What is a Tax Informant Award

Be a snitch for the IRS and you can make big bucks. That’s absolutely right, the IRS refers to these snitches as whistleblowers. “If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.” (IRS http://www.irs.gov/compliance/article/0,id=180171,00.html)

So why doesn’t your tax preparer, CPA, or other tax professional who sees your return not turn you in for the reward? Well, that would be because Title 26 of the IRC section 7213 says that it is against the law for any officer of the government, your attorney in fact or tax preparer, or anybody else in their employment to disclose anything on your tax return to anybody, without your knowledge and written consent. If they do, they can be fined up to $5,000 for each item disclosed.  Isn’t this a bit of a catch 22? Who else could possibly know what is on your tax return if you don’t personally tell them, or let them look at your tax return? And if they don’t know what is on your tax return, how could they possibly know what you have or have not reported and therefore what outstanding tax liability you might have?

If someone rats you out to the IRS for a reward, it’s most likely going to be your own fault for sharing your tax information with them in the first place.  Therefore, as a staunch advocate for taxpayers and taxpayer’s rights, this writer is compelled to let others expound on the details of the IRS Informant program while I will focus on telling you how to avoid finding yourself at a table in front of IRS agents, trying to explain some unreported bit of income, erroneous deduction, or other fraudulent bit of information.

Yes, there are plenty of people out their who “cheat” on their tax returns and a whole lot of them will sooner or later get caught. Some may even be outed by a snitch. You are really better off robbing banks, although that’s pretty stupid too, than trying to hold onto a few bucks you should have paid to the IRS. For the average Joe Dokes, it will probably cost you more to hire a lawyer for one day than you were able to pocket by fudging numbers on your tax return. And consider this, the statute of limitations clock on tax fraud starts ticking on the day the fraud is discovered, not the day it was committed. Therefore, if you do cheat, you have to go through the rest of your life worried that somebody, someday,will discover you misdeed and bringing it to the attention of the IRS for a nice reward. Keep in mind, when you sign a tax return, you do so under oath of perjury,  and if you have knowingly or willfully misrepresented anything on that return, you could spend a long time in a federal penitentiary. Know matter how much you’ve saved now, it will not be worth it, if an when you get caught.

So, what can the taxpayer do to protect themselves from the IRS informants process? First and foremost, don’t share the information on your tax return with anybody. Of course, never brag to anybody about how you cheated on your tax return. A lot of people, loan brokers, real estate agents and other professionals, may from time to time ask for a copy of your tax return to verify your income. Don’t give it to them. For proof of income, show them your W-2 forms or 1099’s. What goes on between you and the IRS is your business and nobody else’s. These people have no need to know what kind of deductions you are taking or other elections you are making on your tax return. And they can’t tell anybody what they don’t know in the first place. Keep your tax information private and nobody can ever use it against you.

There is a saying, “a man who represents himself in court has an idiot for a lawyer.” This holds true in cases involving the IRS too. Keep in mind, filing a tax return is a legal process. If you do get inquiry about your tax return from the IRS, the first step is to call ythe person who prepared the return for you. If you did it yourself, consultation with a tax professional may be prudent.  Let them speak on your behalf with the IRS as they can always disavow a statement they might make as a misunderstanding with their client. Whatever you say to the IRS in the first person is on the record and you can be held accountable for it. This goes to the 5th amendment of the constitution and your right not to give testimony detrimental to your case.

Now, if out of the blue you are called on the carpet by the IRS to explain some inconsistency with your tax return, and you suspect some informant has snitched on you for the reward, talk to an attorney about it. The IRS doesn’t have a case against you unless they put their informant on the stand and you or your attorney have the right to depose this person as part of discovery. If this person has found out something involving your tax return which you did not disclose to them, or someone else has told them about it, then the disclosure has to have been unauthorized and IRC 26.7213 comes into play.

If you are in business, keep in mind that while it would be unethical for your bookkeeper or other employee to disclose information about your business, or to become a snitch for the IRS it is not illegal nor unprecedented. It’s a good idea for this reason to have your tax returns prepared by an independent firm and not by employees. The IRS got Al Capone by turning his bookkeeper into a snitch. Indeed, even a disgruntled or divorced spouse who is party to a Married filing joint tax return, could become an IRS informant and get paid for the privilege of watching you take the heat. In the final analysis, “an ounce of prevention is always worth a pound of cure,” and that goes double for issues of taxation.

Yes, the IRS has an informant reward program, but if you have filed an honest return and don’t disclose your tax information to anyone else, you don’t ever have to worry about somebody ratting you out creating a lot of needless headaches for you.