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How to Report Tax Fraud & Tax Cheats

Posted By Jim On 01/20/2010 @ 7:06 am In Taxes | 22 Comments

One of the largest tax fraud schemes was blown wide open last year when ex-UBS AG banker Bradley Birkenfeld blew the whistle on a $20 billion tax evasion scheme at UBS [3]. His testimony played a “key role” in showing US investigators how UBS was helping Americans hide assets. As a result, UBS agreed to hand over information on 4,450 accounts and pay $780 million to avoid prosecution. Birkenfeld himself received 40 months of jail time because he personally helped billionaire Igor Olenicoff evade taxes, which he didn’t disclose when he talked about the widespread tax evasion schemes. However, when Birkenfeld leaves prison he’ll be rewarded [4] many many millions of dollars for his assistance in catching these tax frauds. A fairly new federal rewards program [5] lets tax informants earn a bounty for those they turn in.

So, how can you get in on the action?

Whistleblower – Informant Award

Before you start turning in everyone you hate, the IRS’s requirements are fairly stringent. They require that you provide specific and credible information and will pay awards if that information results in the “collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.” While it’s unclear what is considered specific and credible,

How much is the award? There are two types of awards, one for if the total collection (taxes, penalties, interest, or other amounts) is more than $2 million and one if it is less.

  • If the total collection is over $2,000,000 and “a few other qualifications are met,” the IRS will pay 15% – 30% of the total amount collected. Another qualification is that if the noncompliant taxpayer is an individual, their annual gross income must be greater than $200,000. The amount is set by law and you are permitted to appeal a ruling.
  • If the total collection is under $2 million, or it’s over $2M and its an individual taxpayer with an income less than $200k, then the award is 15% up to $10 million. For this award, the Commissioner sets the reward (up to the maximum) but you cannot contest the ruling.

How to Report Tax Cheats

The instructions are available here [6] but essentially you fill out Form 211: Application for Award for Original Information [7] and mail it to the IRS here:

Internal Revenue Service
Whistleblower Office
1111 Constitution Ave., NW
Washington, D.C. 20224

One important note at the bottom of the instructions state – “If the whistleblower withholds available information, the whistleblower bears the risk that withheld information may not be considered by the Whistleblower Office in making any award determination.” Could Birkenfeld’s omission of his role in helping Olenicoff evade taxes be a factor in the office’s determination of an award? Hmmm…

Finally, I think the funniest part about the Birkenfeld saga is that UBS now explicitly bans tax evasion assistance [8].

(Photo: alancleaver [9])

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[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/how-to-report-tax-fraud-tax-cheats.html

[3] Bradley Birkenfeld blew the whistle on a $20 billion tax evasion scheme at UBS: http://www.bloomberg.com/apps/news?pid=20601087&sid=aqRUmD2LzH.E

[4] he’ll be rewarded: http://www.forbes.com/forbes/2009/1214/investment-guide-10-ubs-irs-spondello-tax-informants-on-loose.html

[5] new federal rewards program: http://www.irs.gov/compliance/article/0,,id=180171,00.html

[6] here: http://www.irs.gov/compliance/article/0,,id=181292,00.html

[7] Form 211: Application for Award for Original Information: http://www.irs.gov/pub/irs-pdf/f211.pdf

[8] UBS now explicitly bans tax evasion assistance: http://www.google.com/hostednews/afp/article/ALeqM5iTbon8wmd1XIU5QlWHWT_ajdbqMg

[9] alancleaver: http://www.flickr.com/photos/alancleaver/4121400351/sizes/s/

Thank you for reading!