Despite disagreements about countless matters, Americans typically agree on two things:
- Filing taxes is the last thing anyone wants to do
- It’s best to avoid dealing with the Internal Revenue Service (IRS)
Regardless of whether your paychecks total $50,000 per year or you earn millions, allegations of tax fraud could negatively affect your future in numerous ways. However, did you know it’s possible to benefit from someone else’s purported misconduct?
You can report suspicions to the IRS
If you witness tax fraud, you can submit credible evidence to the IRS. As a result, you might be able to reap a financial reward.
If agents within the Whistleblower Office believe your claim is legitimate, they will begin a criminal investigation. Therein, they may:
- Review the supposed offender’s financial accounts
- Subpoena bank statements
- Monitor activities
- Conduct interviews
From there, authorities will either make a prosecution recommendation to the United States Attorney or turn the case over to the Department of Justice.
Tax fraud penalties
Federal crimes hold serious consequences. Incarceration is probable, and financial penalties can be ordered for intended failure to:
- Provide information to the IRS
- Pay taxes owed
- File annual returns, as required by law
In cases of conspiracy to defraud the United States government, one could expect the penalties to increase.
You could benefit from recovered funds
If the information you provide is helpful in a criminal investigation and, therefore, the recovery of significant delinquent taxes, you could receive up to 30% of the money collected.
The process of blowing the whistle on potential fraudulent tax activity should be confidential, though being called upon to testify in court proceedings is possible. Since an investigation and potential litigation can take years, the Office would adjust compensation accordingly.
According to the Taxpayer First Act, if you notify the IRS of potential fraud you can expect:
- An alert upon referral for an examination or audit
- Notification of related tax payments received
- Written responses to inquiries about the progress of your claim
You might wonder whether voluntary involvement with a government entity would be worth your trouble, even with the possibility of a reward. However, the amount of money involved may surprise you.
How effective is the whistleblower program?
To mitigate retaliatory action, the Office’s annual report to Congress does not provide identifiable information on individual taxpayers who file claims alleging fraud. Yet, the accounting presents staggering success in public involvement.
In fiscal year 2019, more than 16,500 whistleblower files were closed due to reasons such as ineligibility, an expired statute of limitations or a lack of credibility. However, last year’s report indicates:
- Nearly $617 million in collected taxes
- Over 180 awards issued
- More than $120 million paid to whistleblowers
Additionally, at the end of the fiscal year, more than 25,000 open claims remained.
It works both ways
While earning a living in the U.S., you have a legal duty to financially contribute to the nation through taxes. Some might suggest you also have a moral obligation to raise questions when others shirk their responsibilities.
Although there’s a possibility of receiving compensation for reporting malfeasance, you could also be on the receiving end of such a claim. Consistently filing your tax returns on time and complying with the results may not hold as much excitement as being part of a criminal investigation. However, staying within the confines of the tax code will minimize the overall costs of your potential risk.