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Report Tax Evasion & Get Comped by The IRS?

by J. Money on Wednesday, January 16, 2013

tax cut

You really do learn something every day, I’ll tell you what… Remember last week’s guest post on my friend paying cash for a service and saving $400 in the process? Well, most of you came to the conclusion that the shop owner was probably discounting the rates in order to avoid paying taxes vs. saving on credit card transaction fees (which does make more sense now that I think about it, haha… you smarty pants!), and out of that a fellow blogger shared a tip that makes this situation even MORE interesting than it was.

From Michael of Financial Ramblings:

I agree with several others that say this screams of tax evasion. Credit card swipe fees are a few percent. There’s no way that someone would negotiate down 33% to avoid running a card. If your friend wants an even better deal, he should turn around and report this guy for tax evasion. ;-) Whistleblowers can pocket 15-30% of the funds of recovered.

Have you ever heard of that?? I had no idea you could make money that way… Not that I know many people skipping out on taxes anyways, but still – that could mean some BIG bucks if you catch a huge ass offender! (And would also make for an EXCELLENT side hustle idea too, hehe… Anyone ever done it and want to share their story with us? :)). Michael blogged about this recently when some guy made $104 MILLION turning someone over, so it *is* certainly possible even if it’s rare.

Now how funny/messed up would it be if my cash friend did turn around and report that car shop owner? After getting a crazy discount of $400 AND willingly accepting it? Would there be a chance he could get in trouble too, even if he didn’t know all the way what the situation was at first? Do you think the excuse of “I had no idea he was evading taxes until I anonymously wrote a blog post on it and people told me to report him!” Haha… And then I get a friendly knock on my door from an IRS agent needing my help too ;) That would be fun! And wouldn’t be the first time I received a knock like that either actually… (story for another day).

It also reminds me of an old friend of mine who would always get in trouble whenever she wrote “rent” on her rent checks years ago. She lived in a townhouse with 3 other people (also paying rent), and the owner would just lose his $hit whenever someone forgot and wrote that into the designated area. She always thought it was weird but didn’t realize until later what was really going on over there. Aka the landlord not reporting all this income! Which amounted to at LEAST $1,500 a month, which is pretty ballsy especially since the guy was some big shot at a bank making a killing at his job anyways. Why risk it all, you know? Oh, and also? He ONLY rented to hot chicks, haha… which he could also maybe get reported for?!

Anyways, I thought you all should know about this in case you’re ever presented with an opportunity :) AND want to take it all on too – something I’m not sure I’d want to myself to be totally honest with you. I’d be afraid of reporting a mafia guy by accident or something and then having a bounty on my head! No amount of money would help rescue me from that, yikes…

How about you though? Would you/have you ever reported anyone for tax evasion? And made a stack of cash in doing so? Do you think we have a moral obligation to report it anyways regardless of the financial reward? All good stuff to think about today… And a GREAT reminder to always report your income too! Even if it sucks.

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Photo credit: tolworthy


{ 48 comments… read them below or add one }

1 Tom January 16, 2013 at 6:48 am

Well…
Yes it is another way outta paying taxes. I do believe that there a lot of people/businesses that do this. But remember too that if you receive money, cash or otherwise, (IE garage sale, Craigslist, eBay) you are supposed to report it to the IRS. So just about everyone is guilty.
Also, to the persons that are saying to turn them in, mind your own business. Don’t play the see something, say something game.

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2 Casey January 24, 2013 at 2:44 am

If you sold an item for less than you bought it, there is no profit, and therefore no income to report.

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3 Lance @ Money Life and More January 16, 2013 at 7:17 am

I’m not responsible for them paying their taxes so I’d always take the discount. How they give it to me isn’t my concern.

In regards to the whistle blower program I think they have to actually recover a certain amount of money before you get a reward. I believe it is more targeted toward very very large taxpayers but I’d have to do more research to find out :)

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4 J. Money January 16, 2013 at 9:58 am

Yup – so if you’re gonna spend the time and effort, it better be for a HUGE offender who you also believes has the money to pay it all back even if the IRS catches them! Haha…

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5 Andrea @ take a smart step January 16, 2013 at 7:37 am

I would report someone if it was obvious, not for the reward but because the only way a tax system works completely is if everyone complies. The are many countries in the world that have major money problems because evasion is so high. Greece for example has estimates that only about a third of what is due is paid, taxes collected thier problems are gone!

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6 Terah@The Credit Report Chick January 16, 2013 at 8:18 am

Wow! Who knew? I agree with Andrea…I don’t think I would report someone unless it was overly obvious. Of course, I would want the money, but I wouldn’t go in it looking to cash in.

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7 Brian January 16, 2013 at 9:27 am

Lance hit the nail on the head. They have to recover lost taxes for you to get a piece. I have also read that lots of times they don’t do anything about the fraud you report unless it is a big fish. So I wouldn’t get my hopes up for making much money off of this.

Unless I was working for a company and noticed a large amount of fraud I probably wouldn’t do much about it. Everyone should pay what they owe, but I’m not the tax police and it seems like the IRS doesn’t really care anyways (for the most part)

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8 Ryan January 16, 2013 at 9:28 am

Tom in regards to your comment, you only need to report the income on the gain that you sold on Craigslist/garage sale/Ebay. Unless you are buying and reselling items, you won’t have any tax liability. Example: I buy a shirt for $20 wear it for a year and sell it for $5 at a garage sale. Since their is no gain on the sale of a personal item you don’t need to report it, but you also can’t claim the loss.

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9 graduateliving January 16, 2013 at 9:40 am

It’s seems fairly unethical to me to profit (or, at least not lose as much) from a guy for shady business dealings and then turn around a report said shady business dealings.

I think the more effective strategy here is to make sure to give business to those companies/individuals whose business practices you support. If you think something shady is going on and you have an issue with it (i.e. tax evasion) then just take your business somewhere else. Like a commenter above said, the customer isn’t the tax police, but the customer does have power – buying power. Use it to reward ethical businesses.

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10 SavvyFinancialLatina January 16, 2013 at 9:41 am

Ahh I’m with Bryan on this one, unless it’s a major corporation doing tax evasion or someone really evading taxes big time, I don’t really care.
I don’t think it’s worth it for the IRS to spend their time searching for those people who don’t report a couple hundred bucks.

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11 J. Money January 16, 2013 at 9:56 am

Yeah, they’d need to collect a LOT of unpaid money for it to be with it financially to those who report it for sure… And many times they may have spent it all anyways and don’t have the $ to pay back the gov’t even if they asked for it! Crazy…

Btw, my “anonymous” friend just emailed me when he read this :)

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1) The service was almost 100% labor. Just because the guy started at a certain #, it doesn’t necessarily mean that that was the true price. So, even though I’m sure I got some sort of discount for a cash transaction, I’m not sure it was anymore than the cc fees.

2) Why in the world would I want to get someone in trouble with the government when they did a great job for a great price? Especially since I would return to purchase more services? Note that I said a “great” price. I had gotten quotes from other shops and this guy’s final price was still higher than other shops. It’s just that they do a perfect job every time and have a great rep that makes it worth it.

Anyway, maybe I’ve been living here for too long, but there is a real community spirit out here. It’s like everyone takes care if each other, and I don’t mean that in the mafia way. So, to report someone to the police only for my own [pitiful] financial gain feels like it is treasonous to my neighbors. It does kind of tie into the greater theme of the post in that the ‘police’ only seem to go after the small people and leave the big banks with their big crimes unprosecuted…f**k da police! (That’s a Vegas thing too, probably :-))

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So now we know HIS feelings on it! Haha… Man this stuff can get emotional…

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12 debtgirl January 16, 2013 at 10:43 am

I don’t think I would turn anyone in for tax evasion.. I don’t think I know anyone that is doing it, or at least not to the tune of the millions! 104M for turning in someone tells me that they had some serious cash, were serious gangsters and would probably have me whacked! ;-) no thanks! ;-)

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13 Grayson @ Debt Roundup January 16, 2013 at 10:59 am

I think that would be a crap move if your friend did that. I would gladly take the discount over trying to get myself into a legal mess with the IRS over someone’s taxes. Unless I knew that this shop owner was really screwing the pooch, I would leave him alone. I would continue to go to him for repairs and pay in cash. It wouldn’t bother me one bit. Plus, all of the time you spend dealing with the IRS to whistleblow, you wouldn’t net that much.

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14 Johnny @ Our Freaking Budget January 16, 2013 at 11:26 am

Snitches get stitches.

I’m kinda torn on the whistleblower thing. I’m all for finding ways to keep more of your own money and out of Uncle Sam’s hands. But those ways should be legal. I’m much a proponent of the belief that if I’m faithfully paying my taxes, you should too. Otherwise, this whole Democracy ain’t gonna pan out. I hate taxes as much as the next guy, but they fulfill an essential need.

But all that being said, would I actually turn someone in? Probably not. But I’d likely give them a piece of my mind.

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15 J. Money January 16, 2013 at 12:16 pm

HAH! If you ever watched The Wire you’ll know you NEVER snitch or you’ll quite literally find yourself dead. But I agree – there are plenty of legal ways to keep more of your money than cheating the system, it’s just a lot more work and hoops to jump through/etc.

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16 Money Beagle January 16, 2013 at 11:27 am

Trying to skip out on paying taxes is something has never once crossed my mind. It seems that there are enough failsafes in the IRS system that you will eventually get caught. A family member once tried to avoid paying the high taxes we have on cigarettes here in Michigan by ordering them from a website. All was good and he saved hundreds (maybe even thousands) but then the site got ‘raided’ and they had to turn over their entire customer list, so guess what happened? You guessed it, my uncle gets a letter in the mail with a bill that he owes all the back taxes that he had tried to avoid. Yes, I’m sure you can skirt around a payment now and then and actually get away with it, but I think the odds are so stacked against you that it’s not worth the risk.

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17 J. Money January 16, 2013 at 12:19 pm

WOWWW really?? I wonder how many people that affects that aren’t even TRYING to game the system, ya know? I don’t smoke cigs but if I saw them super cheap online I wouldn’t think twice about odering – just cuz they’re cheaper. Makes you wonder about the other stuff you get online then that could potentially be trouble later, eh?

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18 Jane Savers @ The Money Puzzle January 16, 2013 at 11:39 am

I had a student tenant once and it cost me big time because I declared the income. I don’t want to cheat the government so I just won’t rent a room anymore. I am not daring enough to do something illegal so I miss out on opportunities.

I was a waitress when I was in college and I always tip in cash now because I don’t want there to be an electronic record of the tip transaction. I guess that is helping the wait staff cheat.

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19 J. Money January 16, 2013 at 12:17 pm

Why is renting out a room illegal? Was there technically no extra “room” or something?

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20 Edward Antrobus January 16, 2013 at 12:30 pm

You have to report the rent received as un-earned income. Not doing so would be the illegal part, I believe.

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21 J. Money January 16, 2013 at 12:41 pm

yeah, I get that part but she’s saying she did declare it? unless she meant to say she “didn’t”?

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22 Edward Antrobus January 16, 2013 at 2:22 pm

How I read it was that she had a tenant, declared the income and wound up with a big tax bill, so she won’t do it again because she’s not willing to take a tenant and not declare the income.

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23 J. Money January 16, 2013 at 3:06 pm

Ahhh… well in that case all you have to do is set aside a % of this extra money so you’ll have it for the end of the year to pay! problem solved :)

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24 tentaculistic January 16, 2013 at 2:44 pm

“I was a waitress when I was in college and I always tip in cash now because I don’t want there to be an electronic record of the tip transaction. I guess that is helping the wait staff cheat.”

When I was a waiter, we were told that the IRS assumes you are getting 15% on every table, even if some of it is below the table (like what you said – pay the bill on the card and the tip in cash). I haven’t found anything on the IRS website that says that, but I have to believe that they are on to that particular scam, given its prevalence. (although you could try paying a small electronic tip and also put down cash)

Which made the indignity of a cheap (or nonexistent) tipper even worse.

Cheap tippers suck.

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25 Rick January 16, 2013 at 12:10 pm

There’s a local pizza place (not a chain) that has “standing room” only just about every night. The neat thing about this place is that they only take cash and the owner is the only one that works the register. They have great prices and the best pizza. I”ve talked w/him about his business model as a grad school project. He doesn’t think government needs to know everything so he keeps them in check by stating a “small” profit on his books.

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26 J. Money January 16, 2013 at 3:08 pm

hah! I hope he doesn’t get in trouble by “keeping them in check” at some point ;) Awesome it’s cheap and tasty though!

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27 Financial Black Sheep January 16, 2013 at 12:18 pm

I have never heard of getting paid for turning anyone in, that just seems weird to me. I guess because for 3 years now I keep getting IRS “surprises” in the mail saying something that wasn’t reported, so I always think the IRS will catch everything.

My IRS notices are always something I have no clue about and they take lots of time to figure out before I can pay it. This last time it was because of an old temporary agency said my husband worked for them last year, when he hadn’t worked for them in years. Still trying to make sure it is old income and not something they forgot to send to the IRS. :(

I wouldn’t turn anyone in unless I knew it was horrible. I have my own issues to deal with and unless it pays me enough to make it worth my time then why would I care. Between school, my own house issues, paying down my debt and looking for side-jobs I don’t think I would even have time to worry about someone else and their issues.

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28 Edward Antrobus January 16, 2013 at 12:25 pm

My dad once turned his boss in for tax evasion and never got anything. Of course, that was the late 70′s, so it may be a new rule.

The boss gave him an annoying nickname and wouldn’t stop calling him that no matter how many times my dad asked. Moral of the story, if you are being shady, don’t annoy the people that know about it!

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29 Crystal January 16, 2013 at 12:57 pm

I wouldn’t report tax evasion unless it was blatant and gigantic…otherwise, I’d have to report like hundreds of people I’ve known in passing just because they write off a work lunch even though work was only discussed for like 2 minutes. Or they didn’t declare the $60 of cash income they made from a babysitting gig. Overall, I know tax evasion is rampant but I do not have the time, energy, or motivation needed to become a full-time tattletale, lol.

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30 J. Money January 16, 2013 at 3:10 pm

haha same here ;) though if I found out a large company that I hated were up to some sneakiness I’d def. at least consider it… better chances of having bigger amounts missing AND getting paid in the end, but how I’d find out about these shady companies are behind me, haha…

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31 John S @ Frugal Rules January 16, 2013 at 1:00 pm

Wow, that makes total sense now why it could be considered tax evasion. While I might say something to my friend about it, I think it would be a pretty crap move to try and snitch them out. In the end, that’s between them and their conscience.

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32 Anne @ Unique Gifter January 16, 2013 at 1:24 pm

I had no idea there was a reward aspect in the US! I am pretty confident that doesn’t exist here. I know that sometimes when drug charges won’t stick, they get people on tax evasion (a la old school mobsters).
Interesting on the renting rooms thing, as the way it works in Canada is completely different. As long as it is shared accommodation there’s some sort of write off involved so the taxes are pretty much nil. There’s also some other deductions you can get a result, like for major repairs, but I really don’t know the details on any of this stuff.

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33 J. Money January 16, 2013 at 3:11 pm

HAH! I didn’t know that about mobsters – makes sense though… And again, the LAST people I’d try and make a buck off of!

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34 The Happy Homeowner January 16, 2013 at 2:05 pm

I know someone who rents out a condo in downtown Boston for BIG bucks but doesn’t report a penny of the income. Furthermore, that person is also double-dipping on the residential exemption and paying minimal taxes on BOTH properties (rental and his own). Hmm.. Not sure I have it in me to report it; it’s really not my business as it doesn’t affect me.

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35 J. Money January 16, 2013 at 3:12 pm

That’s still pretty crazy though. I always feel like the longer you try and get away with things, the more chances of getting caught anyways. I mean, it just takes one thing (or person) to get in the way of it all. I bet he gets found out at some point.

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36 Sean @ One Smart Dollar January 16, 2013 at 6:21 pm

Morally year I would say we should report people. For me it would just depends on my mood and how greedy I was feeling. :-)

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37 KK @ Student Debt Survivor January 16, 2013 at 7:43 pm

Wow, interesting. I’m not sure I’d “turn anyone in” unless they were blatantly cheating the system, or they weren’t giving me a cut (joke), or I really disliked them ;-) Can’t fault the IRS for trying to catch cheaters. If you’re lying and cheating on your taxes you’re probably lying and cheating in other areas of your life as well.

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38 J. Money January 17, 2013 at 7:37 am

HAH! Probably. I don’t fault the IRS either – if you want all the beauty of what this country has to offer, then you have to be willing to pay your fair share of taxes for it whether you like it or not. And if you fall more into the “not” category, then work on finagling a (legal) way around it or take action to help change policy… all of which take much more energy and time than just not paying and hoping not to get caught ;)

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39 Michael January 16, 2013 at 8:39 pm

J – thanks for the mention and the links. I greatly appreciate it. :-)

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40 J. Money January 17, 2013 at 7:37 am

Dude, thank YOU! Look at all this discussion going on cuz of your comment :) This is fun!

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41 Dr. Sheba January 16, 2013 at 8:51 pm

I can totally report someone. Would I? Hmmm. Let me sleep on it.

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42 lynn May 13, 2013 at 12:10 am

I have come into the opportunity to report someone to the IRS, and really all it is, is being a snitch. But the way I think about it is, I pay my taxes, always have, and always will. I get the help of the government when I need it, and when I don’t, my taxes goes to those who need it, even if they are being greedy or not. So I am going to report someone, and its not huge money but close to a 100k. Which is a big deal, considering the fact, the roads suck, the medical still sucks at least for most, and our economy is kind of okay. So for the 40% of America that ignores paying their taxes, screw you. Now there are circumstances, I get it. You are a single mom, and its just for now, or you are bearly making it, and trying to survive. But if you are just being greedy, and don’t understand the concept of too much money and not enough, then someone will for you…aka the IRS or the snitch that told them for you.

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43 joseph walters jr June 14, 2013 at 2:25 pm

plz call me so i can report a tax fraud scam from my ex boss he pays his workers under the table to skip paying taxes and also he dosent need to be running the type of buiseness tht he runs becouse he is not nice to the animals and is abuseive to the animals and the employess tht he hires and if its a woman the only way they keep there job is sleep wit him he also pays them money to sleep with him 1000 dollars a night

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44 J. Money June 14, 2013 at 4:54 pm

Wow. That’s no joke. I’d Google for the right numbers/places to report him if you’re serious about it. I really hope none of that’s true :(

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45 Lemmy May 28, 2014 at 11:36 am

I recently reported my ex through this program. She’s an adult entertainer who eanrs $1,000+ on a single slow weekday and about $10,000+ on the weekend, meaning she had a yearly income of six figures and never paid a single penny in taxes in the past two years. I felt bad the first days after reporting her but the more I think about it, I think I made the right the decision. She is someone who enjoys the benefits our country offers yet she doesnt do her part by paying her fair share of taxes. Not to mention she has this horrible sense of entitlement. I know the chances of getting a reward are slim but I didn’t do it for that reason. From my understanding if you report an individual they need to be making $200k + a year theirs a chance for a reward.

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46 J. Money May 29, 2014 at 7:19 am

Oh man… That’s hard to do I’m sure. I have no idea if I’d be able to pull the trigger on that or not, but it’s fascinating to hear about others who do – so thanks for stopping by and sharing today, brotha – appreciate it!

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47 Getitrightthefirsttime September 29, 2014 at 8:37 am

If anyone is still reading and responding to this chain: I feel angry because I have the feeling that my boss may be skipping tax somehow. She declines my request for a pay slip that I sign every time I ask. The only document I can keep is of the amount she’s paid into to my bank account, which is only half of what I really earn. The rest she pays me in cash and I have no proof of receiving it, which could now get me into trouble, right? I wouldn’t care how she chooses to conduct her business, if it didn’t affect me, but I think it does now. Any advice on what anyone thinks I should or could do, please?

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48 J. Money September 30, 2014 at 2:39 pm

Yikes – something definitely sounds shady over there for sure. My advice is to probably start looking around for other jobs as you never know what can be going on w/ her and the biz. You definitely don’t want your job to dissapear out of the blue so it’s good to prep early just in case (I was in a similar situation myself which I was eventually let go as the company started crumbling – it isn’t as uncommon as you may think).

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