Tax fraud is sometimes discovered when a divorce case is filed, a business dispute arises, a bankruptcy occurs, etc.  One statute applicable to many federal tax fraud prosecutions is 26 U.S.C. § 7201.  An example of such a prosecution is the indictment unsealed in the Southern District of Florida on September 10, 2007 in the case of Jorge Alberto Valdes.  There are however a number of other general tax fraud statues which may also be relevant to a tax fraud case.  According to the Internal Revenue Service, the following can be indications of tax fraud:

  • Deliberately underreporting or omitting income.
  • Overstating deductions.
  • Keeping multiple sets of books.
  • Making false entries in books and records.
  • Claiming personal expenses as business expenses.
  • Claiming false deductions.
  • Hiding or transferring assets or income.

As of December 20, 2006, rewards for confidentially reporting the above kinds of tax violations may be increased by the IRS Whistleblower Office to 15%-30% of the total proceeds the IRS collects.  26 U.S.C. § 7623 (b) {5} & {6} however, require that: the tax fraud or underpayment involve taxes, interest, and payments greater than $2 million; the tax violator’s annual income exceeds $200,000; and that the confidential tip be submitted to the IRS under the penalty of perjury.  According to both the "Whistleblower-Informant Award" webpage and a December 19, 2007 press release, a Form 211 must also be submitted to the IRS in order to qualify as an IRS whistleblower.

Furthermore, if a person can not satisfy all of the above requirements for a 20%-30% whistleblower reward, he or she might still be able to collect another kind of reward.  As explained by Publication 733 and 26 CFR 301.7623-1, the IRS sometimes pays discretionary rewards of up to 15%, (excluding interest), from what it collects because of confidential tips.  Pursuant to 31 CFR 103.62 the U.S. Treasury Secretary may also pay a reward of up to $150,000 where information about Bank Secrecy Act violations leads to the recovery of a civil penalty, criminal fine, or forfeiture over $50,000.  The Director of the FBI has similar authority to pay awards of compensation as mentioned by 28 CFR 8.3.

Finally, there are a number of ways to report a suspected tax fraud.  For example, one can provide a confidential tip to the IRS by submitting a Form 211 or by calling the Tax Fraud Hotline to report a return preparer fraud at 1-800-829-0433.  One can also send a letter or Information Referral (Form 3949-A) as outlined in "How Do You Report Suspected Tax Fraud Activity?".  Before providing a confidential tip about a tax fraud, it is however always best to first consult with an attorney.  Perhaps most important is that a person providing such a tip need not proceed before the IRS or other agencies alone and unprotected when reporting a tax fraud or other violations. This is true because one may participate in the Whistleblower or other reward programs while represented by an attorney of his or her own choosing.

Copyright 2007-2008 Fred L. Abrams