Beware IRS Form 3949A

Apr 9, 2012 by

Much of the information the IRS needs to calculate how much taxpayers owe Uncle Sam is documented. The same party that sends you copies of your W-2s and 1099s of all flavors also sends copies to the IRS.

But a big part of tax reporting is based on “the honor system.” Do you get paid to work on a few friends’ cars in your spare time? Did you make a few dollars holding garage sales last year? What about that lucky day with your buddies at the thoroughbred track? Don’t overlook Form 1040 line 21, Other Income. According to the 1040 Instructions, you’re to report here “any taxable income not reported elsewhere on your return or other schedules.”

But what you don’t tell the IRS that’s not documented, it won’t know, right? Maybe.

Form 3949 A

Simply titled “Information Referral,” IRS Form 3949 A, pictured below, facilitates squealing on tax cheats. Though the Form asks for the squealer’s name and contact information, the Form’s instructions say, “This Information is not Required to Process Your Report” (emphasis in original). So anyone with a grudge can take a shot at causing you some grief, and potentially money and jail time, anonymously.

The Moral

The morals of this story are 1) fill out your tax return honestly, and 2) keep your mouth shut about anything and everything related to your tax return. It’s frustrating to know others are successfully dodging taxes, without consequence, for years and to read about the relatively low tax paid by certain high-income individuals. But tax evasion is serious stuff; you don’t want to go there.

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