Taxes

How to Report Tax Fraud to the IRS



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The internal revenue service is always on the lookout for tax cheats, and have made it as easy as possible for citizens to report tax fraud. Fraud is the intentional misrepresentation of information to the IRS, and it carries hefty criminal and civil penalties. Anybody can report a potential fraudster, and in some cases the tipster can receive a reward from the IRS.

The IRS has established a fraud hotline at 1-800-829-0433. In addition, you can go to the IRS website. If you know more than just some superficial details, such as you have intimate knowledge of fraud that has been committed, you can fill out a form to request a reward. The basic rule is that you can recover 15 percent of the tax owed by the offender on amounts up to $10 million. In order to get the reward, you need to provide details about who is committing the tax fraud and you need to provide whatever proof you have.

Although the IRS will not publicly reveal the source of the information, you might want to think about whether the proof you provide will reveal your identity anyway.  Even though federal whistle blower laws should protect you from losing your job if you reveal fraud on the part of your employer, you might want to think about the effect that calling in a tip on your boss might have.

In recent years, as the IRS has tried to beef up enforcement against major fraud perpetrators, a new program has been introduced to provide an even higher reward for major recoveries. If you provide the tip that leads the IRS to recover $2 million or more in penalties, the reward is set between 15 percent and 30 percent of the recovered tax owed. There are some restrictions on reporting major fraud by an individual, but the point is that the IRS is looking for citizens to report on fraudulent activity.

The situation is a bit more complicated if you are implicated in the fraud in question. Although you are still permitted to call the tip line, you might want to consult with a lawyer to get a strong understanding of whether the fraud you know about might also implicate you. This is less a concern for employees of a business that is cheating on its taxes than it is for a spouse or relative of an individual who has been cheating. Depending on the facts of such a case, you might want to make sure that you approach the IRS a bit more carefully.

More about this author: Sue A. Sponte

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