Tag: Tax Fraud

Posted on by Jan Roberg

Earn Cash Blowing the Whistle on Tax Cheaters!

Report tax fraud to the IRS using form 211 to earn an informant award.

Blowing the whistle on tax cheats could earn you cash, but it could also cause you a lot of trouble.

You’ve thought about it, haven’t you?  Someone you know is cheating on their taxes, making huge refunds when they don’t even work, while you bust your backside making ends meet.  Makes your blood boil doesn’t it?  I know it does because people write to me all the time wanting to report an ex or a neighbor that they know is cheating on their taxes.  I did a post about reporting fraud a few years back, here’s a link to it:  Reporting Tax Fraud

 

Basically, if you’re just reporting fraud, you file form 3949, send it to the IRS and let them take it from there.  You’re done.

 

But if you want to get a reward for reporting the tax fraud, that’s a different story!  And, of course, a different form. But how do you know you can qualify for an award?  Well first, you have to be able to provide specific and credible information.  You can’t just send the IRS a form saying, “I think my neighbor’s cheating on his taxes, he can’t afford that new Volvo on the money he makes at the Post Office.”That’s just not going to fly.  Also, it’s got to be a significant Federal tax issue.  “My ex-wife claimed that those old clothes she gave to Good Will were worth $500 and they couldn’t have been worth more than $450.”  That’s not big enough to make it worth their while to investigate.

 

There are two types of whistle blower cases:  ones where the amount of tax, penalties, and interest exceed $2 million dollars.  (Geek speak, that’s a section 7623(b).)  That’s usually a business case.  Or if you’re dealing with an individual, his or her income must be over $200,000 annually for at least one of the tax years you’re reporting on.  In these types of cases, the IRS will pay between 15% and 30% of the tax that they recover.  Seriously, if you’re in a position to report on a major case like that, you should find an attorney to represent you.  Don’t mess with that on your own.  30% of $2 million is $600,000, it’s worth hiring an attorney for!

 

The IRS also has another program for cases where the tax is under $2 million or an individual makes less than $200,000.  (Geekspeak, that’s section 7623(a).)  Although the paperwork is the same, the rules are a little different for the smaller cases.  The maximum award will be 15% of the tax recovered.  Also, the awards are discretionary;  meaning – the IRS doesn’t have to give you an award if they don’t feel like it.  And, if you’re not happy with your award, you can’t go to Tax Court and argue it.  You’re done.  That’s it.  So even if you’ve got the perfect case, there’s no guarantee that you’re going to get paid.

 

Just to give you an idea of how things go though, in 2015, of the 204 claims that were paid, 99 awards were given so it’s about half of the claims.  But the IRS generally doesn’t pay awards until 5 to 7 years after a claim is filed so if you are going to get anything out of this, you’re going to be waiting for quite some time.

 

But let’s say you still want to go ahead with this.  What do you do?  You’re going to want to submit form 211.  Here’s a link to that:  Form 211

 

Basically, the form is going to ask for the name, address and the last 4 digits of the tax cheat’s social security number.  The IRS will also want a description of what he or she did and why you believe it’s a violation of tax law.  You’re also going to need to describe how you know about the cheating.  How are you related to that person?  And also how much tax you think that person owes.  The bottom line here is, you really need to know something about the tax cheat  to report them.

 

Here’s the last piece of information I want you to have.  The IRS Whistleblower – Informant Award, unlike other whistle blower programs, does not provide whistle blower protection.  That means that whoever you report on could find out.  If it’s an employer, you could lose your job.  If it’s someone you know (like an ex spouse), you could be placing yourself in danger.  You really want to think about this before sending the IRS form 211.

 

If you still want to report a tax cheat, and don’t care about a reward, then go ahead and send form 3949-A instead.  You can do that and remain anonymous.   Continue reading →

Posted on by Jan Roberg

Can I Claim My Friend’s Child on My Taxes?

 

Mom with little girl reading book in sofa

Even if you feel like they’re your kids, do not claim children that do not belong to you on your tax return for EIC.

 

I cannot tell you how many times I’ve heard this scenario:

My friend has 2 kids but she didn’t work last year.  She wants me to claim them for her on my taxes and we’re going to split the money.  Should I do it?

The answer is, NO!  Absolutely not!  It’s tax fraud.  Those children are not yours so claiming them on your tax return is illegal.

But she says we won’t get caught!  

Oh sure, you might not get caught right away, but someone might disapprove of what you’re up to and tell.  For example, let’s say the children’s father finds out and he reports you.  He could make a real problem for you.

The father is out of the picture, he’ll never tell.

Okay, then what happens when she decides that you didn’t give her enough of the refund?  I’ve seen it happen hundreds of times.  The friend claims the kids, the child’s mother gets upset over something and then turns the friend into the IRS for fraud.  Seriously, it happens all the time.  I’m not joking.

My friend’s not like that, we’re like sisters!

You’re like sisters until the child’s father comes back into her life.  Or that new boyfriend decides that he wants some of that tax money.  Or she thinks you cheated her.

Good friends stay good friends when money isn’t in the way.  If there is a problem, and there will be a problem, you will be the one who has committed fraud, not her.  You will be the one who has to pay back the tax, not her.  You will be the one in trouble with the IRS, not her.  Are you listening?  All of the risk is on you.

A good friend won’t ask you to cheat on your taxes.  Sure you’ve probably seen people do it and get away with it.  We’ve all seen people game the system one way or another.  But that doesn’t make it right.  And it doesn’t mean they won’t get caught either.

If I don’t do it, someone else will.  

Probably.  But at least it won’t be you.  You’ll have a clear conscience and you’ll be able to sleep at night.

If you want to know who can legally claim a child for EITC, use the IRS EITC assistant.  When you go to the link, answer all of the questions honestly.      EITC Assistant

It’s a really good tool and will tell you who you can and cannot claim.  It asks very specific questions about your relationship with the dependent you are claiming.  Here’s a clue:  “foster child” means a child that has been placed in your home by the court.  You can’t just call a child your “foster child” because you spend a lot of time with them.  And niece and nephew mean the child of your brother or sister, not the child of your friend.  If you don’t pass the test using the EITC assistant, then do not try to claim EIC on those children.  It’s that simple.

Will your friend be mad at you for turning her down?  Probably yes.  If she’s a real friend, she’ll get over it.  If she’s not a real friend, then you made a real good decision by turning her down didn’t you?

Posted on by Jan Roberg

How To File a Tax Return When You Have No Income (And Why You Might Want To)

If your income is below the filing requirement, there is no need to file a federal tax return. But for some people, it still makes sense to file.

If your income is below the filing requirement, there is no need to file a federal tax return. But for some people, it still makes sense.

 

There are two main reasons for filing a US income tax return even if you don’t have any income to report.

 

1.  Identity theft, and
2.  Identity theft.

 

I realize it looks like I was repeating myself but I wasn‘t.  I’m talking about two different kinds of identity theft.  The first is related to an unauthorized person claiming your kids as dependents on their tax return.  The second involves someone claiming you, or impersonating you, on a tax return.

 

Let’s talk about your kids first.  Here’s a story I’ve heard several times:

 

“I’m on SSI and I support my daughter 100%.  We get nothing from her father but he claims her every year on his tax return and gets thousands of dollars in refund money.  I reported him to the IRS but I haven’t heard anything.  I tried to file a tax return but other tax company said I don’t have income so I can’t file.   Is there anything I can do to stop him from profiting on my child that he never sees?”

 

 

One way to deal with this issue is to report the tax fraud.  Here’s more information about how to do that:  http://robergtaxsolutions.com/2010/11/how-to-report-tax-fraud/.  But here’s the thing–the IRS will never tell you what happens.  You’ll never know if the fraud stops.  You might not have enough information to give to the IRS to stop the fraud.  But if you file a tax return and claim your child as a dependent–that messes up their computers and something is going to happen.   The IRS will have to deal with the issue.  You’ll need to be prepared to prove that your child lives with you to stop your ex from claiming your child, but hey–with no income, you’re not getting a refund.  You’ve got nothing to lose!

 

Here’s another story that I don’t hear as often, but I have had to deal with before:

 

I got a letter from the IRS saying that my tax return is wrong and that I shouldn’t have claimed those kids.  I don’t understand, I don’t have any kids and I never filed a tax return.  What’s going on?


 

 

Fraud isn’t limited to claiming kids that aren’t yours; the fraudsters will also use a non-filer’s identity to claim kids that aren’t theirs for huge refunds and then when the IRS investigates, some innocent person who never filed a return gets caught and gets fined.  It’s a nightmare to sort this all out.

 

So how do you protect yourself?  File a tax return.

 

Just because you don’t have any taxable income doesn’t mean you can’t file a tax return.  You won’t get any money back, but you can still file an information return just to let the IRS know that you’re out there.  Many software programs won’t process the return if you show no income, so you’ll want to plug $1 into the other income section on line 21 for the long form.

 

You can even file for free with no income from my website.  Just go to the “Do Your Own Taxes” tab at the top.  Of course, you can always go to the IRS.gov website and use their Free File Online instead.  The important thing is that you file a return and protect yourself.