While I am sure the IRS is willing to take your money, they do not want people paying anyone cash off the books. Also, there are a plethora of state and even local laws that prohibit paying cash. Your wife may be required to obtain a bond. Theoretically, this is to protect would be employers. In practical terms it was rent seeking on the part of companies that sell bonds.
On the other side of the coin, a friend took his company legit. When he declared he had several employees the clerk asked how long he had been in business. He said ten years. Poof! He owed ten years back taxes and penalties. Another time he made no money that week, and so didn’t turn in any state paperwork. He was fined over $10,000 for failure to turn in paperwork that would have said no he made no money that week.
It is dangerous to get any government entity involved in your life. This is a problem for a tax attorney.
Also, perhaps what you want is a life insurance policy rather than anything to do with the government. Caution here as the policy gets very expensive as it gets closer to the fact you might use it.
Your friend should have said, “I’m starting a new business.....”, which wouldn’t be untrue if never legit before.