Reporting Tax Evasion

Reporting tax evasion not makes sure they everyone is treated fairly and the government is properly funded, but could earn you a reward too

We know, the economy is rough. But that’s no excuse to skimp when it comes to paying taxes. Much as we all hate forking over money to Uncle Sam, it’s ultimately a necessary expense.

That’s why nothing makes honest, hard-working taxpayers angrier than the knowledge that someone isn’t paying their fair share. If you know someone who is evading taxes you should report them to the government.

How to report tax evasion

Tax fraud comes in many different forms. And for each type of fraud there is a different form you can use to report it – this is the IRS we’re talking about, after all.

To report individuals or businesses that aren’t complying with the tax code – in other words those that are evading taxes – use Form 3949 A [Information Referral].

The tax evasion you should report using this form includes

• false exemptions or deductions
• kickbacks
• false/altered documents
• failure to pay tax
• unreported income
• organized crime
• failure to withhold

Unfortunately the IRS system is kind of an antique. You can’t e-file Form 3949 A. After you fill it out, you have to mail it to

Internal Revenue Service
Fresno, CA 93888

The IRS also has a tax fraud hotline that you can call to report tax evasion: 1-800-829-0433.

Other forms of tax fraud require different forms. For example if someone stole your identity and used your Social Security number use Form 14039 [Identity Theft Affidavit].

If you suspect fraudulent activity by a tax return preparer use Form 14157 [Complaint: Tax Return Preparer].

You can see all the other forms of tax fraud and which forms you need to use to report them here.

Don’t forget about state and local taxes

If someone has evaded taxes at the federal level, chances are they’ve probably also evaded taxes at the state level too.

New York State, for example, suggests that you report people who

• fail to report all of their income
• fail to file a return
• fail to remit monies collected
• sell un-taxed liquor, motor fuel, or cigarettes

Unlike the IRS they allow you to file an information referral online. Every state has a different process for reporting fraud, so be sure to get in contact with your state’s tax authority.

In addition to state taxes you can also report someone for local tax evasion. This is especially true in cities with a high income tax such as New York City, which allows you the opportunity to file an online complaint form.

Is there a reward for reporting tax evasion?

Yes, beyond the satisfaction of doing your civic duty, you could also get a monetary reward for reporting tax evasion to the IRS. In fact, you could receive up to 15% of the amount the person you report underpaid, up to $10 million.

And don’t worry about your identity being disclosed. Though you will have to identify yourself to the IRS, they will not make it public.

And what if you’re the one who’s evading taxes? There’s only one way to avoid what can be pretty severe consequences: file your outstanding returns.

Photo via Dominic Alves on Flickr.

This entry was posted on Thursday, June 27th, 2013 at 4:59 pm and is filed under Tax Tips and Tricks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.