How to Report Tax Fraud


Penalties and Rewards

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 [source: IRS].

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 [source: The Federal Bureau of Investigation].

To entice lawful taxpayers to assist in fingering defrauders, the U.S. has operated an informant program since 1867 [source: Internal Revenue Service]. Today, the program is run out of the IRS Whistleblower Office. If you report a person or business that's committed tax fraud, and the IRS uses your information to convict the person or business, you'll be eligible for up to 30 percent of the additional tax, penalty and other amounts collected by the IRS. In 2013, the Whistleblower Office paid $53 million to informants. The prior year, it shelled out $125 million [source: Internal Revenue Service].

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. A total of 22,330 whistleblower claims from 2007 to 2013 were still open in 2014 [source: Internal Revenue Service].

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 five or even 10 years to collect.

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!

Related Articles

Sources

  • Ellis, Blake. "Rat out a tax cheat, collect a reward." CNN. March 3, 2010. (Nov. 3, 2014) http://money.cnn.com/2010/03/02/pf/taxes/rat_out_tax_cheat/
  • Fontinelle, Amy. "How To Report A Tax Cheat." Investopedia. (Nov. 3, 2014) http://www.investopedia.com/articles/taxes/09/reporting-tax-cheats.asp
  • Internal Revenue Service. "Fiscal Year 2013 National Operations Annual Business Report." Feb. 14, 2014. (Nov. 7, 2014) http://www.irs.gov/pub/foia/ig/ci/REPORT-fy2013-ci-annual-report-02-14-2014.pdf
  • Internal Revenue Service. "Fiscal Year 2013 Report to the Congress on the Use of Section 7623." March 7, 2014. (Nov. 7, 2014) http://www.irs.gov/pub/whistleblower/Whistleblower_Annual_report_FY_13_3_7_14_52549.pdf
  • Internal Revenue Service. "Helpful Hints when choosing a Return Preparer to ensure you don't hire an Abusive Return Preparer." Feb. 12, 2014. (Nov. 3, 2014). http://www.irs.gov/uac/Helpful-Hints-when-choosing-a-Return-Preparer-to-ensure-you-don%27t-hire-an-Abusive-Return-Preparer
  • Internal Revenue Service. "History of the Whilstleblower (sic)/Informant Program." Feb. 21, 2014. (Nov. 7, 2014). http://www.irs.gov/uac/History-of-the-Whilstleblower-Informant-Program
  • Internal Revenue Service. "How Criminal Investigations Are Initiated." June 11, 2014. (Nov. 6, 2014) http://www.irs.gov/uac/How-Criminal-Investigations-Are-Initiated
  • Internal Revenue Service. "How Do You Report Suspected Tax Fraud Activity?" Nov. 20, 2013. (Nov. 3, 2014). http://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F
  • Internal Revenue Service. "IRS Releases the Dirty Dozen Tax Scams for 2013." March 26, 2013. (Nov. 5, 2014) http://www.irs.gov/uac/Newsroom/IRS-Releases-the-Dirty-Dozen-Tax-Scams-for-2013
  • Internal Revenue Service. "IRS Releases New Tax Gap Estimates; Compliance Rates Remain Statistically Unchanged From Previous Study." Jan. 6, 2012. (Nov. 5, 2014) http://www.irs.gov/uac/IRS-Releases-New-Tax-Gap-Estimates;-Compliance-Rates-Remain-Statistically-Unchanged-From-Previous-Study
  • Internal Revenue Service. "Overview - Abusive Return Preparer." Dec. 26, 2013. (Nov. 3, 2014) http://www.irs.gov/uac/Overview---Abusive-Return-Preparer
  • Internal Revenue Service. "Overview - Abusive Tax Schemes." Feb. 12, 2014. (Nov. 3, 2014) http://www.irs.gov/uac/Overview---Abusive-Tax-Schemes
  • Internal Revenue Service. "Related Statues and Penalties - General Fraud." Feb. 12, 2014. (Nov. 7, 2014) http://www.irs.gov/uac/Related-Statutes-and-Penalties---General-Fraud
  • Internal Revenue Service. "Statistical Data - Abusive Return Preparers." Oct. 9, 2014. (Nov. 3, 2014) http://www.irs.gov/uac/Statistical-Data-Abusive-Return-Preparers
  • Internal Revenue Service. "Tax Scams - How to Report Them." Oct. 2, 2014. (Nov. 3, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Tax-Scams-How-to-Report-Them
  • Internal Revenue Service. "The Tax Gap." Nov. 4, 2014. (Nov. 5, 2014) http://www.irs.gov/uac/The-Tax-Gap
  • Internal Revenue Service. "Whistleblower - Informant Award." Sept. 29, 2014. (Nov. 7, 2014) http://www.irs.gov/uac/Whistleblower-Informant-Award
  • The Federal Bureau of Investigation. "Former Detroit Mayor Kwame Kilpatrick, Contractor Bobby Ferguson, and Bernard Kilpatrick Sentenced on Racketeering, Extortion, Bribery, Fraud, and Tax Charges." 2013. (Nov. 7, 2014) http://www.fbi.gov/detroit/press-releases/2013/former-detroit-mayor-kwame-kilpatrick-contractor-bobby-ferguson-and-bernard-kilpatrick-sentenced-on-racketeering-extortion-bribery-fraud-and-tax-charges
  • The Ferraro Law Firm. "What is the difference between Tax Fraud and Tax Evasion?" (Nov. 3, 2014) http://www.tax-whistleblower.com/tax-fraud/
  • U.S. Department of the Treasury. "The Internal Revenue Service Needs to Improve the Comprehensiveness, Accuracy, Reliability, and Timeliness of the Tax Gap Estimate." Aug. 21, 2013. (Nov. 5, 2014) http://www.treasury.gov/tigta/iereports/2013reports/2013IER008fr.pdf
  • U.S. Department of the Treasury. "IRS Oversight Board: 2013 Taxpayer Attitude Survey." February 2014. (Nov. 7, 2014) http://www.treasury.gov/IRSOB/reports/Documents/IRSOB_TAS%202013.pdf

More to Explore