Taxes are applied and enforced in various ways, such as with personal income tax or value-added tax (VAT), which is levied on goods and services. Tax violations relate to situations where an individual or business entity cheats the system by paying less than what is owed to the IRS.
The difference between what is owed and what is collected amounts to about $1 trillion per year. Tax evasion relates to under-declaring your income or overstating deductions. Hiding money and bribing tax officials is also commonplace.
Tax avoidance, tax evasion—what is legal and what is illegal?
Seemingly similar, there is a distinct difference between tax avoidance and tax evasion. Tax avoidance is a more legal way to avoid paying your taxes. This is done by way of deductions, exclusions, as well as by claiming tax credits. A lot of big corporations utilize these legal strategies as a means to avoid paying taxes or to lower the amount of taxes due. Tax avoidance crosses the line into an illegal activity when the system is abused.
If the taxpayer or entity uses this method instead of following the tax laws applicable to them. Tax evasion, on the other hand, is a deliberate method of non-compliance with tax laws. Tax assessments are not filed in their entirety, or payments of dues are neglected. Further actions here, such as falsifying tax information, hiding income, or inflating expenses, are further transgressions. Fines, penalties, and possible prosecution can be on the cards.
The art of whistleblowing and how it applies to the IRS
The whistleblower office at the IRS has a system that provides an incentive to people who report tax evasion or any other tax law violations. The reward is the better portion of 15% to 30% of government recoveries received from this specific report. Whistleblowers are required to abide by certain regulations and guidelines. The report itself also has certain eligibility criteria, such as:
The $0 Tax Club: Why Some Billionaires Don’t Pay and the IRS Can’t Stop It
- The recoverable amount should be at least $2 million (inclusive of interest and penalties)
- Credible evidence must exist that the taxpayer is underpaying or avoiding paying taxes.
According to the IRS official website, information submitted should be on the IRS Form 211. This means that an official complaint in federal court is not required. In high-profile situations, whistleblower attorneys can help guide the process to ensure a stronger claim is submitted and evidence provided conforms to applicable laws. A stronger case has the best chance of success with the highest possibility of reward.
What are the key points of the whistleblower program?
After the form is submitted, the claim will be evaluated to determine what action is required, such as an audit or enforcement proceedings. No disclosure is allowed on what process is to be followed about the claim submitted or the investigation that follows. A whistleblower is only interviewed once, and further feedback is only provided once the collection is either not pursued or when an agreement for payment has been received.
IRS whistleblowers have to disclose their identities when reporting. Although this information will be kept confidential, as identity protection is key. They are also not allowed to participate in the investigation and further enforcement action. They are also prohibited from pursuing the matter independently when the IRS deems the enforcement action not sustainable.
Rewards from the program are only payable once the taxes, interest, and penalties owed are collected. The statutory period also has to have expired by which a taxpayer can file a claim for a refund. Whistleblowers benefiting from the reward system do not need to be US citizens. A whistleblower is also in a position to appeal the amount of the reward paid. Identities are protected as far as possible, but can be disclosed during the investigation.
