Why would carmen get audited and not joan

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Problem 1. Joan is self-employed and earns $45,000. Her husband Howard is a computer engineer who makes $180,000. Joan tells Howard she would like to hire him for $30 an hour as an independent contractor to do all the computer work for her business. Howard says, "Joanie, honey, you don't have to pay." Joan says that she wants to pay him because it will reduce the family's liability for social security tax. What is she talking about?

Problem 2. Joan spent $5000 on a computer upgrade for her business. Her friend Carmen who had sales of $2000 and a loss of $8000 also spent $5000 for a computer. Carmen got audited. Why would Carmen get audited and not Joan?

Problem 3. The IRS does not audit businesses until their third year of business. Any guesses why?

Reference no: EM132793364

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