Reporting Tax Evasion: Rewards and Protections
Reporting Tax Evasion: Rewards and Protections
Paying taxes is a civic duty that supports our communities. But some people try to avoid paying their fair share. Tax evasion cheats the government and fellow citizens. It’s illegal. Fortunately, there are legal ways for honest taxpayers to report suspected tax evasion. This article explains the rewards and protections for reporting tax cheats.
Why Report Tax Evasion?
Taxes fund public services we all rely on. Roads, schools, military defense, medical research, and more. Tax dollars better society. When people evade taxes, everyone else must pay more to cover the shortfall. Tax evasion hurts honest taxpayers.
Some justify evasion saying taxes are too high or the government wastes money. But the solution is to change laws or policies, not break laws. Citizens can advocate reforms without cheating on taxes.
Tax evasion also harms fair competition. Businesses paying their taxes properly can’t compete with tax cheats. Unethical preparers lure customers with inflated refunds, while honest preparers lose business. Reporting tax evasion helps level the playing field.
Tax evasion often involves other crimes too. Money laundering, fraud, racketeering, etc. Reporting tax cheats can uncover multiple offenses. The IRS partners with other agencies like the FBI to crack down on criminal networks.
Some believe squealing on tax cheats is dishonorable. But silence enables injustice to continue. Speaking up supports fairness and justice. Tax evasion impacts everyone, so it’s everyone’s responsibility to report it.
Types of Tax Evasion
Tax evasion takes many forms. Some common schemes include:
- Not reporting or under-reporting income
- Exaggerating deductions, credits, or exemptions
- Hiding money in offshore accounts
- Using sham corporations or trusts to conceal assets/income
- Dealing extensively in cash to avoid records
- Claiming personal expenses as business expenses
- Paying employees under the table
Tax evasion cases range from small-scale cheating to complex fraud involving millions. But no tax evasion is trivial. Even small amounts add up, and underreporting sets a bad example.
How to Report Suspected Tax Evasion
If you suspect someone is evading taxes, the IRS urges you to report it. You can report suspected tax evasion using IRS Form 3949-A. You can submit this form online, or print and mail it. The form asks for:
- Your personal information (you can remain anonymous)
- Name and contact info of person/business suspected of tax evasion
- Details about the suspected violation
- List of any documents or evidence you have
The IRS reviews all submissions. Make sure to include as many specifics as possible. Vague reports are harder to verify. The IRS may follow up if they need clarification or additional details.
You can also report business tax fraud using IRS Form 3949-A. Many states have similar forms for reporting fraud on state income taxes.
If you’re reporting your own tax evasion, the IRS has voluntary disclosure programs to allow taxpayers to get right with the law. Requirements vary based on the circumstances.
IRS Whistleblower Program
For major tax evasion cases involving over $2 million in unpaid taxes, the IRS Whistleblower Office pays rewards to informants. Under Section 7623(b) of the tax code, whistleblowers can receive 15-30% of the taxes, penalties and interest collected based on their information. The program protects whistleblowers from retaliation.
To qualify for a whistleblower reward, you must submit IRS Form 211 detailing the violation. Rewards apply only when the IRS collects proceeds based directly on the information provided. Rewards are discretionary and vary depending on factors like:
- Value of information provided
- Usefulness of information to the investigation
- Whistleblower’s participation in the process
The IRS will follow up with whistleblowers and notify them of reward decisions. For more on qualifying and collecting rewards, see the IRS FAQ on whistleblower rewards.
Protections for Tax Fraud Informants
The IRS understands many informants fear retaliation. Confidentiality and anti-retaliation provisions help protect whistleblowers reporting tax evasion.
Anonymity
IRS Forms 3949-A and 211 allow informants to remain anonymous. The IRS will not disclose informants’ identities unless required for legal proceedings. Informants can communicate through attorneys to further protect anonymity.
However, complete anonymity limits the IRS’s ability to follow up for details. Providing some contact information enables better collaboration with investigators.
Anti-Retaliation Provisions
Several laws prohibit retaliation against tax fraud informants:
- Section 7623(a) of the tax code protects informants from retaliation by employers or contractors.
- SEC whistleblower rules prohibit retaliation against informants disclosing securities violations, including tax fraud related to securities trades.
- The OSHA whistleblower law provides anti-retaliation protection for many tax fraud whistleblowers.
If whistleblowers experience any retaliation, they can file a complaint with the government. Agencies will investigate allegations of retaliation and may pursue enforcement actions against violators.
Additional Protections Under Some Reward Programs
Whistleblowers qualifying for monetary rewards may get additional protections, like:
- Keeping the whistleblower’s identity anonymous during judicial proceedings.
- Providing private counsel to represent the whistleblower’s interests.
- Holding retaliators liable for whistleblower expenses like attorney fees, costs, etc.
Protections vary based on the circumstances, but whistleblowers can generally report tax evasion without undue risk of retaliation.
Conclusion
Tax evasion harms everyone by cheating the government and law-abiding taxpayers. Fortunately, informants can safely report suspected tax evasion and even get rewards in some cases. An ethical tax system depends on people speaking up when they witness cheating. If you know of tax evasion, consider reporting it to the IRS. Your information could help recover unpaid taxes and deter future evasion.