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This article was fact-checked by our editors and reviewed by Troy Grimes, tax product specialist with Credit Karma Tax®.
Most Americans agree that it’s everyone’s duty to pay their fair share of taxes, according to a 2018 IRS survey. Yet not everyone does.
While nearly 84% of federal income tax gets paid on time, a gap does exist — aptly dubbed the “tax gap” — between how much tax all Americans owe in any given year and how much tax gets paid to the Internal Revenue Service. After factoring in late payments and IRS enforcement efforts, the net tax gap for tax years 2011 through 2013 was estimated at $381 billion per year, according to a September 2019 release from the IRS.
The tax gap matters. The IRS said a 1-percentage point increase in voluntary compliance would bring in about $30 billion in additional tax receipts.
As IRS Commissioner Chuck Rettig noted in a September 2019 IRS news release, “Those who do not pay their fair share ultimately shift the tax burden to those people who properly meet their tax obligations.”
But honest taxpayers can help the IRS narrow the tax gap. If you suspect that an individual or business has been committing tax fraud, you can report it to the IRS. Doing so can help the IRS enforce tax laws. And you may even be eligible for a cash reward in some cases.
The IRS fraud hotline is one tool to help Americans give the agency information about suspected tax cheating. Let’s look at possible signs of tax fraud and some things to know about how the IRS fraud hotline works.
- How do I know if someone is cheating on their taxes?
- What is the IRS fraud hotline?
- Can I use the IRS fraud hotline to report someone?
- What are other ways to report suspected fraud?
- Do I need evidence?
- Can I remain anonymous?
- Can I get a reward for reporting a suspected tax cheater?
- Can I report state tax fraud?
You probably can’t know for sure that someone is cheating on their federal income taxes. And investigating possible tax fraud is the job of the IRS, not individual taxpayers.
But the IRS does encourage taxpayers to report certain types of situations and activities that it may want to investigate. Here are some examples.
- False exemptions or tax deductions
- False or altered tax documents
- Failure to pay taxes owed
- Unreported income
- Organized crime
- Failure to withhold taxes from employee wages
- Abusive tax schemes
- Fake or altered tax returns
The IRS provides taxpayers with multiple ways to submit a report of suspected fraud. The toll-free IRS fraud hotline (1-800-829-0433) can help you get the information you need to make a report if you suspect certain types of fraud.
Despite what its name might imply, you can’t actually file a report through the IRS fraud hotline. Instead, the hotline is an automated system that guides you toward the correct type of form to use for reporting a possible violation.
When you call the hotline, you’ll get a recording that tells you …
- How you can submit a fraud report (through a form or letter)
- How to download a reporting form from IRS.gov, the IRS website
- How to order the form over the phone, using the hotline
- How to send a letter (if you don’t want to complete the form)
Of course, if you don’t want to call the fraud hotline, you don’t have to. The IRS website provides the forms you need to report different types of fraud.
Here’s a quick guide to some of the forms that apply to each potential tax fraud situation. You can mail or fax these forms to the IRS.
- To report a business or individual, mail or fax Form 3949-A. Or, if you don’t want to use the form, you can send a letter with details of the alleged violation. You don’t have to identify yourself, although the IRS says it’s helpful if you do and that it will keep your identity confidential.
- To report a tax preparer whom you suspect of fraud, or an abusive tax scheme by a tax return preparer or tax preparation company, mail Form 14157.
- If you suspect a tax return preparer didn’t file a return when they said they did, or changed your return without your approval and you want the IRS to update your tax account, use Form 14157-A and mail it along with Form 14157.
- To report someone you suspect is promoting or engaging in an abusive tax-avoidance scheme, mail or fax Form 14242.
- If you suspect a tax-exempt organization such as a church, charity or trade association isn’t following tax laws, you can mail, fax or email Form 13909.
Each form comes with instructions that list the kinds of violations the form covers and information on where to mail or fax the form. Be sure to read the instructions to verify the form applies to your situation.
If you suspect someone is a tax cheat, the IRS wants to know about it.
Still, you’ll need to have some evidence to back up your report. The IRS wants verifiable details, like whether you personally witnessed someone fudging numbers in an accounting book or if you saw someone actively engaged in something like altering financial documents for tax gain.
If you’re worried about repercussions for reporting suspected tax cheating, or just prefer not to have your name attached to any information you submit, that’s generally fine.
Some of the tax fraud forms have a section for you to include your personal information so that the IRS can contact you for further information (if needed). But it’s not always necessary to fill out this section, so check the instructions for the form to be sure. On some forms, like the information referral form for tax fraud (Form 3949-A), the IRS says that any personal information you provide won’t be shared with the person or business you’re reporting.
But there may be exceptions in certain situations. For example, if you’re reporting a tax professional for suspected activity around your tax refund, the IRS may need your information to process your report and may even need to share certain information with your bank.
If your tip results in the IRS’ collecting back taxes, interest, penalties or other amounts, you may get a financial reward. You could be eligible for 15% to 30% of the amount collected, depending on the details of how much is owed and who owes it.
But to claim your whistleblower reward, you’ll need to give up your anonymity (if you chose to drop an anonymous tip in the first place) by providing your personal information to the IRS. That’s because the IRS needs to know who you are in order to send you the money. You’ll need to provide these details and more on Form 211, the application for award for original information.
The IRS deals with federal income taxes. If you suspect a person or business of committing tax fraud at the state level, you should contact the state’s department of revenue or other taxing body to learn how to report the information. States have their own forms and rules for reporting fraud.
For example, Colorado allows citizens to report suspected tax fraud online or by mail. South Carolina accepts its fraud complaint forms via email or mail. And New York accepts reports of tax evasion and fraud via an online submission form, phone, fax or mail.Learn more about filing state taxes for free
According to a 2018 taxpayer survey by the IRS, 95% of Americans say everyone has a duty to pay taxes, with 85% saying it’s not at all acceptable to cheat on taxes and 90% saying tax cheats should be held accountable. Yet the same survey found that only half of respondents agreed that everyone is responsible for reporting those who cheat on their taxes.
If you suspect a person or business of shirking their duty to pay taxes, only you can decide what to do about it. But if you decide to report your suspicions, the IRS has ways to help you do so.
“Maintaining the highest possible voluntary compliance rate also helps ensure that taxpayers believe our system is fair,” IRS Commissioner Rettig said in the September 2019 news release. “The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities.”
Troy Grimes is a tax product specialist with Credit Karma Tax®. He’s worked in tax, accounting and educational software development for nearly 30 years. He has a bachelor’s degree in business administration with an emphasis in business analysis from Texas A&M University. You can find him on LinkedIn.