Does IRS investigate anonymous tips?

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“Yes”- and it is surprisingly very easy to do so. The IRS even has a form for turning in suspected tax cheats: Form 3949-A, Information Referral. ... Informants can get a reward if their original information leads the collection of additional taxes and penalties. The IRS also plans to make it easier for informants.Jan 18, 2021

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Can someone “turn me in” to the IRS?

 “Yes”- and it is surprisingly very easy to do so. 

The IRS even has a form for turning in suspected tax cheats:  Form 3949-A, Information Referral.  The IRS also explains on its website how whistleblowers can report various forms of suspected tax fraud.

IRS Form 3949-A that allows informants to provide information on tax cheats

For years, the IRS and the tax code has encouraged whistleblowers to turn in both legal and illegal activity that results in tax fraud. The tax code provides incentives for whistleblowers.   Informants can get a reward if their original information leads the collection of additional taxes and penalties. 

The IRS also plans to make it easier for informants.  Currently, the IRS is exploring an online Form 3949-A which would make it easier for informants to submit an online information referral application.

How many people get turned in to the IRS?

Recently, the IRS’ watchdog, the Treasury Inspector General for Tax Administration (TIGTA), provided some insight on the number of taxpayers turned into the IRS.  The TIGTA report provided information on the number of Forms 3949-A received:

TIGTA data on the number of informants providing information on tax cheats

The report also provided data on how many information referrals were audited and the additional assessments from the audits: 

TIGTA data on audits started from informants

The data clearly shows that many informant reports do not result in IRS activity.  In fact, the data indicates that only a little more than 6% (FY16-FY18 comparable data) result in an audit. 

However, these leads are very fruitful for IRS auditors.  The IRS clearly gets a substantial increase in average assessments from its informant-sourced audits v. its other sources of audits.  For its Small Business/Self-employed audits, the IRS gets over a 64% increase in its information report sourced audits ($30,225 v. $18.393). 

In addition to audits, the IRS also sends a few of these referrals each year to IRS Criminal Investigation for review. The results of these investigations are not known.

What can a taxpayer be turned in for?

Section B of the Form 3949-A provides the informant a list of violations: 

Alleged violations list on Form 3949-A, Information Referral

The list is fairly inclusive of most tax fraud situations, and the “other” category provides the informant a catch-all for any further allegations of wrongdoing not covered on the list.

Most quality information referrals come with evidence supporting the allegations. The Form 3949-A allows for the informant to attach the supporting evidence.

What does the IRS do with the information?

Informant referrals are looked at closely by the IRS.  However, as the data shows, very few informant referrals make it in the hands of IRS agents for investigation.  When the IRS receives the referral (they all get routed to the IRS’ Fresno office), they screen it for routing to specialists throughout the IRS.  For example, a complicated foreign bank account referrals may go to the IRS’ Large Business and International unit.   Unreported income from a small business owner may go to IRS Small Business/Self-employed units.

The IRS can do internal and external research to determine if further action is warranted.  For example, an information referral may allege that a taxpayer is a small business non-filer.  The informant could provide invoices from the non-filer as evidence that they are in business and their website address.  The IRS could review its records to see if the taxpayer filed a return.  The IRS can also review the taxpayer’s website and see if they have been in business for the non-filing years.  If validated, the IRS can send the report for a non-filer investigation.

What makes a good IRS referral?

When I worked with the IRS for 19 years, I was able to see a lot of information referrals.  It was clear that many referrals would not be fruitful.   I saw many information referrals from estranged spouses and disgruntled employees that did not provide any evidence of wrongdoing.  However, in about 1 out of 20 referrals (coincidentally, aligning with the IRS data in the TIGTA report), there was activity worth pursuing.

A good information referral provided evidence of wrongdoing and an audit trail that the IRS could validate.   In short, it provided the auditor a line-of-sight to finding the tax fraud activity.

Many information referrals received by the IRS reflected very little evidence of wrongdoing.  For example, a competitive business may allege that that their competitor has two sets of books and not reporting all of their sales.  In this case, the IRS may be interested but had some practical reservations that the audit would be fruitful because it does not have a specific audit trail to follow.  The IRS may also be reluctant to pursue the referral because it may possibly have come from a disgruntled competitor with very little evidence of wrongdoing. 

However, if the referral included specific evidence  of wrongdoing – such as evidence of unreported lines of business that the taxpayer was hiding, the IRS may be more interested.  In addition, the referral would be more likely to be accepted if it included traceable information, such as a vendor that was paid in substantial amounts of cash with evidence to show that the subsequent sales were “off the books.”   Again, the audit trail was important.

Many times, the IRS is reluctant to pursue anonymous referrals, especially when the referral does not provide an audit trail, good evidence of wrongdoing, and came from a source that was looking for revenge.  The reality is that many referrals contained these elements and were not worth pursuing.  

What can we expect in the future?

Information referrals can be good leads for the IRS. The IRS is going to make it easier for taxpayers to turn in other taxpayers.  The data shows that this is fruitful for the IRS.

The informant that provided the IRS names of taxpayers with Swiss bank accounts is a good example of why the IRS wants to invite informants in the future.   The Swiss bank informant provided the IRS credible evidence of taxpayers hiding assets in Swiss accounts.   This information led to years of IRS prosecutions of tax evaders.  It also led to billions in recaptured taxes,  penalties, and interest.   The Swiss bank information also began a decade-long IRS enforcement project to close offshore tax evasion.  This success has provided fuel for the IRS to encourage more informants to come forward. The IRS is quick to mention that Swiss bank informant was awarded $104 million for his information (he also went to jail for his part in it too – the IRS leaves that part out).

The future shows that the IRS will have less audit resources.  It will need to pursue leads that provide the best return on investment for its audits and investigations.  Good IRS information referrals have always provided the best ROI. 

Taxpayers should always do the right thing and pay their taxes- or they may have to look over their shoulder to see if someone is turning them in to the IRS.

[Printcopyscan]

Maa employer గాడు 2 మిలియన్ డాలర్ విలువ ppp లోన్ తీసుకున్నాడు.... 80-20ni 90-10cheyamante dobbamannadu.... కంప్లయింట్ ichesthe eamavuthadi 

[Mandalorian]

3 hours ago, Printcopyscan said:

Maa employer గాడు 2 మిలియన్ డాలర్ విలువ ppp లోన్ తీసుకున్నాడు.... 80-20ni 90-10cheyamante dobbamannadu.... కంప్లయింట్ ichesthe eamavuthadi 

mee employer a state 

[afacc123]

14 hours ago, Printcopyscan said:

Maa employer గాడు 2 మిలియన్ డాలర్ విలువ ppp లోన్ తీసుకున్నాడు.... 80-20ni 90-10cheyamante dobbamannadu.... కంప్లయింట్ ichesthe eamavuthadi 

You are not him 

he has his own reasons 

evaru dobbamanaru meeru annattu 

baseless complaints get baseless time waste work

[Printcopyscan]

21 hours ago, Mandalorian said:

mee employer a state 

CA