectly legal. This is one advantage of small businesses. I imagine if you look closer, you might find out that this guy is a director o employee of the company. Either way, it is none of your business.

[Jim]

Is it possible the person who wrote the email is being covetous of his friends "brand spankin' new Toyota Highlander"? Before even considering saying anything, please examine your motives. Without understanding all of the details here (including seeing the inlaws tax returns), it would be inappropriate to say anything, and it's certainly none of your business to see their tax returns.

[enno]

I's say stop being so self-righteous and mind your own business!

[Mark]

The only real tax issue is whether the business is taking a deduction they should not.

It is tax fraud to deduct ANY expense (vehicle, restaurant or any other) unless for business purposes. Giving a car to a daughter for personal use is definitely not a business purpose.

Those who say MYOB or "people do it all the time" are basically saying it's OK to cheat. Apparently a large number of Americans think this, and many do cheat. Also - the IRS gets a lot of information from "covetous" or envious neighbors and colleagues, especially those who don't cheat and think everyone should pay their due.

[Eugene Krabs]

I came on only to say that it's good to have a sense of morality. If not for it, the world would be a harsh place to live. But yes, it's best to just leave it alone.

[nooney]

It sounds more like the original poster is jealous of his friend's new Toyota Highlander. Trying to find a "moral" reason for the friend to get rid of the car seems like a front to me.

[jim]

Its not certain the guy knows what is going on with the car. He may think this is all above board and allowed. Few of us are tax experts and he's trusting his in-laws. I'd question my friend in an honest way to ask if he knows how the tax deduction is working. If he seems unaware of the situation then you might politely recommend to him as a friend that he ask his inlaws further how it works so that he isn't involved in anything that could potentially get him in trouble with the IRS. He might want to back out of the deal if he finds out he's facilitating tax fraud. If on the other hand, he smugly replies that his in laws are scamming the government and he gets a free car out of the deal then you know for sure whats going on. In that case then you might consider taking some other action considering your church elder is acting unethical.

[jim]

I'm surprised that so many commenters basically demand that we all ignore such apparent criminal behavior, go out of their way to come up with explanations for why its probably innocent or even go so far as to blame the reader for alleged jealousy over the new car.

[Mike Z]

There is no proof that any crime has taken place. I see no need to do anything. It really seems like the person asking the question is jealous.

[Budgeting in the Fun Stuff]

I'd mention my opinion to my friend, but I wouldn't pursue this legally or anything.

[Kathleen]

I'd just be inclined to ask if he's run it by a lawyer or accountant (well, I'd *recommend* he do so, but I'm a lawyer so my friends are used to me saying, "Well, as your legal advisor I have to recommend..."). It may be perfectly legitimate, but if it sounds grey to a concerned friend, the tax office could struggle with it too.

That way you:
(a) have done something to relieve your mind;
(b) have made sure your friend knows there *might* be an issue;
(c) are recommending that he get advice from someone who is really familiar with the law and with whom he might be comfortable discussing the particulars;
(d) shouldn't be seen as being judgemental; and
(e) shouldn't be perceived as saying "I told you so" if you're ignored or something goes wrong.