Tax misconduct, such as fraud or evasion, can put your business relationships and compliance at risk. This guide clarifies the two critical questions surrounding this issue: Who is legally mandated to report tax misconduct, and what options are available for employees, independent contractors, and others who wish to report voluntarily?
1. Tax Misconduct Mandated Reporting
Generally, only tax professionals are mandated reporters. This includes certified public accountants (CPAs) and tax attorneys who are both required to report potential tax evasion and fraud by their clients. When doing so, they still must comply with their ethical and legal obligations.
All others, who did not participate in the misconduct, including employees and independent contractors who become aware of tax fraud and evasion, are not required to report the misconduct. However, there are options if an individual still wishes to report.
2. IRS Whistleblowing
The IRS whistleblower program allows people with firsthand knowledge of non-compliance to provide the IRS with information , with the possibility of financial reward. Examples of non-compliance include false exemptions, false tax documents, underreported income, and underpayment of taxes.
To be eligible to be a whistleblower, an individual must provide specific, timely, and credible information under penalty of perjury. The following individuals are ineligible:
- Employees and former employees of the Department of Treasury at the time of receiving the information
- Employees of the federal government who obtained the information during their official duties
- Individuals who are required or prevented by law to report the information
- Individuals who received the information through a contract with the federal government
- Individuals whose information is from an ineligible whistleblower who file with the goal of circumventing the rejection of the ineligible whistleblower’s claim
Eligible individuals can submit a Form 211 and need sufficient information, including:
- Identifying information of the person or entity being reported, including name, address, and, if known the taxpayer identification number
- Specific and credible allegations of the alleged noncompliance
- Supporting documents of the alleged noncompliance
- How and why the individual became aware of the violation
- Their relationship with the subject of the claim
- The reporting individual’s contact information
Whistleblowers are entitled to confidentiality and can receive between 15-30% of the financial recovery from any successful case they provide information for. However, just because a qualifying individual provides credible information does not mean the IRS will pursue the case. Due to the time and resources needed, generally only cases with collection amounts, including taxes, interest, and penalties exceeding $200,000 for an individual or $2,000,000 for an organization, will be pursued.
Whistleblower claims can be made here.
3. IRS Anonymous Reporting
If an individual is found to be ineligible for the official whistleblower program, they still have the option to report tax violations to the IRS anonymously. Anonymous reporting provides a layer of protection for one’s identity, which can be critical for those concerned about potential professional or personal retaliation. However, opting for anonymity generally disqualifies the reporter from being eligible for any financial award or percentage of the recovered funds. While this path does not offer the same monetary incentives as the formal whistleblower program, it is a valuable tool for maintaining tax compliance.
Anonymous reports can be made here.
Both formal whistleblowing and anonymous reporting of tax misconduct play a critical role in preserving the integrity and fairness of the tax system. Formal whistleblowers provide a high-value service to the government, leading to the recovery of substantial funds that might otherwise remain unpaid. Simultaneously, anonymous reporting ensures that even those who are ineligible for rewards or fear retaliation can still contribute to tax compliance. Ultimately, these reporting mechanisms incentivize transparency and hold both individuals and organizations accountable for their financial responsibilities.
If you would like to learn more about whether you have tax reporting obligations or for filing a report with the IRS, do not hesitate to contact one of our experienced business attorneys at EPGD Business Law, with an office in Miami, FL. Call us at (786) 837-6787 or email us to schedule a consultation.
