Up for Debate: “Snitching” to the IRS

March 29th, 2010 by Kathy McManus

The government would like you to report tax dodgers. Should you?

Brought to you by Liberty Mutual's
The Responsibility Project

Is it ethical to “rat out” your boss — or anyone else you think is a tax cheat — in order to collect a sizeable cash reward from the IRS?

SmartMoney.com’s Lisa Scherzer reports that the IRS Whistleblower Office is offering new “incentives” for citizens to turn in suspected tax dodgers. “If your employer, co-worker, landlord, neighbor, or father-in-law is raking in fistfuls of cash and bypassing Uncle Sam, you can anonymously report the abuse to the IRS and snag a windfall from their dishonesty,” Scherzer writes.

The whistleblower’s reward is 15 to 30 percent of a proven tax fraud, which must total at least $2 million by a company or $200,000 by an individual. Scherzer says that the increased awards will have “a profound effect” on motivating people to tattle. “Think about it,” she argues. “It’s not just the IRS that tax cheats have to worry about. It’s also their employees, colleagues, and acquaintances.”

Many SmartMoney readers reacted negatively to playing the role of snitch. “Sounds pretty slimy to me,” one commenter wrote. Turning in “your boss or ex for something like this is nothing short of a cowardly act,” wrote another.

“It’s the criminals who are the sleazebags,” countered a supporter of the whistleblower program. “It’s called using incentives to get people to do the ‘right thing.’”

Tell us what you think: Is it ethical to report someone to the IRS for tax evasion? What if reward money is your only motivation?