I would imagine there are a lot of people in this business who do not pay all the taxs they need to. I was audited about 4 years ago, it was a long process - the IRS sent multible agents, they were more interested in how we made money and reported it. They spent 4 months tryingto figure out the "adult" business....
So I know there is a white paper on Internet Porn Busniess and what agents should look for....
Fortunately I like to sleep well at night, so I normally over pay taxs... I do not need to give the gov't or anyone else a reason to make my life difficult.
As far as the ratting people out, there are protections - I know a few people who had the dime dropped on them. It was not pretty, always easier to pay before the IRS comes knocking on your door.
