If it sounds too good to be true, it probably is! Participating in an illegal scheme to avoid paying taxes can result in imprisonment and fines, as well as the repayment of taxes owed with penalties and interest. Individuals should be wary of these "too good to be true" tax schemes, and are encouraged to report suspected tax fraud activity to the IRS. Monetary rewards may also be available in some circumstances.
Review the following information to learn about reporting suspected tax fraud activity and claiming rewards.
Reporting Tax Fraud
The IRS does not take tax law violation referrals over the phone. If you suspect an individual or a business is committing tax fraud, report it to the IRS by using Form 3949-A (Information Referral). Common examples of tax fraud include:
False exemptions or deductions;
Kickbacks;
A false or altered document;
Failure to pay tax;
Unreported income;
Organized crime;
Failure to withhold; or
Failure to follow the tax laws.
Note, you should not use Form 3949-A to report a fraud that involves a tax return preparer or an abusive tax scheme (see the information below on ways to report these schemes).
Alternatively, you may send a letter to the IRS to report tax fraud. Be sure to include as much information as possible in your letter, including:
The name and address of the person or business committing the suspected tax fraud;
The individual's Social Security number or the business’s Employer Identification Number (EIN);
A brief description of the tax fraud you are reporting, including how you became aware or obtained the information;
The years of the suspected tax fraud;
The estimated dollar amount of any unreported income; and
Your name, address, and telephone number (note, however, you are not required to identify yourself, but this information is very helpful to the IRS).
Mail the letter to:
Internal Revenue Service
Stop 31313
Fresno, CA 93888
Abusive Tax Promotion or Avoidance Scheme
Common abusive tax scams include anti-tax law, home-based business, trust, and off-shore schemes. To report promoters of these scheme types or any other types you are aware of that are not listed here, send a completed IRS Form 14242 (Report Suspected Abusive Tax Promotions or Preparers) along with any promotional materials to the IRS's Lead Development Center at the address listed on the form.
Return Preparer Fraud
Use IRS Form 14157 (Return Preparer Complaint) to report fraudulent activity or an abusive tax scheme by a tax return preparer or tax preparation company. If a tax return preparer filed or altered your return without your consent and you are seeking a change to your account, be sure to also submit an affidavit using IRS Form 14157-A (Tax Return Preparer Fraud or Misconduct Affidavit). Both forms should be submitted together, if applicable.
Abusive Transaction Involving a Tax-Exempt Organization
Exempt organizations are, at times, used by for-profit entities as accommodation parties in abusive tax avoidance transactions. Visit the IRS's Exempt Organization Abusive Tax Avoidance Transactions page for information on how to report these schemes using TIRS Form 13909 (Tax-Exempt Organization Complaint.
Fraudulent IRS Emails and Websites
Phishing is a scam typically carried out through unsolicited email and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information. Report all unsolicited emails claiming to be from the IRS or an IRS-related function to phishing@irs.gov. For more information, see Report Phishing and Online Scams.
Confidentiality
The IRS will keep your identity confidential when you file a tax fraud report. According to the IRS, you will not receive a status or progress update due to confidentiality protections under Section 6103 of the Internal Revenue Code.
Claiming Rewards
The IRS runs two whistleblower reward programs. To claim a reward under either program, you must submit IRS Form 211 (Application for Award for Original Information).
Under the first program, if the IRS collects taxes, interest, and penalties on an amount exceeding $2 million, the whistleblower may be rewarded 15% to 30% of the amount the IRS collects. If the whistleblower is reporting an individual taxpayer, that person must have an annual income in an amount greater than $200,000 for the whistleblower to be eligible to collect 15% to 30% of the funds recovered.
Under the second program, whistleblowers can inform the IRS of tax evasion in amounts less than $2 million, or by individuals earning less than $200,000. Whistleblowers using this second program may collect a maximum of 15% of the total funds recovered, up to $10 million.
Note that, due to the lengthy process involved in gathering evidence and collecting tax funds, it can take several years before a whistleblower receives a payment.
For more information, see the following IRS resources:
About the Author
Attorney Jordan D. Howlette is the President of MyTaxRights, LLC and the managing-member of JD Howlette Law, LLC, a civil litigation firm that represents individuals and businesses involved in tax disputes with the IRS, the United States Department of Justice (DOJ), and various state departments of revenue. A former trial attorney with the DOJ’s Tax Division, Jordan leverages his extensive background in tax litigation to educate others about their federal tax rights and responsibilities. Each tax season, Jordan also volunteers as a tax coach with the Center for the Advancement of Tax Equity, where he teaches others how to self-prepare and file their taxes through the non-profit's free tax clinics.
Check out Jordan's MTR profile page for more information, and connect with him on LinkedIn. Be sure to also follow MyTaxRights on Facebook for more tax-saving tips and insight.
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