If I asked you directly whether you would turn in your neighbor for tax fraud, I would expect a very lawyerly, “It depends” from most—even those of you who aren’t lawyers.
But IRS Criminal Investigation, commonly referred to as CI, hopes that your answer is a resounding yes. And it’s partnering with New York State Crime Stoppers for a 12-week public service campaign to help bring tax criminals to justice.
CI New York has launched a digital billboard campaign in Buffalo, New York, asking for the public’s help in identifying individuals and organizations who commit financial crimes. The campaign—the first of its kind in New York State—is intended to spur ordinary taxpayers with information about those crimes to come forward. It sounds like a big ask. And for some, it may feel like there’s no point. After all, who’s really getting hurt? Everyone, says Crime Stoppers Alex Mancone. According to Mancone, “Although many view tax evasion as a victimless crime, it actually costs every citizen who pays their fair share.” He continued, “Indeed, it allows drug dealers, racketeers, and illegal businesses to flourish. It is as serious as any other major crime.”
Tax fraud can also impact your bottom line. Those tax increases that Congress is planning? It’s been argued that we wouldn’t need to raise taxes if the IRS simply collected more of what’s owed. In an opinion piece for Bloomberg, former IRS Commissioner Charles Rossotti noted that in 2019, the federal government failed to collect $574 billion in taxes that were legally due. That is equal, he wrote, to all the income taxes that were paid by 90% of individual taxpayers.
How does that happen? Most taxpayers—like me—pay most taxes owed through employer withholding, or our income is clearly reported at tax time on a Form W-2 or 1099. According to Rossotti, about 95% of income that is fully reported by third parties is accurately filed by taxpayers.
In comparison, Rossotti notes that only 45% of income that is not reported at all by third parties shows up on taxpayer returns.
The damage? Underreporting adds $352 billion to the tax gap, the IRS estimates. That’s revenue that has to be found—or made up—somehow.
That’s a key reason that Congress is considering boosting reporting requirements for financial institutions, a controversial provision that showed up in this year’s reconciliation bill. The thinking is that the more information available to the IRS, the more likely it is that taxpayers will voluntarily improve their own reporting. As an example, Rossotti points to 1988, when taxpayers were first required to list the Social Security numbers of dependents claimed as exemptions. That year, taxpayers claimed 42 million fewer dependents than in 1986.
It’s not a certainty that Congress will forge ahead with enhanced reporting requirements. And it’s not a given that proposals for increased IRS funding will significantly reduce the tax gap. But it is clear that tax evasion is a problem and that taxpayers are aware that it’s happening.
Some taxpayers may not know how to come forward. That’s likely why CI is trying a new tack by boosting visibility. The digital billboard, located off the Kensington Expressway near the Verdon Street exit in Buffalo, debuted on Sept. 7.
“By providing a direct line for the public to report information to IRS-CI, we hope to prevent another friend, neighbor or colleague from becoming a financial crime victim,” said Thomas Fattorusso, Acting Special Agent in Charge of the New York Field Office.
The IRS may hope that the lure of money helps, too. New York State Crime Stoppers offers rewards of up to $2,500 for information leading to the arrest and conviction of criminals in New York. To submit a tip in the state, taxpayers can call 1-866-313-TIPS (866-313-8477) or click over to the Crime Stoppers website.
What if you’re outside of the state? CI notes that they routinely receive tips from the public, as well as from other law enforcement agencies.
In addition, the IRS has a Whistleblower Office to collect information about tax cheats. The office pays money to people who provide “specific and credible information” that results in the collection of taxes, penalties, and interest.
But pay attention to those words: They matter. A guess or a hunch isn’t a real tip, as readers were quick to point out to me when I tweeted about contractors demanding cash for work.
Got an email this morning about contractors demanding cash only for thousands of dollars of work... Apparently, the “norm” now. No reason, just that they don’t accept checks or credit cards anymore. Hearing similar stories from others.— Kelly Phillips Erb (@taxgirl) August 26, 2021
You know where my head goes... ;) #tax
I did later clarify that I don’t believe all cash-based businesses are evading tax or understating profits. I’ve represented many clients who are cash-based and was an expert witness arguing on behalf of a pizza shop owner that you can’t assume that cash only leads to underreporting. I do, however, understand the concerns taxpayers and tax professionals have when businesses demand cash only for large transactions.
But a concern isn’t a tip. And the IRS isn’t interested in guesses or unsupported speculation. The ultimate goal of a CI prosecution is a conviction because it sends a message. According to CI, “Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.”
Still, Crime Stoppers and CI may feel like an unlikely partnership—especially when you think about scale. Why involve CI at all? Simple. It’s the only federal agency with jurisdiction over criminal violations of the Internal Revenue Code. That means that it investigates a wide range of areas including return preparer fraud, employment tax evasion, identity theft schemes, and other financial crimes.
This is a weekly column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.