Fio Barellis was discussing summer employment with Sara Rida, president of Xanadu Construction Service:
Sara: I’m glad that you’re thinking about joining us for the summer. We could certainly use the help.
Fio: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses.
Sara: I’ve got a plan that can help you out on that. As you know, I’ll pay you $12 per hour, but in addition, I’d like to pay you with cash. Since you’re only working for the summer, it really doesn’t make sense for me to go to the trouble of formally putting you on our payroll system. In fact, I do some jobs for my clients on a strictly cash basis, so it would be easy to just pay you that way.
Fio: Well, that’s a bit unusual, but I guess money is money.
Sara: Yeah, not only that, it’s tax-free!
Fio: What do you mean?
Sara: Didn’t you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesn’t know about the income—hence, it’s the same as tax-free earnings.
a. Why does Sara Rida want to conduct business transactions using cash (not check or credit card)?
b. How should Fio respond to Sara’s suggestion?

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October 20, 2011

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