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Making tax cheats pay up and pay off

Do you know a tax cheat? Turn him in for fun and profit!

There's no shame in ratting on rats. After all, every buck they hide from Uncle Sam ultimately means more tax for the rest of us. You can justifiably stake the moral high ground by exposing these shirkers, especially if they've been cheating you out of child support or rubbing their shiny new Jag in your face. That's the fun part.

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Now about that profit part. If you provide sufficiently detailed information on a tax cheat to the Criminal Investigation unit of the Internal Revenue Service, you may receive up to 15 percent of the amount recovered in taxes and penalties (but not interest) as a tip for your tip.

But don't start shopping for that beachfront in Hawaii just yet. To have a chance at collecting on your high-living relative or slimy former boss, you have to have the goods, follow procedures, ask for a reward and wait an awfully long time -- up to two years and more -- for the wheels of justice to turn. Even then, the IRS is under no obligation to give you a dime.

"We determined from a study that one in 10 informants actually asks for a reward and approximately one in 10 of those gets one," says Jeaneen Heiskell, IRS senior program analyst.

Millions paid, more collected
In 2003, informant information prompted the IRS to pay $4.1 million in rewards. That was down from fiscal 2002, when $7.7 million in rewards to tipsters led to $66.9 million recovered in taxes, fines, penalties and interest. (The reward/recovery figures do not correlate because a reward is rarely paid in the same year the claim was filed.) The record year was 2000, when $10.8 million went to those who ratted out tax-cheating friends, family and coworkers.

While your reward could be handsome indeed, the money actually recovered amounts to a drop in the bucket for the IRS, which may explain the program's relatively low profile.

"To put it in perspective, the IRS collects more than $2 trillion a year; we have something like 227 million returns that we process every year," says IRS spokeswoman Nancy Mathis. "There are only 100,000 IRS employees. It's just difficult to keep up the pace. The $66.9 million is not a big figure in the scheme of things, but every little bit helps."

Ready to put some of that "little bit" of tax revenue into your own pocket? If you've got the dope on a tax dodger, here's how to jumpstart your early-retirement account.

Turning in a tax cheat
You could be just a phone call away from riches. Just dial the Informant Communication Hotline at 1-800-829-0433. Be sure to tell them upfront that you want to file Form 211, Application for Reward for Original Information. Without it, you won't see any monetary reward.

Form 211 will ask for your true name and signature. Mail it to the Informants Claim Examiner at the IRS center nearest you. Addresses are listed on the back of the form or call the Informant Communication Hotline for help.

Here's where the quality of your information is critical. IRS investigators are swamped with leads, most of them more vindictive than substantial, and understandably tend to pursue those with the best likelihood of recovering substantial revenue.

The information you provide could be rewarded by the IRS on one of three levels based on the amount recovered:

  • 15 percent for specific information responsible for the investigation and a factor in the recovery,

  • 10 percent for information, but not specific, resulting in an investigation and determination of tax liabilities and

  • 1 percent for information leading to an investigation, but with no direct relationship to the determination of the tax liabilities (for instance, you only supplied a name).

To increase your reward chances, provide as much detail as you can. The IRS is especially grateful when informants have the tax cheat's full name, address, Social Security number, tax years involved, types of violation, bank account information and any documentation you might have to support your claims.

"If somebody just says, 'My next door neighbor just pulled up in a new Jaguar, I know he's not reporting all of his income," that is not very useful information," says Laurie Levin, director of Internal-External Stakeholders for the IRS. "On the extreme other side, 'I was the bookkeeper for this company and during that period of time, this is what Bob had me doing with the books and by the way, here's a copy,' that's clearly 15 percent. It absolutely depends upon the type of information, the quality and detail of the information and the amount."

-- Updated: March 11, 2004




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