I pay taxes, I expect the same

[powerage]

I know someone who is hiding money from the IRS. Not millions, but he is required to file a return for RI. Form 3949-A will be on it's way. That's the way it is.

It is a tad personal...and 100% ethical.

[erchess]

Been There

I doubt that there's anyone on this board who has not been tempted to turn in a tax cheater. I once sought guidance on the board because I was considering turning in a cheat. I no longer remember who it was or what they were doing but I eventually decided that turning them in would be futile. On the other hand, as long as you don't learn about their cheating through their being a client or consulting you about being a client you can turn them in. You of course cannot get the reward that a non tax professional might get.

[powerage]

I can't go into details, but I have first-hand knowledge. I did offer to prepare his return last season and he declined and it was never discussed again. He could probably get a refund if he did file though.

All I know is RI income is supposed to be reported.

[taxea]

Good for your Powerage...I wholeheartedly applaud you.

As for the other post, are you of the impression that because we are the preparer we can't turn someone in? First of all I would not do a return if I had reason to believe there was anything I wasn't informed of. I wholeheartedly approve of turning in bad preparers and I believe that the IRS encourages us to assist them in turning in tax cheats.

[luke]

I agree

that you should turn in tax cheats! BUT you are violating your client confidentiality if you turn in one of your clients! (and yes you CAN be sued by THAT tax cheat for doing so!)
That being said there are still ways of "anonymously" reporting cheaters!

[erchess]

I am definitely under the impression

that it is unethical for me to turn in someone if what I know arises out of the TP-Client Relationship. I know that what constitutes arising out of that relationship can be debatable. For myself I consider that if I have ever done a return for someone or if they are a non tax pro with whom I have discussed taxes after revealing that I am a tax pro then such a relationship exists. I would basically only consider ratting someone out based on what I observe them doing or what I hear them telling someone else that they are doing.

There are of course ways you can try to report someone anonymously but in my opinion there is no guarantee of success in remaining anonymous and no reason to think the taxing agencies will take the report seriously.

BTW I don't know what RI income is.

I have also remembered the case I considered reporting. A fellow in the neighborhood for several years operated a small junkyard out of his home. I never saw him take anything but cash. I know that in this area the people like him whose ancestors were the first settlers in these mountains generally see no reason to keep records of or report for tax purposes their cash income. When one of them prices a job for you the first thing they want to know is whether you intend to pay by cash or check and if check the price will about 30% more. They will tell you bluntly that this is because they have to report the check for tax purposes. They would never steal from an individual and most would not steal from a corporation but they see nothing dishonest about paying taxes only when there is the equivalent of a gun to their heads.

[Edsel]

Disagree Big Time

There is a big difference between disliking tax cheats and turning them in.

There IS public perception of whether you are working for the public or for the authorities. The public does not like snitches, whether they claim to be crusaders for righteousness or not.

Down here, the general feeling is the public is at least as honest with the government as the government is honest with the public. It's hard to make a case for turning in small-time losers when the Chairman of the Treasury failed to pay $43,000 in taxes after he had been appointed to the World Bank. And the Chairman of the House Ways and Means Committee has unpaid taxes to this very day and no one makes him accountable for it.

Another factor of which you may not be aware is if the IRS is REALLY INTERESTED in following up on your information, they will ask you for all the minute details that essentially will make their case for them. They won't just follow a lead or a tip, they will want YOU to collect and assimilate all the information for them. Details that very few people would even know, and thus make it easy for the subject to narrow down where the information came from.

[Edsel]

Rhode Island

Erchess, I expect RI income is for Rhode Island.

[jimmcg]

I cannot and will not speak for others, that is a decision for them to make. I for one have a fiduciary relationship with my client and will advise my client (in writing) of what are their responsibilites and what is the proper thing for them to do. If I do not agree with what they wish to do then I will immediately terminate the client relationship. This is all covered in my engagement letter with my client which is signed by them at the outset of the client work. For those that feel that they have been appointed the "tax police" I would strongly suggest that they carry an adequate amount of business malpractice insurance.

[powerage]

RI = rental income. Sorry for the typo.

[Bees Knees]

I disagree

...BUT you are violating your client confidentiality if you turn in one of your clients! (and yes you CAN be sued by THAT tax cheat for doing so!)

No you are not violating confidentiality rules.

From “Permissible Disclosures or Uses Without Consent of the Taxpayer”

Reg. §301.7216-2.

Disclosure to report the commission of a crime. Section 7216 does not apply to the disclosure of tax return information to the proper Federal, State, or local official in order, and to the extent necessary, to inform the official of activities that may constitute, or may have constituted, a violation of any criminal law or to assist the official in investigating or prosecuting a violation of criminal law. A disclosure made in the bona fide but mistaken belief that the activities constituted a violation of criminal law is not subject to Section 7216.

Turning in your client who you know or have reason to believe is evading tax and committing a felony is permissible under the law and regulations.

[erchess]

Two Things I didn't know

1 didn't know about that provision in the code and I didn't know that failure to report income is a felony. It doesn't seem to me to get treated as a felony if the scofflaw forks over TPI or completes an IA or OIC when confronted with the debt or if the scofflaw is a highly placed government official.

How much of an understatement of income does there have to be in order to constitute a felony?

[Bees Knees]

How much of an understatement of income does there have to be in order to constitute a felony?

IRC Section 7201

Attempt to evade or defeat tax.

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.

The code doesn’t say how much of an understatement there needs to be. It could be any amount that reduces the tax that otherwise would be collected. The key is whether or not it was willful. Thus, anyone who willfully fails to report income on their return or willfully claims bogus deductions for the purpose of evading (avoiding) having to pay tax could be convicted of felony tax evasion.

Does IRS prosecute everyone? Of course not. That is irrelevant. You have a right under the law and in accord with your ethical requirements to turn in a tax cheat even if it is a small amount.

[erchess]

TY Bees

Very interesting especially the part about it having to be willful. I don't know how many times I have run into people (not just my current neighbors) who think that cash income in small amounts per time don't need to be kept track of or reported. Nearly everyone I know who keeps track of cash payments seems to be doing so in order to boost EIC.

[Snaggletooth]

Whistleblowing

For those that feel that they have been appointed the "tax police" I would strongly suggest that they carry an adequate amount of business malpractice insurance.

It was interesting reading the comments that followed this post from Bees Knees, Primarily, that the government creates regulation 7216 for ultimate privacy, but exempts situations which create revenue for themselves. They are very consistent - creating bankruptcy laws which allow debtors to bail out, but fixes it such that they can't bail out of taxes to the government. I can give many examples of this at all levels of government.

Another problem well-known within IRS circles is having to sort through the quality of whistleblower information. Sometimes the informant is not so much trying to focus on revenue as they are creating misery for their targets. Lots of purported violations are turned in by spiteful ex-wives/husbands, competitors, or other malevolent purposes. These people could care less about them cheating the government out of money and are more concerned about siccing the Big Dog onto their enemies.