IRS Awards for Reporting Abusive Tax Preparers

Those who know of an abusive tax preparer circumventing IRS tax code may be eligible for an award if their information is specific, timely and credible, and leads to a successful enforcement action.

However, the proceeds in a dispute must exceed the $2 million threshold if a claim is filed against a corporation; if the claim is against an individual, their gross income must be at least $200,000 annually.

It’s important to note that the total amount “evaded” is cumulative and can span the course of several years, and one does not have to be a U.S. citizen to obtain an award.

Anti-retaliation protections are also available, thanks to the Taxpayer First Act, which was strengthened in 2019. Since the inception of the IRS Office of the Whistleblower in 2007, the IRS has paid more than $1.05 billion in over 2,500 awards to whistleblowers.

Given the number of loopholes in the IRS tax code, the number of ways abusive tax preparers help their clients evade taxes is numerous. However, there are several compliance issues that the IRS has seen many times and which are red flags to be on the lookout for:

• False Reporting – Happens when a tax preparer provides incorrect information, such as underreporting revenue, or by claiming bogus deductions.
• Improper Employee Classification – Classifying employees as contracts to avoid paying payroll taxes and other federal taxes.
• Offshore Tax Haven – Moving money offshore to a tax haven to avoid paying taxes. This also includes the use of digital assets.
• Operating Under Tax-Exempt Status – Includes claiming tax exemption to receive tax deductions, even when the individual or organization doesn’t qualify.
• Money Laundering – Obfuscating the source of illegal money that is obtained illegally from criminal activity and placing it in the legitimate businesses.
• Shell Accounts – Using various shell bank accounts to circulate money, effectively minimizing the tax burden a corporation must pay.
• Abusive Micro-captive Arrangements – Micro-captive arrangement schemes are set up so that owners only pay taxes on investment income only.

Other forms of tax evasion include putting assets such as real estate or property in someone else’s name, or paying wages “under the table,” which often happens when workers do not have the proper documentation to work legally for an employer and work “off the books” for cash.

If you’ve identified your tax preparer engaged in one or more of the red flags above, you can complete an online referral to the IRS using Form 14242. If the amount exceeds the abovementioned thresholds, we suggest contacting one of our whistleblower attorneys who specializes in such cases.

Since its inception, our firm has been behind at least a third of all IRS whistleblower reward cases and one of the most prominent tax whistleblower reward cases in history (Bradley Birkenfeld, $104 million). If you’re seeking a trusted ally, look no further than Kohn, Kohn & Colapinto LLP.