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The Ins and Outs of Reporting Tax Fraud

The Ins and Outs of  Reporting Tax Fraud

For a vast majority of taxpayers, they spend the year keeping organized for tax time by tracking receipts, potential deductions and credits, then filing their tax return and paying their tax liability. However, not all individuals are willing to be that meticulous and they may misreport information in order to place themselves into a lower tax bracket. The result is tax fraud that means underpayment of taxes by individual taxpayers every year. If you are working with your tax preparer or tax professional, such as Financial Business Solutions in Hayward, CA, you are probably one of the taxpayers that has paid the appropriate amount of tax. Still, if you know someone that has not paid their proper amount of taxes, how can you assist the IRS to collect those funds? First, why should you assist the IRS?


Importance of Assisting the IRS


The IRS is charged with collecting the taxes due to the United States government from individual taxpayers and businesses. The average taxpayer ends up covering the difference for those individuals who choose to underpay or not pay their taxes at all. These taxes are used for many public projects, in addition to the running of the government and various offices. By reporting those who are not paying their fair share of their taxes, it is the same as reporting a shoplifter, another individual trying to get something for nothing. Since it is in all of our best interests for everyone to pay their share of the public tax burden, how can you assist the IRS?


Gathering the Evidence


First of all, you cannot just call up the IRS and say that you think a certain individual is underreporting their tax liability and the amount of income that they have actually been collecting throughout the tax year. Instead, you need to collect evidence of the actual tax fraud. This means determining who, what, where, when and the why regarding the tax evasion. Essentially, the more information that you have on the individual who is committing the tax fraud or evasion the better. While this means some work on your part, we will find out later about the benefit to the individual who turns in a potential tax fraud.


Additionally, the IRS is more interested in the larger amounts of tax fraud. For example, your neighbor may not report the $100 she made on babysitting, but this amount is unlikely to interest the IRS. However, if you work for a large company that is potentially understating their income and earnings, this could be worth much more to the IRS. So how can you benefit for reporting these tax frauds?


Blowing the Whistle Benefits


For a whistleblower, the IRS will pay awards for valuable information that leads to the collection of any taxes, penalties and other amounts from a non-compliant taxpayer. The awards may vary, based on the level and classification of the fraud or tax evasion. The IRS is more likely to go after larger cases that will have a higher payoff.


You do not want to use this method to report an individual that you do not like, as if it is found to not be the case, you could be risking a perjury charge from the IRS. You also do not want to do something illegal to collect the evidence of the fraud. Additionally, you could be asked to be a witness in a trial if the tax fraud goes to court.


Therefore, it is important to remember that whistleblowing is not to be taken lightly. Still if you are in possession of information about a legitimate tax evasion, you should consider reporting it. After all, if you do so, then the IRS may reward you for the information that allows them to successfully collect tax monies that they previously did not have. Additionally, you will have the satisfaction of knowing that you assisted in bringing a tax evader to the attention of the IRS and that they will now be forced to pay their fair share of the public tax liability and responsibility.


The final word is that tax fraud is a serious issue for the IRS. However, they are more concerned about collecting the larger tax liability for individuals and businesses that have attempted to commit tax evasion.

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