How Do You Report Tax Fraud?
The IRS wants people to report suspected tax cheats, so it's created various forms for you to fill out. Which form you fill out depends on the type of fraud you've witnessed -- unreported income, stolen identity or tax return preparer. The forms aren't long, but they do ask for specific details regarding the violations, plus information like the offender's Social Security number or employer identification number, if known. While you do need to divulge your identity to the IRS, the agency never shares your name with the person or business you're reporting. However, sometimes your identity will be obvious by the information you supply. And, if the case does go to trial, you might be summoned to testify [sources: Fontinelle, Internal Revenue Service].
Because it's difficult to convict someone of fraud, the IRS is mainly looking for serious infringers, not someone who failed to report the $70 she earned working at the county fair one night. And, as shown by the questions in the forms, you do need to have at least some credible evidence. Suspecting that someone or a particular company is cheating isn't good enough [source: Fontinelle].
Once you submit a form alleging possible tax fraud, it has to pass several layers of investigation before the person or business is actually prosecuted. First, IRS special agents check over your information to see if they agree that criminal tax fraud or another financial crime may have been committed. If they think something looks fishy, a criminal investigation will be opened. Once an investigation is opened, evidence will be gathered. IRS investigators may interview people, conduct surveillance, subpoena bank records and review financial data.
When all of the evidence is gathered, investigators will again look over everything and decide if they want to pursue the case. If they do, they'll pass it on to the U.S. Department of Justice (DOJ) or the U.S. Attorney with a prosecution recommendation. If the DOJ or U.S. Attorney agrees to take on the case, it will be prosecuted [source: Internal Revenue Service].