How to Report Tax Fraud

photo by S.E.B.

As an enrolled agent, I have something called client privilege. Basically it means that I can’t tell the IRS what I’ve discussed with a client and I don’t have to share any written information that is not already on the tax return. While it’s illegal for me to file a false tax return, I’m not allowed to tattle either.

But people seem to want me to. I often get calls from people telling me they know someone is cheating on their taxes and they want me to report them. First and foremost, I am not the IRS. If you truly believe that someone is cheating on their taxes and you really want to report it, you have to report it directly to the IRS.

I think the main reason that people call me is they’ve called the IRS first and “nothing happened.” That’s quite possible, and here’s why.  For one thing, if you really are reporting tax fraud, you need to fill out form 3949 and mail it to: Internal Revenue Service, Fresno, CA 93888.

Here’s a link to get the form on the IRS website.
http://www.irs.gov/pub/irs-pdf/f3949a.pdf

A phone call won’t do the trick. The IRS wants its paperwork. It has to be the right paperwork and it has to go to the right place.

Second, when completing the form, only answer the questions asked–see the second page of the form for a more detailed explanation of what they’re looking for. Don’t send the IRS anything not specifically asked for. If the IRS is going to build a successful case, they will have to do the work themselves. They have access to an amazing amount of information plus they have the power of subpoena. If they want your evidence, they will ask you for it (but don’t hold your breath.)

Unless you are a crucial witness to the case, you will hear nothing about the audit from the IRS. They won’t even tell you if they perform one. You cannot call them to learn about the audit because the IRS will not be able to tell you anything, it would be a violation of privacy laws. Once you’ve mailed in that form– you’re done.  There will never be a phone call thanking you for your assistance.  You won’t see the police come and cart the person away.  If you’re seeking revenge, you’ll never know if you got it or not.

Here’s another tip: look closely at your motives for reporting the fraud. Are you genuinely trying to report a real tax crime or are you mad at your ex-husband for not paying the child support while buying his new girlfriend a diamond ring? The IRS really does not want to be involved in personal domestic squabbles.

If you are reporting a former spouse, look long and hard at what you’re doing. It’s quite possible that an audit could come back at you. Let’s say you’ve only been divorced for a few months and the IRS performs an audit. If they find that your ex-husband was under-reporting income, they are likely to investigate prior years. If they find that he owes taxes for years that you were married to him, you could be held liable for paying those taxes. Stop and think before you act.

One final thing, if your complaint is that someone claimed your children on his or her return and shouldn’t have, don’t file a 3949 form. Just prepare your return correctly, listing your children as dependents, and mail it in. The IRS will take it from there.

8 thoughts on “How to Report Tax Fraud

  1. Hi. I recently found out that a ex friend of mine claimed my son on his taxes for the year 2016. He is of no relation to my son, and he wasn’t living with me. He is half my age as a matter of fact. I don’t know how he chose to claim my son, meaning if he was the father, brother, or uncle. He apparently got a hold of my son’s SS# when he was at my house. And I’m on SSI and have no income so I didn’t file a tax return. What do I do next? Ty

  2. I have an ex that I have a child with. He is self employed and the judge in the case wanted three years worth of tax info and deduction write off log book receipts . . He of course could not provide this info bc he does not have it. He dragged the case on and on for so long there was nothing left to do and eventually the judge in the case said ” well if the IRS accepts his return I have no choice but to do so as well” . My attorney and I were in shock. He was able to hide so much of his income to avoid paying child support. Anyway… for almost 15 years now he’s avoided paying almost any taxes at all and has lied so much it’s insane. I would love to turn his sleazy butt in. Any suggestions?

  3. Great Article! I mostly use PDFfiller to fill out PDF forms. It also allows you to erase in a pdf, esign and create templates from the form found in their PDF Search Engine.
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  4. Hi Scott,
    So the big question is–do the children live with their grandfather? If they do, then he probably gets to claim them. If they don’t–then he doesn’t get to claim them for taxes.
    If your ex is getting state benefits because she’s supposedly on her own but she’s living with her dad–well then you’d report her to the state and not to the IRS. If she’s cheating to get EIC–that you’d report to the IRS.
    If you’re going to report her, you need to make sure you’re reporting her to the right agency.

  5. my childs mother lets her father claim our kids every year and he gives her half the money and theyve been doing it for years. i pay child support and never get to c them she is on section 8 gets food stamps medical card everything i no they are suppose to live with him 6 months out of the year for him to do that but her state benefits are year round how do they get away with it i just found out my oldest son is now living with her dad off the radar i guess but im still paying her support for him i would like to report them

  6. If you have a seriously huge tax fraud to report, there could be a commission for you. By seriously big, I mean over $2 million dollars. Of course, there’s a form:http://www.irs.gov/pub/irs-pdf/f211.pdf and you’ll wait a long time to ever find out if you got anything. Confidentiality laws keep the IRS from providing you with any type of update so you can’t just call them and ask how the case is progressing.

    Oh–and it’s important that you’re not partly responsible for the fraud–seriously you’d think people would know better, but if I don’t mention it….well you never know.

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