Yes, IRS Provides Rewards to Tax-Cheat Tipsters--but Success Lies in the Details

Q: Does the Internal Revenue Service still operate a tipster program for taxpayers to report on suspected cheaters? I read about this program years ago, and now when I need the particulars I am having trouble finding out about it. Have you ever heard of it?

--A.C.

A: The IRS has operated a confidential informant program for years. Each month thousands of suspected cheaters are turned in, in large part because tipsters can receive rewards of up to $100,000 for providing information that leads to the successful recovery of back taxes.

However, before you rush for the phone, you should understand several things.

For starters, precise details are of the utmost importance--so important, in fact, that the IRS bases the bounty amount on the degree of details provided by the tipster and the degree to which those details were integral to the final settlement.

What details most interest the IRS? Just what you would expect: the dirty little secrets of the alleged fraud. The basics include the tax years in which the alleged violations occurred; the taxpayer’s aliases, if any; and the taxpayer’s address, Social Security number or employer identification number. If you have it, bank account data and any documents supporting the alleged fraud are deemed useful.

There are more caveats. This program is not an opportunity to make life miserable for someone you dislike or to seek revenge.

IRS investigators are trained to tell the difference between genuine information and a bogus tip, and they aren’t easily fooled. Finally, be advised that the IRS doesn’t pay its tipsters until it actually gets the back taxes, and only then upon demand from the informant. (You have to keep track of the case, know when it’s been resolved and them file Form 211 to get your bounty.) Successful prosecutions can take years, and payment of back taxes can stretch even longer. You don’t get paid until the government does. Even then, the IRS considers your reward taxable income.

That said, here’s what a successful tip could produce:

* For specific information that initiates an investigation and results in a recovery, the 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 give the IRS the goods on a tax scam that results in a payment of more than $9.2 million to qualify for the maximum.)

* For information that initiates an investigation but is 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 of $100,000.

* Simply tipping investigators to a suspected cheat, but providing no specific details, is worth 1% of the first $75,000 and 0.5% of anything more, up to the same $100,000 limit.

By the way, identities of tipsters are kept confidential and are stored separately from the actual fraud investigations until the tipster requests payment on a specific case at the end of prosecution and settlement.

For more information about this program, call (800) 829-3676 and order IRS Publication 733, “Rewards for Information Given to the IRS.”

To make a report, call the toll-free number at (800) 424-1040 and be sure to ask for the criminal investigations division.

Good luck.

AT&T; Shareholder Wants a Piece of Lucent

Q: I am one of the millions of stockholders of American Telephone & Telegraph. I understand the company has spun off its Bell Labs operations and other technology businesses into a separate company called Lucent Technologies. The idea, as I recall, was for AT&T; shareholders to be given a portion of this new company. But the stock went public nearly two months ago, and I don’t know what AT&T; shareholders are supposed to get. How do I find out?

--C.G.

A: Lucent Technologies went public April 4 as part of the largest initial public offering ever by a U.S. company. In all, 112,037,037 shares were sold in an underwritten public offering, at $27 per share. By the end of its first day of trading, the stock had increased to $30.625 per share and was the most actively traded on the New York Stock Exchange that day. In the two months since, the shares have traded at between $30 and $40.

What part of this pie are you entitled to? According to AT&T;, the exact details of the distributions are still in the works. However, initial plans call for AT&T; shareholders to receive one share of Lucent for each three shares of AT&T; they hold. However, the “shareholder of record” date to qualify for this distribution has not yet been set. If you currently hold AT&T; shares and have for several months, you should meet whatever “of record” date is set. However, if you have bought or sold AT&T; shares more recently, you have no assurances that you will qualify for the Lucent distribution.

AT&T; says it expects to complete the Lucent distribution by the end of fall and that Lucent will pay its shareholders a dividend of 7.5 cents per share beginning in the third quarter of 1996. AT&T; said is has no current plans to increase or decrease its $1.32-per-share annual dividend prior to the Lucent spinoff. However, after that point, AT&T; says, both it and Lucent are free to set their own, appropriate dividend rates.

For more information, AT&T; shareholders can call AT&T; Shareholder Services at (800) 348-8288. The Internet address is fctc@attmail.com

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Carla Lazzareschi cannot answer inquiries individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business News, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. Or send e-mail to carla.lazzareschi@latimes.com