How does the IRS build allegations of tax fraud?

Snitches. It is a word that brings back memories of plot lines from popular mobster movies like The Godfather or the mega-hit HBO show The Sopranos. There are many names for those who provide information to another party in exchange for gain or immunity. The term “snitch” has a more negative connotation, other, less sinister monikers for those who take on this role include whistleblowers or informers.

These individuals are not always playing a negative role. In many cases, the actions of these individuals can help to better society.

Why would the IRS use informers? The Internal Revenue Service (IRS) has used informers for years. The agency contends that these informers help the agency to operate more efficiently. In many cases an informer or whistleblower can provide salient information that leads to the collection of additional revenue.

Why would people be encouraged to provide information to the IRS? Although not a new tactic in the fight against tax fraud, the IRS has made some changes to its whistleblower program that has led to an increase in participation. In 2006, Congress enacted a change that resulted in the payment of up to 30% of collected revenue to the tipster responsible for the collection.

If the information results in the collection of additional revenue, the informer could receive a financial reward. This reward has been substantial in the past. The IRS has given over $300 million to snitches in 2018 alone. The IRS tends to be most generous with those who provide information that leads to collection of tax obligations that result from a failure to disclose foreign assets.

Could this lead to unintended results? Unfortunately, not every informer is out for the betterment of society. Some are out for their own financial gain or to seek vengeance against another. This can result in false allegations of wrongdoing.

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