The first thing to remember to protect yourself is do the right thing report all your income and pay your taxes. If you don’t you may want to watch your pillow talk and not share that great tax scheme with your business partner.
Section 7623(b) of the Internal Revenue Code requires the IRS to pay awards if an individual provides information that substantially contributes to the collection of tax, penalties, and interest when disputed amounts are more than $2 million. The fiscal year 2012 annual report to Congress, noted that the IRS received 332 submissions identifying 671 taxpayers who appear to meet the statutes’ criteria. The IRS pays awards from collected proceeds after a taxpayer has exhausted all appeal rights and the statutory period for filing a refund claim has expired or been waived. The first awards paid for information provided to the IRS after 12/19/06 [the date new IRC Sec. 7623(b) was enacted] occurred in fiscal year 2011.
Although this may seem like easy money and certainly a great way to get revenge on an ex-spouse or employer it will be awhile before you can collect if you turn in someone as it takes time for the case to process through all divisions of the IRS and be finalized in many cases this could by years of waiting. As for the revenge part well you can be sure that even if no additional tax can be assessed and hence no reward paid the process will hurt.
Protect yourself report your income, pay your taxes and don’t tell friends, relatives or business partners about your schemes real or imagined on how to hide income or avoid taxes.