The Internal Revenue Service helps keep the federal government funded by enforcing tax laws and working to ensure that everybody pays their share. Nevertheless, every year some taxpayers—intentionally or inadvertently—overstate deductions, understate income, and don’t pay what they owe.
The IRS has an estimated $406 billion tax gap—the difference between the taxes owed and the taxes IRS has collected. To help close that gap, the IRS encourages the public to provide information about people and businesses that violate federal tax laws.
Today we’re examining some of the programs the IRS uses to get the public to report potential tax violations to the IRS.
Many options for helping
Members of the public can report potential tax violations to the IRS through 9 different referral programs. The largest is the whistleblower program, which pays whistleblowers 15-30% of the money the IRS collects based on a tip. How many people are reporting? The program received more than 13,000 tips in fiscal year 2016 and has collected over $3 billion since fiscal year 2007.
In addition, since expanding the whistleblower program about 10 years ago, the IRS has received thousands of high-dollar tips—those involving more than $2 million. While it’s collected on only 49 of these tips through fiscal year 2016, 17 of those resulted in more than $267 million paid to tipsters.
Other ways to share information
And there are 8 more processes, programs, and offices that allow the public to report different types of tax violators or violations. For example, the
- Information Referral Process allows the public to report general types of tax violations by individuals or businesses
- Identity Theft program, as you might imagine, is for people to report actual or potential incidents of ID theft
- Return Preparer Office receives allegations related to tax return preparers who file or alter tax returns without the taxpayer’s consent
Other programs encourage the public to report suspected tax avoidance schemes or tax shelters, or suspected violations by tax-exempt organizations or retirement plans.
Our full report on IRS’s public referral programs provides details on each program.
Room for improvement
Despite collecting billions of dollars, the IRS could improve its public referral programs. For example, while a few programs communicate and coordinate with each other, they don’t share information across all 9 programs. Because of this, a person could report possible tax law violations to multiple programs—causing multiple offices to review the same claims. We recommended that the IRS set up a mechanism to help with information sharing, coordination, and communication.
To learn more about the tax gap and how to close it, check out our Tax Gap Key Issues page.