Report Tax Fraud

James Shaw

New Member
Jurisdiction
New Jersey
I want to report tax fraud. The situation is described as below.

1. The individual / sole proprietor is a consulting company. In her 2017 tax return, she deducted $250,000 as consulting fees and made $80,500 "non employee" compensation. Actually, this quarter million dollar deduction was a loan.

2. In her tax return of 2015, 2016, she has never reported this $250,000 income. The source of this $250,000 is very suspicious. Based on her employment history and incomes, she can't make this amount of money.

Where to report this suspicious transaction? As I know IRS is not serious about Information Referral (Form 3949-A). What's the alternative way to report this potential fraud? Can I make an appointment with IRA and the state taxation agency, and discuss this suspicious tax return(s)?

Thanks
 
I want to report tax fraud.


Informants are required to complete a claim and mail it to the IRS.

The form is available on the IRS Web site, or you can call the agency's fraud hotline at 1-800-829-0433 for instructions.

While you must reveal your identity to the IRS, your name will be kept in confidence by the IRS.

You can go to the IRS website below for more details:

How Do You Report Suspected Tax Fraud Activity? | Internal Revenue Service

If you wish to report NJ tax cheats, this is the state website:

NJ Division of Taxation - Office of Criminal Investigation - Report Tax Fraud

Be forewarned, while you may consider $250,000 a significant amount of money, the IRS will probably be a bit unconcerned.

In other words, after you report it, they'll get to it when they have time.

Happy hunting.....
 
Where to report this suspicious transaction?

There are multiple ways to report tax fraud to the IRS if you are not interested in claiming a reward for the information provided. Generally, though, you'd use Form 3949-A for that. It is not accurate to say that the IRS does not take referrals on that form seriously. The IRS does act on GOOD information provided in fraud referrals. The problem is that most referrals are actually not all that good. They tend to be pretty vague and lack the kind of specific information that would support a good claim for fraud. I know that from experience having received fraud report claims when I was an officer for the IRS. I couldn't do much with vague information, and neither could anyone else. The IRS has limited resources and can't put in time investigating every claim that comes in where the reporting person has some generalized suspicion of fraud but lacks the specifics to back it up. The more detailed the information and the more actual evidence provided with it, the better,

If you want to claim the reward, you must use Form 211. The same principles apply, though: the IRS wants specific information that points to fraud, and it needs to be information the IRS does not already have for you to be eligible to get a reward.

You could also simply send a letter to the Service Center or to the IRS office that covers the place where the taxpayer lives, though that can be a bit more hit or miss as to what happens with it. You might have more success with the local office than the service center, the latter is a high volume operation and things can get overlooked there. You can try to get an appointment with a criminal investigation (CI) agent to lay out your case for fraud, too. But you'd better have something a bit more than you posted here for that. Your explanation really doesn't set up a good case for fraud or even really explain what is going on. I can't tell exactly what the transaction for the $250,000 was nor exactly how it was reported on the tax returns.
 
Be forewarned, while you may consider $250,000 a significant amount of money, the IRS will probably be a bit unconcerned.

Just to put this in perspective, the tax impact of $250,000 in unreported income (or $250,000 in improper deductions to reduce income) would depend on the marginal tax rate of the taxpayer involved. At the highest tax rate for 2017 of 39.6%, that would have a tax impact of $99,000. The IRS would indeed be interested in that as an audit item at least, if there is is sufficient information to help the IRS determine that the audit was likely be successful. Of course, if the tax rate is lower, the amount of tax involved would be lower, too. In any event, you're correct that the IRS does also have a lot of taxpayers to go after that would owe more than that. So this wouldn't likely jump right to the very top of the IRS list of priorities.
 
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