Ratting out tax cheats

As I've mentioned before, I get letters from readers. I love 'em, readers and their questions.

However, as I've also mentioned before, I can't answer every question that shows up in my e-mail.

Some are technical beyond my knowledge (remember, I'm not an accountant). Others I know I could answer, but they would take time and unfortunately, just like y'all, I tend to run very short of that commodity, especially during tax season when I have a regular writing gig.

Others queries, though, where I know the answer off the top of my head or know just where to find it, I try to send along as soon as I can.

A couple of weeks ago, a reader asked me something I knew I could handle: How to report someone who is not filing their taxes.

I put it on my to-do/to-answer list, which immediately disappeared under six similar lists I had floating around my desk and/or on my computer.

Well, this reader really, really has some scofflaw info she wants to share, so she wrote again. Being a nag myself (yes, dear hubby, I admit to it!), this time I answered her (see, honey, nagging does work).

And in case any more of you also know someone who is derelict in their federal filing duties, here's the deal, straight from the IRS' Criminal Investigation division:

If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out the form online, print it and mail it to the Internal Revenue Service in Fresno, CA 93888. (No street address necessary. The Post Office knows where to find the Fresno IRS office.)

If you prefer, you may send a letter instead of the form to the Fresno address. In that case, the IRS would like you to include, where possible, the following information:

• Name and address of the person you are reporting,
• The taxpayer identification number (Social Security number for an individual or employer identification number for a business),
• A brief description of the alleged violation, including how you became aware of or obtained the information,
• The years involved, 
• The estimated dollar amount of any unreported income, and
• Your name, address and daytime telephone number.

About that last bullet point. The IRS says you don't have to reveal your identity. But if information on a tax cheat entitles you to a reward, giving your name and contact info is the only way the IRS will know where to send the money.

Skunks at the picnic: Maybe you're not as adamant about turning in a tax cheat as my reader. Maybe you took to heart childhood taunts about tattletales. Maybe you don't care about any reward and just want to see tax justice done.

OK, I went a bit overboard with that last maybe.

But regardless, a new law could help you get over your unease.

Last summer, The Treasury Inspector General for Tax Administration (TIGTA) issued a report saying the informants' rewards program needs more oversight. The bottom line, according to TIGTA:

"The Informants' Rewards Program has significantly contributed to the IRS' efforts to enforce tax laws, but additional management focus could enhance the effectiveness of the Program as an enforcement tool and make the process more accommodating to informants. … Additional management focus could also assist in reducing the processing time for paid claims, which would make the Program more attractive to future informants wishing to report violations of tax laws."

Sen. Charles Grassley, the Republican from Iowa who last year headed the Senate Finance Committee, then issued his own statement calling for a "clear road map of reform so Treasury and the IRS no longer treat whistleblowers like skunks at the picnic."

Well, the air was cleared a bit in December, when the Tax Relief and Health Care Act of 2006 became law. It includes provisions that increase rewards (now up to 30 percent of recovered unpaid taxes vs. the previous 15 percent limit) and also establishes a whistleblower office within the IRS.

Since the law was signed just a little over a month ago, don't expect the new office to be up and running yet. The law gives it 12 months to be in place.

But the new whistleblower rules are definitely something to keep in mind the next time you hear someone brag about how they pulled a fast one on Uncle Sam at tax time.

Update: On Feb. 2, the IRS appointed a director for the new Whistleblower Office. Details here.

Comments

[Joe D]

The IRS will not listen to you. If you report someone who did not pay a few thousand in taxes. They say so what. If you happen to report a "minority" you can forget it. They go after whites but no so much african Americans or Hispanics.

[deepak taxes relief]

While computing the annual income tax, taxpayers can offset the amount of tax relief granted against the income tax that they owe to the government. Similar to personal tax allowance, tax relief for employees is offered throughout the year. Tax relief is normally placed under various categories as tax relief for employees, self-employed people, training and educational institutions, property, medical and insurance premiums, and payments to charitable institutions.

[Tim Bosley]

Examples of Amerian Tax Cheats:

George Washingtion
Ben Franklin
Thomas Jefferson

I guess those guys were nothing more than "Tax Cheats" right?

[Kathleen]

Does anyone know the answer to this question? If I turn in someone in for tax fraud and I submit my name with it, will the person I turned in ever find out who it was that turned them in?

Thanks!

[RJD]

I just left the Seattle office of the IRS after another fruitless meeting with one of their career civil-servants. As an accountant, six months ago I delivered ample documentary evidence to convene a grand jury. Since then all the IRS did was extract some missing FICA payments from the abusive entity. This was a million dollar private placement racked with blatant theft. The IRS got all the employee-related info they could get out of me, while promising to investigate the abusive tax-shelter. Since then I have heard every pathetic excuse under the sun. Apparently, an abusive tax-shelter that generates over a million dollars in fraudulent losses does not exceed the IRS threshold to even generate a referral to a so-called IRS Fraud Referral Specialist. Oh, and by the way, I had an IRS agent admit to me that they are not trained in Quickbooks. The largest selling accounting software program ever written, and the dolts at the IRS can't even examine the financial records of companies running it. Further, when they do examine a firm using Quickbooks, they don't even ask for supporting documentation. Anyone who has used Quickbooks for longer than 10 minutes can see the vulnerabilities inherent in the program. In other words, relying solely on examining financial statements generated by Quickbooks, and then not even asking for supporting documentation is in itself scandalous beyond measure. Lastly, after I went to the IRS originally, and they finally started to ask some relevant questions of my employer, I was terminted from my position, and of course the IRS claims their examination of my thieving former employer had no bearing on my wrong-full termination. Whatta country!

[Kim]

My friend works at IRS as an examiner (auditor). Once we got drunk and he told me a lot of things about his work. He told me for example, that they audit every 3-5 taxpayers out of 10,000 (!). Yes, out of ten thousand! The ones that they examine are usually large corporations or chains. Sometimes, but rarely individuals and only by mail or by phone. Those individuals, he told me, usually are nut cases who blatantly lie in their tax returns or do not file at all for many years.

[pat]

Do you now if i turn someone into the IRS for breaking a Conservation easement. There is a large tax write off for this

[pat]

Do you use the same 3949 form for someone who has gotten a large write off for a conservation easement on property but now the land ower doing business that is prohibited bye the easement

[CARL RINALDI]

IT APPEARS TO ME THAT THERE ARE SO MANY TAX CHEATS THAT THERE ARE NOT ENOUGH RESOURES OR AGENTS TO INVESTIGATE. I HAVE BEEN TRYING TO REPORT A MAJOR TAX CHEAT TO THE I.R.S. FOR 2 YEARS NOW, AND THE CONCLUSION I ARRIVED AT IS THAT THE I.R.S. IS JUST LIKE ANY LOCAL POLICE OR JUDICIAL SYSTEM THEY ONLY INVESTIGATE THE ONES THEY DON'T LIKE OR IF AN AGENT HAS AN AX TO GRIND. TOO MANY LAW ENFORCEMENT FEEL AS THOUGH THE SYSTEM IS THEIR PERSONAL TOOL AT REVENGE, AND THIS IS WHY THE REAL CRIMINALS AND TAX CHEATS ARE NEVER TARGETED. MAYBE IF THE GOVERNMENT HAD THE MILLIONS THIS PERSON CHEATED THEM OUT OF THEY WOULD HAVE THE MONEY TO HIRE ADDITIONAL STAFF TO COMBAT THIS PROBLEM

[dimes]

I've never actually done that, I've thought about doing it, but as a return writer it seems like it would be a conflict of interest (or just plain dumb) to turn someone in for fraudulent activity, especially if I am the one who wrote their return!

However, if I ever do get audited, I have a few "bigger fish" in my back pocket to turn in. They'll be worth more than we will.