united-states tax-law debt
Is this story about US tax office reasonable?
<p>Ages ago I read a nice story that sounds quite reasonable, but might be complete nonsense. Here it goes:</p>

<blockquote>
  <p>A private detective in the USA has lots of lawyers as customers. And
  they are notoriously bad at paying their bills. As a result, the
  detective owes money to the IRS. He talks to the IRS on the phone, and
  explains that he would love to pay his tax bill, but can't because so
  many of his customers are not paying their bills. </p>
  
  <p>The tax officer says "I'll come to your office on Monday morning.
  Please have your 20 largest unpaid bills ready". </p>
  
  <p>Monday morning, the tax officer arrives, takes the first unpaid bill
  to a lawyer, and calls: "Hi, this is John Smith. I'm informed that you
  owe private detective X an amount of $Y. Is that true?" Then the story
  explains (whether true or false I don't know) that in the USA it is
  quite possible to delay a payment legally, but it is illegal to
  falsely claim that you don't owe a debt. So when the lawyers office
  confirms, he says "I'm John Smith from the IRS, and I would ask you to
  pay the amount you owe to the IRS. Today. " And two hours later, the
  detectives tax bill is paid.</p>
</blockquote>

<p>Question 1: Is it indeed illegal to lie about owing money? </p>

<p>Question 2: Would a company owing someone money that is past due payment be obliged to send the money to the IRS to pay the person's tax bill, assuming that the tax officer and the person owed state that this should happen?</p>

<p>Or is this story not reasonably possible? </p>

<ol>
<li><p>There is no general law making it illegal to lie about debts, or anything else. It is illegal to lie to a law enforcement officer <strong>in the course of an investigation</strong>. (And of course it is illegal to lie in court testimony or when otherwise under oath.) But it is in no way unlawful to decline to answer, unless a proper court order has been obtained, or other lawful means of compelling an answer. I would expect any law office to respond to such a question with something like "Am I/we being investigated? If so, send the appropriate notice and our lawyer will consider what we should tell you. If not, tell us what information you want, and we will consider and provide a written response in due course."</p></li>
<li><p>If a taxpayer has been <strong>found</strong> to be delinquent in paying taxes, in some cases a court order may be obtained seizing assets, including unpaid debts. But no IRS agent can make such a claim on the spot, and indeed for a client to make such a payment without such a court order, or the order of an IRS tribunal (or the creditor's written consent) would itself be unlawful and would subject the lawyer to a suit by the PI (Private Investigator).  </p></li>
</ol>

<p>When the lawyer pays a service provider, a 1099 must be filed with the IRS. If the PI is a corporation, a different form is used, but a record of payment is still required. As failure to timely file such a form is a violation of the tax code, an accusation of paying without filing would permit the lawyer to decline to answer under the Fifth amendment. If the lawyer did pay and did file a 1099 or other documentation, the IRS would know what had been payed, and would not need to confront the PI.</p>

<p>Also, as the comment by  Hilmar points out, a PI would be likely to use the cash accounting method, and so would own no tax on work performed but unpaid (as yet). So unless the IRS agent thinks the PI was paid "off-the books" and is intentionally failing to report the payment, there would be no point to such a question.  And if that were he case, the lawyer would be very likely to decline to answer.</p>

<p>I find the story quite implausible.</p>
