“I have a co-worker and friend whose money practices drive me insane,” the reader wrote. “He spends every penny, and mocks me for being frugal. Now he’s telling me all of the sketchy purchases that he deducts on his taxes, claiming they are work expenses. This includes restaurant meals during the workday (‘we talked about work!’) and clothing bought for a presentation at work. I want to report him to the IRS.”
So, should this person snitch?
Okay, the word “snitch” isn’t fair, because it insinuates that the informant trying to do the right thing is, in fact, wrong. It’s better to characterize the person as a whistleblower.
If you suspect or know of an individual or business that is falsifying exemptions, deductions or not reporting income, you can file IRS Form 3949-A. You can find the form at IRS.gov or order it by phone at 800-829-0433. Although you have the option of writing a letter to the IRS, the form is usually best, according to IRS spokesman Eric Smith.
“Provide as much information as you can about the person, what you believe they did and how you know what they did,” Smith said. “The same is true if the suspected violations involve a business.”
Smith said that — although you’re not required to do so — it’s helpful to provide your name and address. “We keep information about anyone who provides information confidential,” he said.
The agency will not share it with the person or business you are reporting.
But Melody Thornton, a CPA based in Cardiff, Calif., warned: “The amount is so small, I think it would be frustrating for your reader and the IRS doesn’t have the staff to pursue it.”
Americans overwhelmingly say that it is not acceptable to cheat on your taxes (85 percent) and that everyone who cheats should be held accountable (90 percent), according to a 2018 IRS survey.
It’s important to note that the co-worker is in fact cheating if he is claiming deductions he knows he’s not entitled to take. However, tax rules are complicated and can leave room for interpretation.
In general, taxpayers can deduct 50 percent of the cost of business meals if certain criteria are met. The meals can’t be lavish or extravagant and they must occur in the course of conducting business, according to Susan Allen, senior manager for tax practice and ethics for the Association of International Certified Professional Accountants.
“So if you’re having a meeting with a potential client, that might meet the threshold,” Allen said. “If you’re going to lunch with a co-worker and just talking about your workday, that likely would not meet the threshold.”
Employees can no longer deduct certain out-of-pocket costs thanks to the 2017 Tax Cuts and Jobs Act, which put an end to a number of unreimbursed job expenses (except for taxpayers who fall under a special category, such as armed forces reservists).
Before the act’s passage, employees could deduct the cost of clothes for work, but only if they were mandatory — such as uniforms or protective clothing like a hard-hat or work boots.
If the clothing could have been worn outside work, such as a business suit or dress, you weren’t allowed to deduct the expense because it was considered everyday wear.
In this reader’s case, there’s not enough specific information to file a report. The concerned co-worker couldn’t provide a lot of details asked for on the IRS referral form.
“Unfortunately, many of the tips we receive are not that useful,” Smith said. “But good information from people in the know really can make a difference. That’s why it’s so worthwhile that anyone submitting an informant report be as specific and complete as possible.”
If you have concrete evidence about a tax cheat, inform the IRS. Fraud affects us all. For instance, shoplifters aren’t just hurting the bottom lines of businesses. When they steal, prices rise for all customers, and that makes the stealing your business. The same with tax cheats.
Just as a reminder, every taxpayer signs their tax return under penalties of perjury, says Miklos Ringbauer, a certified public accountant based in Los Angeles.
You may not have enough information for a whistleblower complaint, but you don’t have to stay silent when someone is bragging about sketchy or fraudulent tax deductions.
Tax evasion is unfair to the vast majority of taxpayers who, whether they like it or not, pay what they owe.
Have a question about retirement or personal finance? Join Michelle for an online Q&A every Thursday at 12 p.m. ET. Readers may write to Michelle Singletary at The Washington Post, 1301 K St. NW, Washington, D.C. 20071 or email@example.com. To read previous Color of Money columns, go to http://wapo.st/michelle-singletary.