How to Report Suspected Tax Fraud

Written by J. Hirby and Fact Checked by The Law Dictionary Staff  

Statistics from the Internal Revenue Service (IRS) estimate that more than $400 billion each year in unrealized revenue are lost to fraudulent activities. This is only at the federal level; state revenue collection agencies must also deal with the burden of tax fraud, which in the end affects all residents of the United States.

Fraudsters resort to different methods to skirt tax laws and regulations. One of the most common instances of tax fraud is through underreporting of income, which is essentially how shadow economies exist. Claiming false exemptions, taking unlawful kickback, submitting fake documents along with income tax returns, and sophisticated money laundering are other activities that constitute tax fraud.

The IRS has a number of programs in place to encourage people to report tax fraud. It is important for potential reporters of tax fraud to confirm their suspicions prior to notifying the IRS; incorrect reporting could lead to investigative resources being used in vain and thus adding to the financial burden.

IRS Form 3949-A, Information Referral

The IRS does not accept telephonic reports of tax fraud. If someone believes that tax fraud is being perpetrated along with criminal activity, the person should contact their local law enforcement agency before notifying the IRS. Form 3949-A should be filed when the suspicious activity is related to:

Kickbacks
Fake deductions and shame exceptions
Willful misreporting of income
Organized crime
False documentation

Form 3949-A provides a step-by-step guide to reporting tax fraud. Alternately, reporters can also send a letter to the IRS with the following information in narrative form:

Name and address of the suspected individual or business taxpayers
Social Security or Employer Identification Numbers
A narrative description of the suspicious activity and how long it has taken place
An estimated amount of the income realized by the suspects
Contact information of the reporters

All reports should be mailed to: IRS, Fresno, CA 93888. Reporters can also choose to submit their information anonymously; although they can be assured that the IRS investigators will exercise confidentiality at all times.

Not all tax fraud actions should be reported on Form 3949-A. Identity theft should be reported on Form 14039, abusive tax preparation firms should be reported on Form 14157 and abusive tax promoters should be reported on Form 14242. If the tax fraud is believed to be perpetrated by an employee plan scheme, reporters should use Form 13909. Finally, to claim a reward offered by the IRS in relation to reporting tax fraud, Form 211 should be used.

More On This Topic



Comments are closed.