Get paid to be a tax informant
Ever think that it would be good if people did what they were supposed to, like pay taxes. You didn’t ask for the data, but someone proudly states that he didn’t pay taxes on his last job because he was paid under the table. What do you do? Do you keep this information to yourself? Do you tell someone? Who? For further information read on.
There are people who have been paid by the IRS to inform them of tax criminals. The IRS has a civil and criminal investigation team. This team does want information from all sources, including John Q. Public.
Tips are important to the IRS. Annually, it collects more than $100 million and pays out from $2 million to $5 million to snitches.
While the Internal Revenue Service doesn’t publicly encourage tax informers, its representatives admit that many investigations could not be successfully conducted, or even started, without the use of paid informants or the direct purchase of evidence.
Informants vary in size and reasons but the majority fall into these categories: a former employees of a business that has been under reporting its income (a disgruntled employee who doesn’t inform on the business itself may squeal on its owner or a disliked manager), a former spouse, and a neighbor that wants to get even.
Anyone who provides information that leads to the discovery and punishment of any violation of the tax laws may be eligible for a reward with the exception of federal workers who get the information in pursuit of their duties.
If you are starting to think this could be lucrative, review the fact that since 1960, only about 8% of filed claims have resulted in rewards.
OK, you know of a situation, you have reported it, how do you claim your reward? IRS Publication 733 details the regulations for claiming a reward. You must complete IRS Form 211. Your information can be delivered personally to any IRS office, or you can write to Head of the Criminal Investigation Division, Internal Revenue Service, Washington, DC 20224.
If a recovery is made as a direct result of information you provided, you may qualify for a reward of 15% of the amount recovered including taxes, fines and penalties, but not interest—with a maximum payment of $2 million. If your information was valuable, although not specific, in determining liability, you may be rewarded with as much as 10% of the amount recovered, again with a $2 million cap.
If your information was the originating cause of the investigation, but had no direct relationship to the determination of tax liability, the reward is 1% of the amount recovered, again with that $2 million limit.
No matter what you tell the IRS, and no matter how much they collect, all rewards are discretionary, not mandatory. The IRS is never obligated to pay a reward, unless you negotiate a signed contract in advance of providing the information. Remember too, all rewards are taxable income.
Looking good so far? You should also realize that there are reasons why a reward might not be paid. The more obvious reasons are: the information was of no value, it was already known by the IRS, and/or the information was available in public records.
Rewards are paid only after the tax is recovered, and that can take years. The informant isn’t kept posted as to the progress of the investigation, but you can check to see if the claim for a reward is still under active IRS consideration.
The idea of informing on neighbors, colleagues, ex-spouses, or business associates is distasteful to most people. Yet, it is the honest taxpayer who winds up footing the bill for tax fraud. The IRS estimates that the gap between taxes owed and taxes paid is $127 billion. That is an extra $1,000 in taxes for every individual return filed last year.
A suggestion, if you want some quick cash, do a free money search and find out if the government owes you money. Each state holds unclaimed property. Currently there is an excess of $25 Billion owed to Americans. The search for lost money is fun and exciting. Nine out of ten people are owed money, the odds of collecting money in this fashion are greater than being a tax informant.
