Can I Obtain a Reward for Turning in a Tax Cheat?

Turning in tax cheat not only helps enforce the law but can also lead to a monetary reward if the information provided leads to a successful recovery of unpaid taxes. The Internal Revenue Service (IRS) has a formal whistleblower incentive program designed to encourage individuals to report persons who are failing to pay the tax that they owe. If you have credible information about tax evasion, here’s how you can report it and potentially receive a reward.

Understanding the IRS Whistleblower Program

The IRS awards individuals who provide specific and credible information that substantially contributes to the detection and recovery of taxes, penalties, and interest the IRS is owed. The amount of the reward depends on the quality of information provided and the amount of tax recovered.

Criteria for Reward Determination

The IRS evaluates the information’s impact and directness in initiating an investigation and recovering unpaid taxes:

1. High Impact Information:
   • If your information directly leads to an investigation and subsequent tax recovery, the reward structure is as follows:
     • 10% of the first $75,000 recovered,
     • 5% of the next $25,000,
     • 1% of any additional amount.
2. Moderately Useful Information:
   • If your evidence was helpful but not specific in determining liability, the rewards are:
     • 5% of the first $75,000,
     • 2.5% of the next $25,000,
     • 0.5% of any additional recovery.
3. Low Impact Information:
   • If your information triggered an investigation but was less crucial in establishing liability:
     • 1% of the first $75,000,
     • 0.5% of any additional amount recovered.

The maximum reward that can be issued under this program is $100,000, which would typically be awarded if the IRS recovers about $9 million based on the information provided.

Steps to Report Tax Fraud

1. Gather Evidence:
   • Compile detailed and specific evidence that shows the tax fraud. General suspicions or guesses are not likely to lead to a reward.
2. Submit a Claim:
   • Use IRS Form 3949-A, “Information Referral” to report the tax fraud. You can also write a detailed letter instead. Include all known information about the individual or business you are reporting, including name, address, SSN or EIN, and the details of the fraud.
3. Consider Anonymity and Safety:
   • Reporting someone, especially a former spouse or acquaintance, can lead to personal and legal complexities. Consider the potential repercussions of your actions. In some cases, it might be advisable to consult with a legal advisor to protect your interests and safety.
4. Understand Potential Implications:
   • If you were involved or complicit in the tax evasion, such as in cases involving a former spouse during a period when you were married, the IRS might also investigate your tax returns. Be prepared to demonstrate your non-involvement or lack of knowledge regarding the evasion tactics used.

Conclusion

The IRS whistleblower program plays a critical role in maintaining the integrity of the tax system. Turning in a tax cheat and reporting tax fraud can contribute to the public good and may also result in a significant monetary reward if the information leads to a successful recovery of unpaid taxes. However, it’s essential to approach this process with careful consideration of the legal and personal implications, particularly if the fraud involves close associates or relatives. If unsure, consulting with a tax professional or legal advisor can provide guidance tailored to your specific situation.

______________________________
About this Article

This article was published and distributed by TheAdviser.com a trusted source of independent ideas. It should be viewed as general and educational information and not as financial, tax or legal advice. Individuals seeking advice tailored to their specific situation are encouraged to schedule a free consultation with a professional listed in the 1800Adviser.com directory. Both TheAdviser.com and 1800Adviser.com are owned and operated by The Independent Adviser Corporation. For additional information, please refer to their Privacy Policy and Terms of Use, Legal Notices, and Disclaimer.