I know a person who owns his own business and claims much less on his taxes each year than he actually makes. This has been going on for years and allows him to qualify for government benefits such as medicare. How does one go about reporting this? Is there any way that he would be able to trace it back to me to find out I reported it? Are there certain requirements that need to be known before it gets investigated? I have never worked for this company before, but I am worried about personal retaliation if it gets traced back to me (ie. harassment or assault) Any other additional information would be helpful
Based upon the information that you have provided, it appears that you do not have personal knowledge of the business owner's tax fraud and that your belief of tax fraud is based upon hearsay or supposition. Thus, I don't see how you could qualify for a reward for reporting tax fraud by the business owner.
In most cases, whistleblowers work at or have a direct business relationship with the offending taxpayer and provide an "insider's" perspective which the Government can use to jump start a criminal investigation and/or prosecution. For example, Bradley Birkenfeld, who worked as a private banker for the Swiss bank, UBS, received a multi-million dollar whistleblower award from the IRS earlier this year for coming forward with the names of numerous U.S. citizens who maintained secret "numbered" bank accounts at UBS, which it knew were being using to evade U.S. income tax laws.
Nonetheless, I will answer the questions that you have posed based on the assumption that you will be able to obtain sufficient evidence to form at least a reasonable suspicion to support tax fraud activity by the business owner:
1. An informant completes and files an IRS Form 3949-A, Information Referral with the IRS. See attached links for Form 3949-A and informational chart published by IRS on how to report tax fraud: http://www.irs.gov/pub/irs-pdf/f3949a.pdf and http://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F. As an alternative, or in addition, to filing Form 3949-A, you can contact the nearest IRS Criminal Investigation Office to Buffalo to report your tax fraud suspicions to a Special Agent. Be sure to tell the Special Agent that you want to be treated as a confidential informant ("CI") or at least a confidential source and request him/her to "number you as a CI if and when the Agent opens up an investigation file.
2. From your first contact with the IRS, be sure to request that you want to be designated as a confidential informant or at least be treated as a confidential source. The informational chart states that you are not required to identify yourself (i.e., name, address, and telephone) on Form 3949-A. Please note, however, that if you file the Form 3949-A anonymously, it will be impossible for the IRS to determine the source of the information if and when it comes time to pay out a whistleblower award. Please note that the IRS does not pay informant/whistleblower awards unless and until taxes have actually been collected from the taxpayer-fraudster.
3. Question 5 of Form 3949-A asks you to briefly identify the facts of the alleged violation -- "Who/What/Where/When/How" -- like journalists are taught to do. The form also asks if you have any books or records to support your claim and requests information that you have about the taxpayer's banks and financial institutions.
To conclude, I'll attach below an item or two obtained from irs.gov which summarize the IRS Whistleblower laws. Good luck!
http://www.irs.gov/uac/Whistleblower-Informant-Award and http://www.irs.gov/uac/The-Whistleblower-Law.
The answer to this question does not establish an attorney-client relationship. Moreover, this attorney is licensed to practiced law ONLY in the State of California. Answers to questions from users in other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state to address their specific tax issue.
You can see the specific rules and procedures at the IRS link I enclose here:
My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.