Tax evasion and fraud can have significant consequences for individuals and businesses, as well as for the economy as a whole. If you have credible information about someone violating tax laws, reporting them to the IRS is a responsible action. This comprehensive guide will walk you through the process, from understanding what to report to navigating the various reporting mechanisms.
How Can You Report Someone to the IRS? A Step-by-Step Guide
Have you ever wondered what happens when someone doesn't pay their fair share of taxes? Or perhaps you've witnessed what you believe to be a clear case of tax fraud. It can be a perplexing situation, and you might feel unsure of how to proceed. The good news is that the IRS provides clear pathways for individuals to report suspected tax law violations. Let's delve into the details, empowering you to make an informed decision and take action.
Step 1: Understand What Constitutes a Reportable Violation
Before you jump into reporting, it's crucial to understand what kind of activities the IRS is interested in. They are generally looking for significant violations of tax law, not minor errors.
Sub-heading: Common Types of Tax Fraud and Evasion
- Unreported Income: This is one of the most frequent forms of tax evasion. It can include income from a side business, tips, cash payments, foreign sources, or even illegal activities.
- False Deductions or Exemptions: Claiming deductions or exemptions that are not legitimate, such as exaggerated business expenses, phony charitable contributions, or dependents who don't exist.
- False or Altered Documents: Using fake W-2s, 1099s, invoices, or other financial records to reduce tax liability.
- Failure to File Tax Returns: When an individual or business simply doesn't file their required tax returns for multiple years.
- Abusive Tax Schemes: Complex arrangements designed to illegally avoid paying taxes, often promoted by unscrupulous individuals or firms.
- Misuse of Tax-Exempt Status: When a non-profit organization or its individuals engage in activities that violate their tax-exempt status.
- Underreporting Cash Transactions: Businesses or individuals dealing heavily in cash who don't accurately report their income.
Sub-heading: What NOT to Report Using These Methods
It's important to differentiate between general complaints or suspicions and actual tax violations. Do not use the general reporting forms for:
- Identity theft: If your identity was stolen and used to file a fraudulent tax return, use Form 14039, Identity Theft Affidavit.
- Complaints about a tax return preparer: Use Form 14157, Return Preparer Complaint, or Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit, if they filed or altered your return without your consent.
- IRS impersonation scams: Report these to the Treasury Inspector General for Tax Administration (TIGTA).
- Disputes over your own tax account: Contact the IRS directly through their regular channels.
Step 2: Gather Your Information and Evidence
The more specific and credible your information, the more likely the IRS is to investigate. Vague accusations are unlikely to lead to action.
Sub-heading: What Information is Helpful?
Try to gather as much of the following as possible:
- Full name of the individual or business you are reporting.
- Address and telephone number of the individual or business.
- ***Social Security Number (SSN) or Employer Identification Number (EIN)***, if known. This is extremely helpful but not always required.
- Specific description of the alleged violation: What exactly did they do? When did it happen? What tax years are involved?
- How you became aware of the information: Your relationship to the person or business (e.g., former employee, customer, relative).
- Any supporting documentation or evidence: Copies of invoices, emails, bank statements, ledgers, receipts, photographs, or any other documents that support your claim. Do not send originals.
Sub-heading: The Importance of Specificity
General allegations like "I think they're hiding money" are much less impactful than "I know John Doe, owner of Acme Widgets, paid his employees in cash for the last two years and did not issue W-2s, costing the government approximately $X in payroll taxes."
Step 3: Choose Your Reporting Method
The IRS offers a few different ways to report suspected tax fraud, each with its own nuances and potential implications for you.
Method A: Form 3949-A, Information Referral (General Tax Fraud)
This is the most common method for reporting general tax fraud by individuals or businesses.
- Obtain Form 3949-A: You can download it directly from the IRS website (IRS.gov) or request it by mail.
- Fill out the form accurately:
- Section A: Information About the Person or Business You Are Reporting: Provide as much detail as you have about the alleged violator.
- Section B: Describe the Alleged Violation of Income Tax Law: Be as specific as possible here. Explain what happened, when, and how you know about it.
- Section C: Information About Yourself (Optional): You can choose to remain anonymous by leaving this section blank. However, providing your contact information can be helpful if the IRS needs to ask clarifying questions. The IRS states they will not share your information with the person you are reporting.
- Attach supporting documents: Make sure to include copies, not originals, of any evidence you have.
- Mail the completed form: Send Form 3949-A and your supporting documents to the address listed in the form's instructions. There is no online submission option for Form 3949-A.
Method B: Form 211, Application for Award for Original Information (Whistleblower Program)
If you have significant information that could lead to the collection of substantial unpaid taxes, you might be eligible for an award under the IRS Whistleblower Program. This is a more formal process.
- Eligibility Requirements: To be eligible for an award, the amount of taxes in dispute must generally exceed $2 million (for individual taxpayers, their gross income must exceed $200,000 for at least one of the tax years in question). The information must be specific and credible and lead to the collection of taxes, penalties, interest, or other amounts.
- Obtain Form 211: Download it from the IRS website.
- Complete Form 211 with detailed information:
- This form requires extensive details about the alleged tax non-compliance, including a written narrative explaining the issue(s) in detail.
- You'll need to describe how and when you became aware of the information.
- Attach all supporting documentation.
- Unlike Form 3949-A, Form 211 requires your original signature under penalty of perjury.
- Consider legal counsel: Due to the complexity and potential for significant awards, many whistleblowers choose to work with an experienced tax attorney who can help them navigate the process, protect their identity, and maximize their potential award.
- Mail the completed form: Send the original signed Form 211 to the IRS Whistleblower Office address provided in the form's instructions. There is no online submission option for Form 211.
Method C: Specialized Forms for Specific Situations
The IRS has other forms for very specific types of complaints:
- Form 13909, Tax-Exempt Organization Complaint (Referral) Form: Use this to report misconduct or wrongdoing by a tax-exempt organization.
- Form 14242, Report Suspected Abusive Tax Promotions or Preparers: For reporting abusive tax schemes or the individuals who promote them.
- Email for Anonymous Tax Shelter Tips: You can send anonymous tips about retirement or employee benefit plan tax shelter scams to
eoclass@irs.gov. For other broad tax shelter or transaction scams, you can email the "IRS tax shelter hotline."
Step 4: What Happens After You Report Someone?
Once you submit your report, the ball is largely in the IRS's court.
Sub-heading: The IRS Review Process
- Initial Assessment: The IRS will review the information you provide to determine if it warrants further investigation. They prioritize cases with specific, credible information and a higher potential for collecting unpaid taxes.
- Confidentiality: The IRS is generally prohibited by Section 6103 of the Internal Revenue Code from disclosing whether they have initiated an examination or the results of any examination. This means you will likely not receive updates on the status or outcome of your report, especially if you filed anonymously via Form 3949-A.
- Investigation: If the IRS decides to pursue the case, they may conduct an audit, request additional documentation, and/or interview the taxpayer and other relevant parties.
- Collection and Penalties: If tax evasion is proven, the IRS will seek to collect the unpaid taxes, along with interest and substantial penalties. In severe cases, criminal charges may be filed.
Sub-heading: Timeframes and Expectations
The process can be very lengthy. Investigations can take months or even years. For whistleblower awards (Form 211), payments are only made after all appeals are exhausted and the IRS has collected the proceeds, which can be a drawn-out process.
Step 5: Important Considerations and Cautions
Reporting someone to the IRS is a serious matter. Be aware of these important points:
- Be Honest and Accurate: Only report information that you believe to be true and accurate. Filing a false report can have serious consequences.
- Do Not Engage in Illegal Activities: Do not break any laws to obtain information or evidence.
- Retaliation is Prohibited (for Whistleblowers): While not directly related to Form 3949-A, the IRS Whistleblower Program has provisions to protect whistleblowers from employer retaliation.
- No Guarantees of Action: The IRS receives many tips, and not all of them lead to an investigation or collection. Your report is one piece of information they consider.
Your actions can contribute to a fairer tax system for everyone. By understanding the process and providing accurate, detailed information, you can help the IRS identify and address tax non-compliance.
10 Related FAQ Questions
How to report someone to the IRS anonymously?
You can generally report someone anonymously using Form 3949-A, Information Referral, by leaving the "Information About Yourself" section blank. However, providing contact information can be helpful if the IRS needs to follow up for more details.
How to report tax fraud by a business?
You can report a business for tax fraud using Form 3949-A, Information Referral. Be sure to include the business's name, EIN (if known), address, and specific details about the alleged fraudulent activity.
How to report someone for not reporting cash income?
Use Form 3949-A, Information Referral, and clearly state that the individual or business is allegedly receiving cash income and not reporting it. Provide details on how you know this, the amounts involved, and the tax years.
How to report an employer for not withholding taxes or paying "under the table"?
You can report an employer for these issues using Form 3949-A, Information Referral. Specify the nature of the non-compliance (e.g., paying employees in cash without reporting wages or withholding taxes) and provide relevant details about the employer and affected employees.
How to report someone to the IRS for illegal activities?
If the illegal activities generate unreported income, you can report this using Form 3949-A. Focus on the tax implications (the failure to report income from these activities) rather than the illegal activity itself.
How to claim a reward for reporting tax fraud?
To claim an award, you must use Form 211, Application for Award for Original Information, through the IRS Whistleblower Program. Your information must lead to the collection of over $2 million in unpaid taxes (or the individual's gross income exceeds $200,000 for relevant years).
How to report a tax-exempt organization for misconduct?
For misconduct or wrongdoing by a tax-exempt organization, use Form 13909, Tax-Exempt Organization Complaint (Referral) Form.
How to report an abusive tax scheme or promoter?
To report suspected abusive tax promotions or preparers, use Form 14242, Report Suspected Abusive Tax Promotions or Preparers.
How to check the status of a tax fraud report?
Generally, the IRS does not provide updates on the status of a tax fraud report due to taxpayer confidentiality laws (Section 6103 of the Internal Revenue Code). If you filed under the Whistleblower Program (Form 211), you will receive a claim number and might receive limited correspondence, but detailed updates are rare.
How to contact the IRS about general tax fraud questions?
For general questions about reporting tax fraud, you can refer to the IRS website's "Report a Tax Scam or Fraud" section or consult a tax professional. The IRS does not have a dedicated public hotline for receiving general tax fraud tips by phone; most reporting is done via mail with the appropriate forms.
