As financial times toughen, the lure of filing inaccurate tax returns claiming more deductions, expenses and/or credits can increase and result in IRS fraud. If your coworkers, boss or significant other knew you cheated on your taxes, they could turn you in and make a profit. The Internal Revenue Service could award them with a percentage of the amount that was underpaid, with the amount not being capped for IRS Fraud being reported.
IRS informants are required to fill out Form 3949-A, or to call the IRS fraud hotline at 1-800-829-0433 for instructions. Informants must tell give their name to the IRS, it will not be made available to the public. People use this form if they suspect the following types of IRS Fraud:
- False or over exaggerated exemptions, claims or deductions
- False or altered documents
- An individual or business failed to pay tax
- There is unreported income
- Organized crime
- A business failed to withhold taxes
There are other forms that apply to IRS Fraud. If you believe that someone stole your identity and used your social security number to file a tax return, there is Form 14039. For fraudulent activity by a tax return preparer you will want to use Form 14157 and Form 14157-A. The IRS offers forms for other types of IRS Fraud as well.
There is no minimum amount for tax fraud being reported and anyone can file. Informants can be ex-spouses, jilted former business partners or ex-employees of an individual. In order to figure out which claims are legitimate and which are individuals solely trying to make money, the IRS requires that informants fill out Form 211, the Application for Award for Original Information. This form requires that the informant provides detailed information about the tax evader not limited to their social security number, date of birth, and address.
In 2006, the IRS introduced a new program which increased the reward given to informants for IRS Fraud. This new whistle-blower program pays informants a minimum of 15% and a maximum of 30% of the amount owed. However, in order to collect the reward, taxes, penalties and interest for the case must add up to at least $2 million, and if an individual, their gross income annually must be over $200,000. In 2008, the first year the program was implemented, 476 informants identified 1, 246 taxpayers with tax fraud.
In New York State, individuals can also report tax fraud and tax evasion of an individual, business or tax preparer. This can include:
- Failure to file a tax return
- Underreporting income
- Selling untaxed items such as liquor, gasoline or cigarettes.
The form can be filled out online, or individuals can contact the New York State Department of Taxation and Finance by phone, fax, or mail. As with the IRS, New York keeps all information confidential. However, as you might imagine, this is how many criminal tax investigations commence.
People feel the need to report IRS fraud for various reasons. Informants are not always close friends or family members, but often employees or business associates. Even though the names of informants are not made public, it often becomes obvious who provided the information to the IRS Fraud or New York State. The possibility of being discovered as a whistleblower is a deterrent to informing. Individuals fear for losing their jobs or not being able to find new employment. However, some informants are so passionate about others acting above the law that they feel a moral obligation to report IRS tax fraud. Therefore, when you are subject to a criminal tax investigation, you need an experienced criminal tax attorney to assist you.