Exposed! What Happens When You Report Someone to the IRS and How It Impacts Them?

Violating tax laws is a serious offense that can sometimes result in criminal charges. You shouldn’t hesitate to report these violations to the IRS if you can prove your claim.

What happens when you report someone to the IRS? How does it impact them? These are some of the most obvious questions you may ask yourself if you contemplate reporting someone to the IRS.

The answers aren’t simple because they depend on several factors you can’t control. The IRS will most likely review your evidence and determine the best course of action. Moreover, you may be eligible for a reward.

Let’s see what happens when you report someone to the IRS and how it impacts them.

Reasons to Report Businesses or Individuals to the IRS

Before contacting the IRS and informing them about a tax law violation, you must be sure that the agency will consider your claim.

The IRS Whistleblower office offers financial rewards to individuals who are brave enough to speak up and report tax evasion. However, the office is unlikely to consider minor offenses such as failure to file taxes for a single year or incorrectly claiming EITC or other tax credits.

The gravity of the offense must be sufficient to attract the IRS’ attention. The Whistleblower Office annual report for 2022 shows that the IRS collected $172.7 million from October 1, 2021, until October 1, 2022, from taxpayers who whistleblowers reported.

During the same period, the Whistleblower Office issued 4,115 notices to individuals who reported tax evasion cases. However, only 396 claims were eligible for rewards.

Here’s an overview of the most common tax issues whistleblowers reported:

• Money laundering
• Incorrect or insufficient tax withholding
• Intentional misclassification of employees
• Offshore tax havens
• Deliberate underreporting of taxable income

Remember that the IRS may disregard your whistleblower claim even if you report a legitimate tax issue if the amount in question is too low.

Meeting the IRS Whistleblower Program’s Requirements

Hiring a whistleblower lawyer is the first thing you need to do if you want to report a business or an individual for tax fraud or evasion.

Doing so will eliminate the need to speak to the IRS directly and increase your chances of making a clerical mistake that may cause the IRS to decline your claim.

You must file Form 2848 to give the lawyer power of attorney and allow them to communicate with the IRS on your behalf. The Whistleblower Office doesn’t consider claims against a business if the amount is below $2 million.

To report an individual to the IRS, you must be able to prove they failed to report at least $200,000 of annual gross income.

A Quick Guide to Reporting Tax Law Violations to the IRS

You or your attorney must file Form 3949-A Information Referral with the IRS Whistleblower office and provide the following information:

• Individual’s or business details, including their name, address, contact information, SSN, etc.
• The whistleblower’s name, address, and contact details.
• A brief description of the tax violation

Collecting evidence that proves the legitimacy of your claim against a business or an individual is a vital step of the process. The IRS will accept ledger sheets, emails, contracts, and similar documents that unequivocally prove the tax crime you’re reporting.

If you cannot obtain these documents legally, you should disclose their location to the IRS.

You won’t be eligible for a reward if you don’t file Form 211 Application for Award for Original Information with the Whistleblower office. The amount you can receive as an award for reporting tax fraud or tax evasion ranges from 15% to 30% of the collected amount.

The form should contain a detailed description of the tax issue you’re reporting, the nature of your relationship with an individual or the business who violated tax law, and their private and contact information.

You must sign the form and mail it to the IRS Whistleblower office with all evidence you can gather.

What Happens After You Report Someone to the IRS?

The IRS needs approximately three weeks to process your claim and launch the initial review, which takes one to three months.

The office will only accept the claim if the initial review shows that Form 211 is complete, the assessment statute has expired, or the whistleblower is ineligible.

However, a subject matter expert will review the claim within 90 days if the initial review reveals that the claim is credible. During this stage, an expert will determine if the claim can be classified under Section 7623a or 7623b of the IRC.

Claims that don’t meet the requirements of Section 7623b aren’t eligible for awards. However, the Whistleblower office might still investigate them if sufficient evidence of tax underpayment exists.

An IRS officer assigned to the case will contact the taxpayer to inform them that a claim was filed against them.

The Field Examination stage starts after the subject matter expert reviews the submission and lasts up to three years. This stage can last up to ten years if a taxpayer refuses the field examination and files a court appeal.

The Whistleblower office might still reject your claim if the incriminated taxpayer can prove their innocence in court.

However, suppose the court doesn’t rule in their favor. In that case, the taxpayer will face harsh penalties, up to 75% of the amount owed, up to $100,000 in additional fines, and a maximum prison sentence of five years.

Receiving the IRS Whistleblower Award

The statute of limitations expires after ten years, so a whistleblower won’t receive an award if the IRS cannot collect the due taxes from a taxpayer during that time.

However, the Whistleblower office will start the Initial Award Evaluation process if the court finds a taxpayer guilty of tax evasion or fraud. The procedure lasts two months and is followed by the Monitoring for Payment stage, which can take up to ten years.

The whistleblower won’t receive a reward if the IRS fails to collect taxes due from a taxpayer. The Preliminary Award Recommendation stage is initiated when a taxpayer makes a full or partial payment before the collection statute of limitations expires.

The Monitoring Refund Statute Expiration stage lasts two years. The Whistleblower office will issue the Preliminary Award Recommendation Letter (PARL) during this stage and give the award to the whistleblower in one to three months if they agree to PARL.

This stage can last much longer if the whistleblower doesn’t agree to the letter or fails to respond to it. The Whistleblower office will issue the Final Determination if the whistleblower doesn’t respond to PARL.

Whistleblowers can disagree with the Final Determination and file a petition with the US Tax Court. However, doing so could postpone the award for up to six years.

After the case is settled in court, the Whistleblower office processes the award payment. It releases it to the whistleblower within three months.

Checking the Status of the Award Determination

The information the Whistleblower office can share with whistleblowers regarding the status of their award determination is limited due to IRC Section 6103 regulations.

However, whistleblowers receive decision letters after their claims are approved or denied, indicating whether they qualify for the award.

Whistleblowers also receive reports about the award amount during the Preliminary Recommendation Process that explain the suggested amount.

You must mail a written request to the Whistleblower office once the award amount is determined to find out more about why the specific amount was recommended.

Frequently Asked Questions

The Importance of Having the Courage to Report Someone to the IRS

The wheels of justice move slowly, so speaking out against individuals or businesses that commit tax crimes can seem intimidating. Still, you shouldn’t shy away from it if you have evidence to corroborate your claims.

Corporations and individuals you report can face criminal charges, civil penalties, and various other consequences for their actions, but don’t forget that in most cases, they’ll attempt to challenge the evidence you collected in court.

Hiring a lawyer will ensure you won’t have to deal with their efforts to discredit your claim alone and that you’ll be prepared for each step of this lengthy process.

The reward you’ll get for having the courage to report a tax crime will exceed any financial compensation you may receive because you’ll know you’ve exposed a cheat.