Report a Tax Cheat for a Feel Good Reward

April 22, 2009 by  
Filed under Taxes

tax_cheatTax fraud and tax cheats – don’t you hate them?  I don’t blog about making money online or selling stuff on eBay. On the other hand, where there is money to be made by exposing tax cheats for who they are, Mr. ToughMoneyLove is behind that cash for trash program 100%.

There are no tax bounty hunters working for the IRS. There should be but the IRS and the courts shot that idea down a few years ago. Wouldn’t it be fun t0  watch that gnarly Dog the Bounty Hunter yank Wall Street tax cheats out of their silk-sheeted beds while their mistresses scream in fear? An “Expose the Tax Fraud” reality show would be pure gold.

You Can Be a Tax Fraud Bounty Hunter

We – the law abiding taxpayers – can be amateur tax bounty hunters. All we need to do is rat out a fellow citizen (or business) that makes a habit of moving decimal points on their federal tax returns. In fact, even though we are not professional tax bounty hunters, we can get paid for blowing the whistle on tax fraud. The IRS has laws and regulations that explain this.

Do you know of any likely suspects? Maybe an evil supervisor (think “The Shawshank Redemption” or “Office Space”) or that jerk of a brother-in-law? Read on.

The IRS Whistleblower Office (wouldn’t it be fun to work there – just for a month or two) administers the “turn in a tax cheat” program. This is how the Whistleblower Office explains its mission:

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe.  If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.

The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.

The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue – this is not a program for resolving personal problems or disputes about a business relationship.

Yeah – that last sentence is a bummer if you want to get even with your ex.

There are actually two different paths you can follow to get a tax whistleblower reward. The first is under Section 7623(b) of the Internal Revenue Code. This is the best path to take because the reward (15-30% of the tax recovered) is basically mandated by law, with rights of appeal if you are denied your bounty. The problem is that the amount in dispute (unpaid taxes, penalties, and interest) must be at least $2 million. Also, if the tax cheat is an individual, their gross income must be at least $200k.

But don’t give up. The second path to a tax whistleblower award applies to less egregious tax cheats. The guy next door maybe. These rules are under IRS Code Section 7623(a) and 26 C.F.R. § 301.7623-1. The amounts in dispute can be far less than $2 million but the reward is not mandated. Instead, it is up to the discretion of the Commissioner. The maximum discretionary award is 15% of the tax recovered, up to $10 million. I’m good with that.

This part you also will like: You can remain anonymous unless your testimony is necessary to prove the existence of the fraud. 

You can find all of the information you need to report a tax cheat at the IRS Whistleblower website.

If you want to report some possible tax fraud activity just for the fun of it (without claiming a reward) use IRS Form 3949-A. There are a few fraud candidates working for the White House and in Congress but the IRS already knows about them.

So my fellow honest taxpayers, the tax filing deadline has passed. We know some cheatin’ has been goin’ on. What say we go bounty hunting?

Photo credit: uuzinger

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6 Responses to “Report a Tax Cheat for a Feel Good Reward”
  1. My Journey says:

    Wow, never heard of this before, that being said it is a horrible idea. If the gov’t wants to audit more people, hire auditors and do it.

    As you joke throughout the post, if this program was more popular it would simply lead to revenge “tattle-telling.” There are few situations that I can think of where one would have more than revenge to turn someone in AND have detailed nature of their taxes?

    Where are the ramifications if the person is absolved of any wrong doing? Can he sue for malicious prosecution? Can he recover for the legal fees usually associated with an audit?

  2. PW says:

    Can we collect that reward for Geitner and all the other politicians that don’t pay their taxes?

  3. I was the victim of larceny in 2007, and my testimony in 2008 helped put the guy in jail for 2 years. We was ordered to pay back the $1,000 and I’m going to turn him into the IRS for the $8,000 that he stole ($7,000 recovered) and all the money I paid him as a hired hand, because I’m certain he didn’t claim any of that cash money.

    I was amazed that no one in law enforcement or the DAs office had ever heard of anyone turning in the thief because of their criminal gain, yet the 1040 form says clearly on the first page that you need to report all earnings, even those from illegal activities.

    I’m also going to file a civil suit against this low-life so I can attach wages when he gets out of prison and gets employed. Can you say: white on rice?


  4. marty w. says:

    Does the IRS happen to have the Secretary of Treasury Geitners address among mumerous members of congress????????????

  5. imelda says:

    i would like the IRS to keep an eye on this Nigeria man that file taxes for people mostly Nigerians.the name of the company is apex financial and tax California 14023 crenshaw blvd #10,hawthorn ca 90250.IRS should please keep a close eye on this company.i do not understand why most people claim to be doing some fraudulent act to our great country USA.IRS keep close to this company.

  6. tim says:

    I was at Walmart and returned a faulty item but they refused to return at the sales tax rate I bought the item at. I left with nothing and they still profited off of me. Makes you wonder how many millions a company like Walmart makes off of what they claim to be collecting as sales tax. Don’t know if this is a legal loop hole although I do know most company’s don’t wip off there customers this way.

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