By CP Staff
By Olivia LaVecchia
By Chris Parker
By Jesse Marx
By John Baichtal
By Olivia LaVecchia
By Jesse Marx
By Olivia LaVecchia
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.
When the program works really well, says Urbanski, the deal goes down this way: "There was a small-time drug dealer," he says, "who laundered about half a million dollars in four months [in 1986]. We got a call from a bank and a broker of a coin company simultaneously. We didn't connect the calls until the next day. The broker said the guy comes in three times a week. What he was doing was taking small bills, denominations in 20s and 50s, $30,000 worth at a time, and buying silver and gold coins. What happened was we got another call from the broker who said the guy was supposed to be in at noon. We went over to do some surveillance and started following him. We followed him approximately two and a half or three months and got enough probable cause to search his house, the coin company, and the safe deposit boxes he had at two banks. We found $300,000 worth of coins in one bank, $30,000 in currency, and a half kilo of cocaine in brick form."
After the dealer and the president of the coin company were prosecuted and sent to jail--the broker introduced an undercover agent to the president, who unwisely told the agent he'd be more than happy to launder money for any illegal business and that he had experience doing so--the broker received a reward. Urbanski won't say exactly how much, but calls it "a good amount, four figures."
"Usually a person who calls [has information] on one individual," says Marrero, but "we do have some regulars. Because of the contacts they have--they might say, 'I know some other people you may be interested in.' Usually they are what you might call professional informants. They will come to us, the FBI, the DEA, because of the thrill. They like being involved in law enforcement.
"We always tell them they can't do anything illegal," he adds, noting that some gung-ho callers have volunteered to break and enter in order to steal documents. "We say, 'No, no, don't do that. Tell us where they are and we'll get a warrant. You can't try to entrap. You can't try to record the guy on your own without us being involved.' We forewarn those informants on the front end that there are some limitations as to what they can do. They are also advised that any money we pay them is taxable. They have to report it on their return. At the end of every year we verify that they have done that. We take special care to do that."
The snitch program is confidential; practically the only way an informant's identity can ever be revealed--the agents who do have access to a name are directed to withhold it, even in court--is if they try to collect a reward for their assistance, in which case they have to fill out IRS form 211. Many informants get a little queasy when it comes to creating a paper trail, and the form tends to act as a deterrent to claims-filing overall. It's part of the reason that the IRS hardly ever has to pay anybody.
"Most people want to remain anonymous," says Marrero, who claims he does not have Caller ID in his office. "Many people don't want a reward because their name could happen to show up somewhere. But it has to, or how do we pay them? We have had cases before where the target has requested through legal motions to find out who the informant was and we filed our motions and denied access to that information. For the most part we've won those battles, though I can't say it's been 100 percent."
"Less than 10 percent try to claim a reward," adds Urbanski. "Then 1 to 2 percent of those actually get a reward. A lot of times, and I'll tell you where the catch-22 comes in, the information furnished by that individual is evaluated in the end. Let's say the person furnishes information that generates an audit. It was the basis for the audit, but factors other than the information they gave us determined that taxes were due. In that case, they wouldn't get anything." In short, the IRS doesn't like to pay out money and does everything it can to avoid doing so. At the end of the day, the payoff for snitching somebody out to the IRS is rarely lavish, says Urbanski: "I saw someone who got $50,000 only once in my career. And I worked for the IRS for 33 and a half years."
According to Marrero, you practically have to have been someone's bookkeeper or husband in order to collect any substantial amount: "Let's say someone says John Doe isn't filing his tax return. That's typical. All they know is that John Doe has bragged about not paying taxes for over 10 years. We may look at that and find out that he, in fact, has not paid for over 10 years. We investigate. We have to determine based on our investigation what the nature of the income was because he or she couldn't tell us. That's not as specific as someone saying, 'John Doe is in the business of homes construction. He only reports the money he receives through the bank or through checks. If it's in cash, he doesn't report it. His money is deposited in this bank. I know this has been going on for X years. Here are some people who paid him in cash.' The more specific the information, the easier it is for us to follow up, and the more the informant should be entitled to receive. It's determined on a case-by-case basis. But of the ones who ask for rewards, most of those don't result in payouts for various reasons."
Theoretically, at least, there are two ways to get paid for information to the IRS. Either you can request a fee up-front, in which case the information has to be really promising. Or you can wait around until unpaid taxes are collected, which can take up to six years. The pay scheme in the latter case goes like this: For "specific and responsible information that caused the investigation and resulted in recovery," the agency offers 10 percent of the first $75,000, 5 percent of the next $25,000, and 1 percent of anything more. For slightly less valuable information, they pay 5 percent of the first $75,000, 2.5 percent of the next $25,000, and .5 percent of the rest. And for information that "caused the investigation but was of no value in determining tax due," the payment is 1 percent of the first $75,000 and .5 percent of anything additional. The cap on payments, unless a waiver is sought, is $100,000.
The other catch is that you have to initiate any discussions of a reward. Agents are told not to bring it up. "We never volunteered that a reward was available," recalls Urbanski. "If they didn't ask for it, we didn't tell them. It was an unwritten policy. The IRS would deny that. We never volunteered that unless we felt the information was valuable and the person was afraid to volunteer it. We might have people still working with the person they are informing on. We might want them to work undercover."
Peterson says money didn't appear to be the main motivation for most callers, anyway. They simply wanted to see somebody go down in flames. "Why offer it to people," he says, "if you can get it for free?"