In the United States, it's estimated that citizens underpaid their taxes by approximately $668 billion in 2021, resulting in a massive gap in tax revenue. Major culprits are those who skim their earnings or misreport information to fall into a lesser bracket, consequently evading taxes. Despite tireless efforts by the IRS which led to the recuperation of about $63 billion, a staggering $625 billion in owed tax has remained unpaid.
Tax evasion is a crime, akin to shoplifting. Citizens paying their required taxes lend towards public goods, which tax evaders unfairly benefit from without their due contribution. Therefore, reporting suspected tax evasion helps close this gap and ensure the public good is fairly funded.
However, reporting such cases is a task needing solid proof. The IRS needs to be certain of considerable potential payoff before pursuing a case. Information about the evasion, type of violation, and any relevant documents are necessary to support the hunch of evasion. Petty complaints of milder evasions are less likely to draw IRS attention, focusing more on larger cases due to higher payoffs.
While it might be tempting to deceive the IRS to get back at an annoying neighbor or to fabricate evidence against a suspected tax cheating employer, it is important to remember that making false accusations could result in perjury charges. Similarly, stealing information to incriminate others could land you in trouble.
In cases where the reporting individual has substantial information, the IRS offers awards depending on the amount of the tax liability recovered and the evader's income level or classification of the tax cheat. However, reporter's identity might need to be disclosed if the case goes to trial. This process may take years, and if there is no conviction, there is no reward.
Possible whistleblowers should also consider their status. If they are in any form involved in the tax fraud or are not compliant with tax laws themselves, they might want to avoid attracting IRS' attention.
The process of reporting requires filling IRS form 3949-A or sending a letter to the IRS detailing the evasion. An application for the whistleblower award may also be necessary if one wants to be considered for an award.
Despite the challenges and risks involved in reporting tax evasion, it undeniably plays a significant role in recouping lost tax revenue. It's essential for those with authentic tips to come forward and help the government recover these funds.