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How to Report Tax Fraud

By: Melanie Radzicki McManus  | 

man stashing bills in his jacket
Tax refund fraud by identity theft is endemic in the U.S. Peter Dazeley/Getty Images

Tax fraud is a serious problem in the United States. The Internal Revenue Service (IRS) estimates Americans cheat the government out of nearly $450 billion each year. And IRS enforcement efforts only earn back $60 billion of that money.

Both individuals and groups are ripping off the government, crafting innumerable scams to cheat the feds, sometimes with your unwitting assistance. One example: A tax preparer bases her fee on a percentage of your income tax refund amount, then falsifies your tax return so you receive a larger refund than you're due — which translates into more money for her.

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On a positive note, much of the fraud appears to be coming from a small group. According to the IRS Oversight Board's 2019 survey of taxpayer attitudes, 87 percent of American taxpayers say it's not OK to cheat on your taxes. And 91 percent say tax cheats should be held accountable.

Before the government can prosecute anyone for tax fraud, though, it has to have proof. And that's often hard to obtain. So the government relies on its citizens to help, by reporting any known or suspected tax fraud. Why stick out your neck like this? When people or corporations don't pay what they owe, the burden falls unfairly on everyone else. If tax cheats sent the U.S. government those $450 billion, for example, we might all be paying lower fees for certain governmental services, or have more money to spend on important things like education or America's aging infrastructure.

Because tax fraud is such an important issue, the IRS tries to make it easy for citizens to report suspected fraud. And if your tip pays dividends, you may even receive some cold hard cash.