Have you ever wondered how those who are being prosecuted and sentenced for tax evasion get caught? Are they simply a segment of the unlucky population who gets audited each year? Does the IRS have ways of using technology to determine who is a tax cheat? Or could it be more sinister? Could an acquaintance, friend, or even relative rat you out to the IRS? The truth is: all of these situations occur and the latter is more common than you would think.
According to several recent news reports that are based on information recently released by the IRS, over $53 million dollars was paid out to tax whistle-blowers in 2013. The Internal Revenue Code allows citizens to come forward with specific evidence of tax evasion or fraud and if the IRS recovers additional taxes because of the tip, the tipster is entitled to a portion of the proceeds. The whistle-blower statute allows for rewards that result in additional collected taxes from both individuals and corporate entities.
Although there are many different motivators for someone to come forward and throw someone that they know under the proverbial bus, one of the biggest drivers are likely the rewards. Fluctuating from year to year, the amount of additional tax that is collected due to the help of citizen whistleblowers is always in the hundreds of millions of dollars. And because those who provide information that leads to the collection of those funds receive a percentage of the additional collected taxes, a friend or relative that is aware of a taxpayer with a high-valued tax secret could come away with a large amount of reward money.
It is true that the IRS has various types of methods that can be used to detect taxpayers who have either failed to file their taxes or have lied on the forms that they have filed, there is no more of a direct route to being investigated than having a person reaching out to the IRS with the assertion that you have violated tax laws. The IRS has several automated solutions for detecting tax fraud, but there is only so much a computer can analyze and there are only so many IRS agents to review potential suspicious activity identified by the systems.
Unless a taxpayer that has engaged in tax fraud or evasion is an extreme introvert with no family and friends, there are likely people that they have come into contact with in one form or another that know enough to cause the IRS look into the taxpayer’s affairs. Friends (or ex-friends), co-workers, family members, or even spouses (or ex-spouses) have the potential to disrupt you life by way of an IRS investigation. If the IRS officials who perform an initial look into your tax affairs believe that it is possible a crime has been committed, your case will be referred to the Criminal Investigation’s Division and eventually to the Department of Justice for criminal prosecution.
Luckily, you aren’t out of luck just because someone knows that you have some tax skeletons in your closet. If you are able to beat a disgruntled friend, family member, or lover to the punch by contacting an experienced criminal tax defense attorney, you may be able to minimize or avoid the damage that could be caused by a whistle-blower’s tip. A tax attorney can assess the situation to determine if a taxpayer’s voluntary disclosure of their issue could be beneficial or if a simple amended return would suffice. For instance, if a friend or relative knows about a foreign undeclared bank account, a taxpayer can come forward through the Offshore Voluntary Disclosure Program (OVDP) and avoid the possibility of jail time by paying back-taxes and a penalty.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in helping taxpayers out of tough situations, especially when they are suspected of committing a criminal tax offense. Many taxpayers believe that they can talk their way out of an examination or investigation, but end up incriminating themselves by making statements that can be used against them later in court. An experienced criminal tax defense attorney will ensure that you do not make that mistake by representing you at every meeting with the IRS, Department of Justice, or state taxing authority. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.