Individuals who cheat on their income tax reporting have more to worry about these days. First, the IRS offers a take to whistleblowers on the taxes collected from anyone reported as a cheater. Larger collections cause increased rewards. In addition, a report by the Treasury Inspector General for Tax Administration states that the IRS criminal division is more efficient in both prosecution and conviction.
Both actions create new enrolled agent job opportunities to help taxpayers. In many situations, taxpayers need to simply understand tax reporting errors that are potentially criminal.
In fiscal year 2010, the IRS criminal division reduced its time to complete a case to 365 days from 401 days in the prior year. The division initiated 4,700 cases and completed 4,300 in fiscal year 2010. Most significantly, a greater number of cases addressed only tax matters as the legal source. In the past, more tax cases were add-on charges to drug running or money laundering trials.
Tax cheating situations can continue for long periods without taxpayers realizing the implications. Some situations are unintentional. For example, enrolled agent study guides address unusual matters where implied rental income exists. This can occur when a tenant pays no direct rent but pays the property owner’s mortgage payments. These amounts are reportable as rent income by enrolled agent work for such property owners.
Informing taxpayers about the IRS whistleblower program is a technique enrolled agents use to convey the importance of revealing all scenarios that might encompass taxable events. These possibilities can entail gift tax as well as income tax issues.
Fortunately, enrolled agent training includes gift tax situations so that EAs can help on accurate reporting in these matters. Examples occur when individuals give property to their relatives and forget that a gift tax return is due. This is true even if no tax is paid because the gift giver uses part of the lifetime exclusion.
The IRS actually has two whistleblower programs. The small awards program covers cases for less than $2,000,000 of tax. The reward can rise as high as 15 percent, but is usually less. The IRS takes relatively few cases. To attract any IRS interest requires some evidence worthy of pursuing further. Larger awards are possible for cases concerning more than $2,000,000 or individual taxpayers with at least $200,000 of income in one of the years in question.
Moreover, a case that is accepted often takes five or more years to resolve. Still, the IRS has accepted cases and provided significant awards. Until 2006, the IRS was reluctant to pay bounties for tax cheaters. But the environment changed after successful whistleblower programs for nontax matters were implemented, such as unethical acts by government contractors. Since then, the IRS has qualified 1,328 whistleblower submissions involving nearly 10,000 tax cheats.
The IRS does not release details on individual awards. However, most insiders agree that whistleblowers are primarily employees or accountants. Cases are as diverse as payroll tax withholding, tax shelters, illicit foreign accounts, and arcane corporate accounting.
With generous awards available to whistleblowers on individuals of any income level, an enrolled agent education is becoming increasingly valued. Professionals with this particularly high measure of tax expertise are most conducive to showing tax cheaters their errors – accidental or intentional.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.