What is the point and legal status of "tax-free" income?

And getting caught by the IRS is also like having sex without a condom - except the positions are reversed.

You know you can anonymously contact the IRS. I was offered a situation where I would be paid (well) as an independent contractor. I thought things smelled fishy, so I called the IRS. From a payphone (this was many years ago and I was scared to death of the IRS). They helped me out with information, and in the end it was up to me if I wanted to give the IRS the business name or not.