Q: Tell me about the Internal Revenue Service's tax tipster program. I think I know a man who is cheating on his taxes, and I bet the IRS would be interested in what I know. But, before proceeding, I need to be sure that the program is completely anonymous. Is there any way this guy could find out who tipped off the feds? Also, I've heard that informants get a reward. Is this true? --A.R.
A: The IRS has operated a confidential informant program for years to catch tax cheaters. The agency's tipster hot lines receive thousands of calls every month, and informants can receive rewards of up to $100,000 for providing information that leads to the successful recovery of back taxes.
However, before you run for the closest telephone--that toll free number is (800) 424-1040 and be sure to ask for the criminal investigations division--you should know several things about the program. First, precise details are very important. In fact, the IRS determines the amount of your reward based on the level of details you provide and whether those details were important to any final recovery.
The kinds of details IRS investigators are most interested in are: the tax years the violations occurred; any aliases used by the taxpayer; the address, social security number and employer identification number of the taxpayer; bank account data, and any documents you have to support the allegations.
Don't just call and say "John Doe cheated on his taxes last year." You have to explain how Doe operates his tax scam. Furthermore, tipping the IRS to an enemy just to make his life miserable won't do any good unless you really have the goods on the guy. The investigators who take the tips are seasoned and know a bogus tip when they hear one.
You should also know that the IRS doesn't pay its tipsters until it actually gets the back taxes, and only then upon demand from the informant.
Even after tipping the IRS to a cheater, you have to file a claim--it's Form 211--to get your share.
"This isn't like the lottery," says William Gillian, chief of the criminal investigation division of the IRS' Los Angeles branch. "There's no easy payoff." Gillian notes that a successful prosecution can take years, and payment of back taxes can stretch on even longer.
Furthermore, any rewards paid by the IRS are considered taxable income to the tipster. So, even if you get a reward, you could end up paying as much as a third of it--at today's tax rates--to the state and federal government.
If you're still interested, here's what your tips could be worth.
For specific information that caused the investigation and resulted in recovery, a tipster can receive 10% of the first $75,000 recovered (not including interest), 5% of the next $25,000 and 1% of anything more, up to a maximum reward of $100,000.
According to our calculations, you would have to hand the IRS tips for a fairly iron-clad case that resulted in a payoff to the IRS of more than $9.2 million in order to receive the maximum reward of $100,000.
For information that caused the investigation but was less valuable and less specific, the reward is 5% of the first $75,000, 2.5% of the next $25,000 and 0.5% of the remainder, up to a maximum reward of $100,000. Simply tipping investigators to a suspected cheat can earn a reward of 1% of the first $75,000 recovered and 0.5% of anything more, up to the same maximum reward of $100,000.
How confidential is the informant program? The IRS says "very." Gillian says the names of tipsters are stored in IRS vaults away from prying eyes; in California, they are kept in the IRS facility in Fresno. Informants' names are not revealed to investigators working on the case. The tipster's identity is not matched with the case until payment is made at the informant's request.
For more information about the program, Southern California residents may call these numbers: (213) 894-4151 for Los Angeles and Ventura counties; (714) 836-2872 for Orange, Riverside and San Bernardino counties, and (619) 557-6100 for San Diego County. Ask for the criminal investigations division. Or you may obtain IRS Publication No. 733 at your local IRS office.
Survivor Benefits from Pension Plans
Q: My friend's husband took early retirement six years ago. He later died, and my friend was shocked to discover that his pension stopped with his death. Now my husband, who also took early retirement, has suffered a stroke and is not recovering. How can I find out whether his pension ends with his death? I think it is unfair to non-working wives to be left without at least some of their husbands' pensions. Shouldn't there be laws to protect women like me? Also, what if I divorce my husband? Could I get a part of his pension that way? --M.A.
A: First, there is a law that provides just the sort of spousal protection that you are talking about.
Under the Retirement Equity Act, which became effective in 1985, a spouse must consent to the type and terms of the pension plan a worker elects to receive at retirement. The law was designed to prevent just the type of horror your friend undoubtedly experienced when she learned that her husband's pension did not continue, even at a reduced rate, after his death.
It is entirely possible that this law became effective after your husband elected the terms of his pension. But you can still find out what those terms are. Simply contact the pension plan administrator at his former company.
Also, our experts advise that it may be possible for your husband--if he is not incompetent or completely incapacitated--to change the terms of his pension payment. Again, you can check this through the company.
Finally, what is this about a divorce? A divorce would do you absolutely no good in securing coverage under your husband's pension, and, quite possibly, it could harm your chances because you would no longer have any claim as a spouse.
Again, our advisers say your best bet is to check the terms of the pension with the company and, if necessary, attempt to change them to suit your needs.
Even if you're not at or near retirement, this is probably as good a time as any to check how your pension plan is structured.
Do payments continue when you die? If so, at what level? Are you satisfied with the choices you made years ago, when retirement seemed as remote as the moon? If not, can you change them? Should you?
This is not just an issue for older folks, so make sure you and your family are adequately protected.