The Tax Cheat Who Loved Me

Got a former lover, friend, or boss who's cut corners on a tax return? The IRS has a little-publicized program for you...

During the filing season, workers at local IRS offices may get as many as 25 calls a day from people turning in purported tax cheats they know. If the information turns out to be good enough, the IRS sometimes pays tattlers up to 10 percent of the bounty from a tip. You have to know enough to ask for it, though; the snitch program is so low-profile that it has no official title. IRS spokesperson Bill Knight says it's been around "ever since neighbors didn't get along with neighbors."

"We get calls and letters from people who believe they have information the IRS should act on," explains Knight. "The agency always looks at it. It's not the greatest source of cases. Most of the people who call or write have an axe to grind. We usually have an unhappy employee, spouse, ex-spouse, or neighbor. A small number of them have enough information to be helpful or useful." About one of every 100 calls actually results in a criminal case.

But those that do pay off tend to pay off big. In fiscal year 1967, the first year for which figures are available, almost $724,000 in rewards were paid out in the process of recovering $10.6 million in unreported income. In 1994, the most recent figures available, almost $3.4 million was paid to collect $598.6 million.

Calling the IRS on somebody is a particularly nasty thing to do. It is perhaps the most powerful agency in the country; though regulations have changed a bit in recent years to shift some of the burden of proof in tax cases to the IRS itself, the agency is still broadly viewed as a place where the average person is guilty until proven innocent. "People see the IRS as intimidating," says a former IRS attorney who asked to remain anonymous. "Ever since they got Al Capone, that's been the reputation. Ask people who they would rather have investigating them, the IRS or the FBI. Most people would rather not have the IRS after them."

Keith Peterson was an IRS special investigator from 1971 to 1987. During part of that time, he and other investigators took their turns at the unpopular job of answering calls from the public. "My experience was a mixed bag," he says. "We got a lot of cranks. Got a lot of people with vendettas. Then we got a lot of good information. We would get 30 or 40 calls a day in the Twin Cities alone. The ex-wife always called. Then if the couple got back together, she usually called back the next day or something to 'correct' the information she had left before. We would get ex-business partners. The neighbor who knows someone has to be cheating because they have a new boat and house. Our policy was that every call was serious because as sure as you blew off someone who called, that would be the big case. Everything you got was written up and evaluated by a manager."

Over the years, however, agents did develop simple ways to weed the credible snitch from the crank, says Ron Urbanski, another former investigator. "One of the questions we always asked was 'How do you know this?' Sometimes they would say, 'Well I just know.' There were two things we put credence in: whether they furnished their name and address, and whether they stated their relationship to the person they were furnishing information on. A lot of the time there was an ulterior motive. Someone has a dog that is barking and they are not doing anything about it. If we have a bookkeeper or a secretary, then we've got something. We see if they have any records we can follow up on."

Information on the informants themselves--or, as the IRS prefers to call them, "persons who furnish information"--is, for the most part, impossible to get. So it's hard to pin investigators down on cases where people started a ball rolling that eventually crushed somebody. "The one problem I have with that," says Jose Marrero, chief of the criminal investigations division for the north-central district, which includes the Dakotas and Minnesota, "is that some people who are high-profile, who might ring a bell with you, still don't know there was an informant. The mere fact that we say there is an informant may lead them to pinpoint who it is. Clearly, when someone is in that kind of operation there are very few people who have access to the kind of information we like. But there have been informants in a lot of high-profile cases. We've used them in cases that have dealt with narcotics investigations, in political corruption cases. We've used them against athletes and major performers. There is no category where we haven't used an informant at one time or another."

Of course, in some cases, the agency sends out press releases. Like last October, when "corporate integrity paid off" for a St. Louis Park-based money order store called Travelers Express. The chief executive of that company was given a check for $100,000--touted as the largest IRS reward ever given in Minnesota--after employees alerted the agency to a Colombian money-laundering operation.

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