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A guide to reporting an American individual or company for tax suspected offences

Editorial Staff

When you come across an American person or company, anywhere in the world, who is or appears to be failing to pay federal taxes properly due, under US law, you can make a report to the Inland Revenue Service and, in some cases, receive a very substantial reward - as much of 30% of the tax recovered. And it's independent of FATCA.

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The US Inland Revenue Service calls people who make reports of the suspected tax crimes of other people "whistle-blowers" which is not the usual use of the term, but, for the purposes of this Guide, we will continue to use it. The general principle of US federal taxes is that those who have a US Tax Liability either as a citizen or as a resident (green card holder) is liable to US tax on their worldwide earnings. Therefore, entirely independently of FATCA, if you know or suspect that a person is evading US federal taxes, you can make the report.

However, there is a caveat: if you work in the financial or legal sectors in jurisdictions where there is an obligation of secrecy, while making a report to your own FIU comes with protections against harms that may arise from the making of the report, there is no similar protection if you make a "whistle-blowing" report direct to the IRS and, in some cases, revealing information about customers can lead to criminal charges.

If there are no bars on your making such a report, then there is no block on the IRS making an award to you if they are successful in recovering unpaid taxes, even if you are overseas.

The amount they award is not fixed - it is "up to" 30% and, the USA being the USA it is very likely that as a non-resident you will find that the making of such an award is subject to tax. If you are a taxpayer in a country with a double taxation treaty, then the money would be paid without deduction, on the assumption (not necessarily true) that your home country will pay it. If you are not a taxpayer in a treaty country, the USA's standard rate of with-holding is 30%.

Because Americans consider hyperbole the norm, throughout their material, they refer to "violations." Read that as "breaches" and it all makes a lot more sense.

Completed forms must be delivered, by post, to the IRS at a dedicated address: fax or e-mail is not acceptable.

The evidence you have must have been collected legally: you can't open someone else's mail, access their computer without authority (or, arguably, even if you have access for one purpose to use it to examine files outside the scope of your permitted access) or rifle through their personal papers. But if you know where evidence can be found, you can tell the IRS, then they can turn up with a warrant and look where you have told them to look.

STEP ONE

Make sure that the conduct you are complaining about is a crime and that you have sufficient details: vague suspicions don't get investigated nor do they qualify for a reward.

Make sure you can properly identify the errant taxpayer. In the USA they have a bit of an obsession over the "Social Security Number" or the "Tax Identification Number" but there may be other details that work, including a company registration number (make sure you can specify the State of Registration) or full names and addresses: again, incomplete or ambiguous details will reduce the prospects that your report is investigated.

Before you start to complete any forms, write down everything you know, and how you can prove it, in a logical order and, then, whatever you suspect, with reasons for your suspicions, and why you suspect it. Do not miss anything out: at this point, you are making notes for your own purposes and you may have to attend a trial to give evidence, so it's important that you do not miss anything out while your memory is fresh. Keep any documents that you have that prove the offence or suspected offence.

Having said that, you can make anonymous tips but, in that case, your information will need to be extra detailed because the IRS will not be able to revert to you for more information.

STEP TWO

Every country has lots of different types of tax and the USA is no exception. The position is complicated by the fact that some taxes are state taxes and some are federal taxes. The IRS is a federal agency and has nothing to do with state taxes. So first, you have to be certain that the tax evasion (often called "tax fraud" because it involves the filing of fraudulent paperwork) that you are reporting is in fact a federal tax. There is some help: some states don't charge income tax, some don't charge corporation tax (that's a surprise, given how anxious the USA is to criticise "offshore" jurisdictions that do exactly that, isn't it?

The IRS is not concerned with duties and tariffs - that is charges made at borders: these are things like import taxes. Those are dealt with by US Customs and Border Services. For more information relating to reporting evasion of duties and tariffs, see US Customs Duties - Reporting Evasion.

One important matter to consider is the FinCEN, the USA's Financial Intelligence Unit, is, a division of the IRS. Therefore the IRS accepts reports of matters other than tax evasion per se, as noted below.

The IRS breaks the types of tax evasion that it wants to be reported into four classifications. To make a report, you must complete the form that relates to the correct classification.

Type One: Form 14029

Type 3 is directly relevant to financial crime risk officers: it's where you suspect fraudulent activity or an abusive tax scheme (that is an avoidance scheme that is not illegal when implemented but may be retrospectively found to be illegal by the IRS) by a tax return preparer or tax return preparation company (which included accountants). For these reports, use Form 14157>/a> Form 14157-A (see below) might also be needed.

Type 4 is where it is suspected that a tax return preparer filed a return or altered a return without your consent. This clearly applies to US taxpayers. Forms 14157 and are both required.

Type 5 is highly relevant to financial crime risk officers especially in businesses that are branch offices of US companies or which transact in US Dollars via the correspondent banking network. This relates to suspicions of "an abusive tax promotion or promoter," i.e. a tax advisory service that creates schemes that the IRS does, or may, consider illegal. This is a highly technical area which requires some detailed understanding of US tax law. Or it requires a pragmatic approach that unless there is evidence that a corporate or personal scheme which does or may have the effect of reducing a US tax liability has not been disclosed to the IRS, it's probably safer just to report it, even if the business is not taken on. See Form 14242

Type 7 relates to suspicions of misconduct by a tax exempt organisation (for example a charity) or an employee (e.g. pension) plan. Use form 13909

And now to the meat: continued here

 


 

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