How To Tell Irs To Audit Someone

People are currently reading this guide.

👤

Published by A contributor at Hows.Tech sharing helpful insights.

📝 Article edited 0 times 🕒 Last modified by Default Author

The prospect of reporting someone to the IRS for potential tax evasion or fraud can be a complex and sensitive matter. While it's natural to want to ensure fairness and compliance with tax laws, it's crucial to understand the proper channels and implications of such an action. This guide will walk you through the step-by-step process, explain what to expect, and address common questions.

Thinking of Reporting Someone to the IRS? Let's Get Started.

Have you ever suspected that an individual or a business might not be playing by the rules when it comes to their taxes? Perhaps you've come across information that suggests someone is significantly underreporting income, claiming false deductions, or engaging in other questionable financial practices. It's a natural reaction to feel a sense of unfairness, especially when you, as a diligent taxpayer, are fulfilling your obligations. If you're contemplating reporting someone to the IRS, it's important to approach this with clarity and a clear understanding of the process. This isn't about personal vendettas or baseless accusations, but rather about providing the IRS with credible information that can help them ensure tax compliance for everyone. So, are you ready to learn how to navigate this process responsibly?

Step 1: Understand the Types of Tax Violations and What the IRS Looks For

Before you even consider filling out a form, it's vital to have a clear idea of what constitutes a reportable tax violation and what kind of information the IRS genuinely needs. The IRS isn't interested in rumors or speculation; they require specific and credible evidence of tax non-compliance.

Sub-heading: What Constitutes a Reportable Violation?

The IRS is generally interested in cases where individuals or businesses are:

Underreporting income: This could involve cash-based businesses not reporting all sales, individuals not reporting income from side hustles, or offshore accounts being concealed.
Falsely claiming deductions or credits: Examples include claiming deductions for expenses that don't exist, inventing business losses, or claiming dependents who are not eligible.
Hiding assets or income: This might involve complex financial arrangements designed to obscure true wealth from tax authorities.
Engaging in abusive tax shelters: These are often elaborate schemes designed solely to avoid taxes, with little or no economic substance.
Not filing required tax returns: Simply failing to file a return when required is a violation.
Misuse of Employer Identification Numbers (EINs) or Social Security Numbers (SSNs): For instance, someone using another person's SSN to work or an EIN for a business that doesn't exist.

Sub-heading: What Information is Valuable to the IRS?

The more specific and detailed your information, the more helpful it will be to the IRS. They are looking for:

Specific allegations of tax law violations.
Tax years in question.
Amounts of estimated tax owed.
How you learned about the information.
Your relationship to the person or business being reported.
Any supporting documentation you possess, such as copies of books, records, receipts, bank statements, contracts, or emails.
The location of assets that could be used to pay tax liabilities.

Remember, the IRS is looking for substantial information that can lead to the collection of significant amounts of underpaid taxes. They typically focus on cases where the tax underpayment exceeds $2 million for an organization or $200,000 for an individual.

Step 2: Choose Your Reporting Method: Information Referral vs. Whistleblower Program

The IRS offers two primary methods for reporting tax fraud or evasion: a general "Information Referral" or the "Whistleblower Program." Your choice will depend on the nature of your information and whether you seek a potential reward.

Sub-heading: Option A: General Information Referral (Form 3949-A)

If you simply want to inform the IRS about a potential violation and do not seek a monetary award, Form 3949-A, Information Referral, is the appropriate channel.

Obtain Form 3949-A: You can download Form 3949-A directly from the IRS website (irs.gov) or fill it out online.
Provide Accurate Details:
- Section A – Information About the Person or Business You Are Reporting: Fill in as much detail as you know about the individual or business, including their name, address, and Social Security Number (SSN) or Employer Identification Number (EIN) if you have it. The more identifying information you can provide, the better.
- Section B – Describe the Alleged Violation of Income Tax Law: This is where you detail the specific tax violation. Be as clear and concise as possible. Explain how the alleged fraud occurred, what tax years are involved, and any estimated amounts of underpayment. Avoid emotional language and stick to facts.
- Section C – Information About Yourself: You have the option to provide your name, address, and phone number. While you can submit this form anonymously, providing your contact information may allow the IRS to follow up if they need clarification. The IRS states they will never share your information with the person or business you are reporting.
Attach Supporting Documentation (if any): If you have any documents that support your claim (e.g., invoices, emails, bank statements, photos), make copies and attach them. Do not send original documents.
Submission:
- You can submit Form 3949-A online through the IRS website.
- Alternatively, you can mail the completed form and any attachments to: Internal Revenue Service Cincinnati, OH 45999

Sub-heading: Option B: IRS Whistleblower Program (Form 211)

If you have specific and credible information about significant tax non-compliance that you believe could lead to the collection of substantial unpaid taxes (generally over $2 million for a business or $200,000 for an individual), and you wish to be considered for a monetary award, then the IRS Whistleblower Program is your path.

Consider Legal Counsel: While not strictly required, it is highly recommended to consult with an experienced tax whistleblower attorney if you plan to file under the Whistleblower Program. These cases are complex, and an attorney can help you:
- Evaluate the strength of your claim.
- Ensure your submission meets all IRS requirements.
- Navigate the intricate process and protect your rights.
- Help maximize your potential award.
- Act as an intermediary between you and the IRS, maintaining your confidentiality.
Gather Specific and Credible Evidence: The IRS Whistleblower Program requires more than just a tip. You need to provide robust evidence. This can include:
- Copies of books and records.
- Ledger sheets.
- Receipts.
- Bank records.
- Contracts.
- Emails.
- Information on the location of assets.
Complete Form 211, Application for Award for Original Information:
- This form is more detailed than Form 3949-A. You will need to provide:
  - Information about the taxpayer being reported (name, address, TIN if known).
  - A detailed narrative explaining the alleged tax non-compliance. This should be a clear, organized story of how the fraud occurred, including relevant dates, amounts, and individuals involved.
  - A list of all supporting documents you are submitting.
  - A description of any documents not in your possession and their location.
  - How you learned about the information.
  - Your relationship to the taxpayer.
  - An estimate of the tax owed.
- Important Note: Space on Form 211 is limited. The IRS encourages attaching a separate memorandum or narrative to fully explain your claim, referencing it within the form itself.
Sign and Mail Form 211: Form 211 must be signed under penalty of perjury and mailed (faxed or emailed claims are generally not accepted) to: Internal Revenue Service Whistleblower Office – ICE 1973 N. Rulon White Blvd. M/S 4110 Ogden, UT 84404

Step 3: What Happens After You Submit Your Information?

Once you've submitted your form, the waiting game begins. The IRS's process is often slow and deliberate, and it's important to manage your expectations.

Sub-heading: Initial Review and Processing

Form 3949-A (Information Referral): The IRS will review the information you provided. If it's deemed credible and actionable, it may be forwarded to the appropriate IRS division for consideration, potentially leading to an audit or investigation. You generally will not receive updates on the status of your submission.
Form 211 (Whistleblower Claim): The IRS Whistleblower Office will review your claim to determine if it meets the criteria for the program. They will assess if the information is specific and credible and if the potential tax collection meets the minimum thresholds.
- You will receive a claim number.
- The IRS may contact you for additional information or clarification.
- Under the Taxpayer First Act of 2019, the IRS is authorized to communicate with whistleblowers (or their attorneys) and provide notifications at certain stages, such as when audit referrals are made or tax payments result from the information. This aims to increase transparency, though privacy laws still limit what the IRS can disclose about the taxpayer under investigation.

Sub-heading: Investigation and Potential Audit

If the IRS decides to pursue the lead (from either form):

The information will be referred to an IRS operating division for further investigation.
This could lead to an audit of the individual or business in question. IRS audits can be conducted by mail (correspondence audit), at an IRS office (office audit), or at the taxpayer's home or business (field audit).
The IRS typically has three years to audit a tax return, but this can extend to six years if there's a substantial understatement of income (25% or more). In cases of fraud, there is no time limit.
The audit process itself can be lengthy, involving requests for documents, interviews, and detailed examinations of financial records.

Sub-heading: Whistleblower Award Determination (Form 211 Only)

For whistleblower claims, if your information substantially contributes to the IRS's collection of taxes, penalties, and interest, you may be eligible for an award.

Eligibility: To qualify for a mandatory award, the collected amount must exceed $2 million (excluding interest and penalties) for businesses, or if it concerns an individual, their gross income must exceed $200,000 for the year(s) in question.
Award Amount: The award amount is generally between 15% and 30% of the collected proceeds. The IRS considers various factors, such as the value of the information, your cooperation, and whether the information was readily available from public sources.
Payment: Awards are only paid after the IRS collects the taxes and all appeal periods for the taxpayer have expired. This process can take several years.

Step 4: Important Considerations and Potential Risks

Reporting someone to the IRS is a serious matter with potential implications for all parties involved.

Sub-heading: Confidentiality and Anonymity

Confidentiality: The IRS has a strong policy to protect the identity of whistleblowers. However, if a case proceeds to litigation, your identity could be disclosed. This is another reason why legal counsel can be beneficial, as an attorney can act as a buffer.
Anonymity (for Form 3949-A): While you can technically submit Form 3949-A without your contact information, the IRS may be less likely to pursue a lead if they cannot ask for clarification.
No Anonymous Whistleblower Claims: The IRS Whistleblower Program (Form 211) does not allow for anonymous submissions. You must disclose your identity to the IRS.

Sub-heading: Consequences of False Reporting

Serious Penalties: Intentionally providing false information to the IRS is a serious offense and can carry severe penalties, including fines and imprisonment. Do not use this process to retaliate against someone or make baseless accusations.
IRS Discretion: The IRS has the discretion to pursue or not pursue any lead. They will not audit someone based solely on a vengeful or unsubstantiated tip.

Sub-heading: Patience is Key

The IRS investigative and audit processes are not quick. It can take months or even years for an investigation to conclude and for any potential awards to be paid. Be prepared for a long wait.

10 Related FAQ Questions

Here are some common questions about reporting tax fraud to the IRS, with quick answers:

How to report someone to the IRS anonymously? You can submit Form 3949-A, Information Referral, without providing your personal contact details, though this might limit the IRS's ability to follow up on your tip. For the formal Whistleblower Program (Form 211), you cannot submit anonymously; your identity must be disclosed to the IRS, but they maintain strict confidentiality.
How to know if the IRS is auditing someone based on my tip? Generally, if you submit an Information Referral (Form 3949-A), you will not be notified of any action taken. If you file a Whistleblower Claim (Form 211), the IRS Whistleblower Office may provide limited updates on the status of your claim, such as whether an audit has been initiated or if tax payments have resulted, but they cannot disclose private taxpayer information.
How to report a tax preparer who filed a fraudulent return? You can report a tax preparer using Form 14157, Return Preparer Complaint, and if they filed or altered your return without consent, also use Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit. These forms can be submitted online or by mail.
How to report an employer not paying payroll taxes? You can report an employer for not paying payroll taxes or other employment-related tax fraud using Form 3949-A, Information Referral, or by contacting the IRS directly through their general inquiry lines if you have sufficient details.
How to report someone for not reporting cash income? Use Form 3949-A, Information Referral, to report individuals or businesses who are not reporting cash income. Provide as many details as possible, including the nature of the business, the estimated amount of unreported income, and the tax years involved.
How to qualify for an IRS whistleblower award? To qualify for an award, you must provide specific and credible original information using Form 211 that substantially contributes to the IRS's collection of taxes, penalties, and interest, exceeding $2 million for a business or $200,000 for an individual. Awards are typically 15% to 30% of the collected proceeds.
How to check the status of an IRS whistleblower claim? You will receive a claim number after submitting Form 211. The IRS Whistleblower Office may communicate with you (or your attorney) at certain stages of the process, but the overall process can be lengthy, and detailed information about the investigation is confidential.
How to appeal an IRS whistleblower award determination? If you disagree with the IRS's determination regarding an award under Internal Revenue Code Section 7623(b), you generally have 30 days to appeal the decision to the U.S. Tax Court. Decisions under Section 7623(a) are discretionary and typically cannot be appealed to the Tax Court.
How to protect yourself from retaliation if reporting an employer? The Taxpayer First Act of 2019 provides protections against retaliation for whistleblowers who report tax violations. If you experience job-related retaliation (e.g., firing, demotion), you may be able to file a complaint with the Secretary of Labor or sue in federal court. Consulting with a whistleblower attorney is highly recommended for these situations.
How to report a tax-exempt organization for misconduct? To report misconduct or wrongdoing involving a tax-exempt organization, complete and mail Form 13909, Tax-Exempt Organization Complaint (Referral) Form, to the IRS address provided on the form.

4043240611234222595