ACORN gave tax advice to a fake prostitute. How would a real one pay her taxes?

Answers to your questions about the news.
Sept. 21 2009 6:29 PM

How Do Prostitutes Pay Their Taxes?

With 1040 Schedule C, of course.

Acorn logo.

ACORN, the community organizing group and Republican cause célèbre, lost its federal funding last week after some of its employees were captured on video telling people they thought were prostitutes how to manipulate tax laws. How do real prostitutes go about paying their taxes?

They report their income on IRS Form 1040 Schedule C (PDF) and pay self-employment tax in addition to ordinary income taxes. Sex-worker advocacy organizations regularly receive requests for tax advice. Some prostitutes, for example, might need help with the first line on the form—which asks the filer to identify her profession and service offered. It turns out that the Fifth Amendment privilege against self-incrimination permits a prostitute to leave this line blank or provide a vague answer like "sale of leisure services." The form also requires the filer to select a code for line of business. The ACORN employee recommended 711510 ("independent artists, writers, and performers"), but 713900 ("other amusement and recreation services") and 812990 ("all other personal services") would have been equally appropriate.

Successful prostitutes may claim to be working in a related field, like nursing or psychology. There are some powerful incentives for these women to file: If a high-earning prostitute wants to buy a house or a car or sign up for a credit card, she'll need to report some income. One way to do that is to get a degree or license of some kind and then claim income for a related service—for example, therapy. For high-end prostitutes, the fear of being caught evading taxes has more to do with reputational damage and harm to their business than legal penalties.

The IRS also receives tax forms from sex workers with no interest in houses or AmEx cards. That's because the penalty for tax evasion is stiffer than most states' sentences for prostitution. In Maryland, where the first ACORN video was filmed, the maximum sentence for prostitution is one year in prison and a $500 fine. (Maryland is relatively heavy-handed. Arizona's prison term for first-time prostitutes is just 15 days.) Tax evasion, on the other hand, can get you five years in jail and a $100,000 fine, plus unpaid taxes and interest. A prostitute who never files can also be prosecuted for evasion by a state government.

Congress has established something of a safe harbor for people reporting income from illegal activities. The IRS may not disclose tax returns to law enforcement authorities unless the individual in question is already under investigation for wrongdoing. In other words, police can use a tax return in their investigation, but it can't be the initial tip. The opposite is not true: Local police can, and do, notify the IRS that they have uncovered a prostitute or ring of prostitutes who may have violated the tax laws.

Many prostitutes who have been prosecuted for tax evasion have argued that the payment was, in fact, a nontaxable gift unconnected to the sexual relationship. In legal terms, a gift from a lover is made out of "affection, respect, admiration, charity or like impulses," while taxable income is the direct exchange of money for sex in a quid pro quo relationship. This argument rarely succeeds in court (PDF).

Prostitution has raised a number of peripheral tax issues as well. Last week, for example, the U.S. Tax Court ruled against a tax attorney who tried to write off $100,000 in payments to prostitutes as deductible health care expenses.

Got a question about today's news? Ask the Explainer.

Explainer thanks Sienna Baskin of the Urban Justice Center and Sudhir Venkatesh, author of Gang Leader for a Day: A Rogue Sociologist Takes to the Streets.



Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Two Damn Good, Very Different Movies About Soldiers Returning From War

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Students Aren’t Going to College Football Games as Much Anymore, and Schools Are Getting Worried

The Good Wife Is Cynical, Thrilling, and Grown-Up. It’s Also TV’s Best Drama.

  News & Politics
Sept. 19 2014 9:15 PM Chris Christie, Better Than Ever
Sept. 19 2014 6:35 PM Pabst Blue Ribbon is Being Sold to the Russians, Was So Over Anyway
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.