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How to Report Tax Fraud

By: Melanie Radzicki McManus  | 

Penalties and Rewards

kwame kilpatrick
Former Detroit Mayor Kwame Kilpatrick was sentenced to 28 years in prison for racketeering, bribery, extortion, tax fraud and mail fraud.
Former Detroit Mayor Kwame Kilpatrick was sentenced to 28 years in prison for racketeering, bribery, extortion, tax fraud and mail fraud.

Tax fraud doesn't go unpunished. Convicted defrauders face fines and prison time. The resulting penalties depend on the type of fraud committed. Someone convicted of willful failure to file a return, supply information or pay taxes, for example, can be thrown in jail for up to one year and face a fine of $100,000 (individuals) or $200,000 (corporations), plus court costs. If you're found guilty of conspiracy to defraud the United States, the possible jail time rises to five years and the penalties to $250,000 and $500,000.

Keep in mind, though, that numerous fraud and related charges can be brought at once, resulting in much more time behind bars and stiffer penalties. When former Detroit mayor Kwame Kilpatrick was convicted of 24 counts of extortion, mail fraud, tax violations and racketeering in 2013, he was sentenced to 28 years in federal prison.

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To entice lawful taxpayers to assist in fingering defrauders, the U.S. has operated an informant program since 1867. Today, the program is run out of the IRS Whistleblower Office and offers two types of awards. The first award is for reporting a person or business that's committed tax fraud exceeding $2 million. With a successful prosecution, you'll typically be eligible for 15 to 30 percent of the amount collected. If the fraudster is an individual, the person's gross income must exceed $200,000 to qualify. The second award is for lesser fraud that doesn't meet the above thresholds. Successful prosecution here results in a maximum award of 15 percent of the proceeds, up to $10 million, at the discretion of the IRS. In 2020, the Whistleblower Office paid more than $86 million to 169 informants, who helped the IRS recover more than $472 million. In 2019, it paid more than $120 million to 181 informants.

Before you start salivating, remember that the IRS is looking for serious criminals. It doesn't want disgruntled individuals reporting ex-spouses or their former employers for petty reasons. (On the tax fraud form, you do have to sign that the info is true, under penalty of perjury.) Also, even if you finger a true criminal and the IRS makes a conviction, it can take years before the person is tried, convicted and you cash in. The average wait time: eight years.

But hopefully it's not all about the money. And if it is? Chances are if you're eligible for, say, a multimillion-dollar reward, you'll be willing to wait those eight years to collect.

Originally Published: Nov 17, 2014

Tax Fraud FAQ

Can you go to jail for not filing taxes?
Typically, only those who commit the crime of tax evasion are sent to jail by the IRS. Tax evasion isn't usually something as simple as failing to file your taxes. It's a knowingly, willingly committed crime, like unreported income, making false statements during an audit, or attempting to hide information from the IRS, that'll send taxpayers to jail.
How do you know if the IRS is investigating you?
You'll know that the IRS is investigating you for a tax-related crime if you're contacted by an IRS Special Agent. These are the individuals who are responsible for conducting criminal investigations, and they will determine if your case deserves criminal prosecution.
Does IRS contact you by phone?
The IRS may contact you over the phone. They will typically call to collect a tax debt, to set up an audit appointment, or to conduct an investigation. However, the IRS will never call and demand immediate payments or make any threats.
What is the average sentence for tax evasion?
The average prison sentence is 15 months.
How will the IRS contact me?
The IRS can contact you via mail or over the phone. Typically, the IRS will send you a letter in the mail first. If they cannot reach you, they will then call you.

Author's Note: How to Report Tax Fraud

After learning how much scamming can occur by tax return preparers, I'm sure glad my husband is a CPA and prepares our own returns!

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Sources

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