Snitching to the IRS

Q. I have a neighbor who boasts that he hides much of his income from the tax authorities. Should I report him?

A. Taxes are as old as civilization; indeed, Oliver Wendell Holmes remarked that they are the price of civilization. We may assume that the first tax evasion followed closely on the first tax, followed in turn by the first effort to detect evaders. Of those tax evaders caught by the tax authorities, most are flagged by routine enforcement efforts such as audits, field officers, and so on. However, a certain fraction are located through citizen reports. For example, in the US the IRS maintains a tax fraud hotline for the average citizen to report suspected tax cheats, and if enough evidence is presented the IRS follows up reports with an investigation.

Most people are reluctant to "snitch" on others, and I think there is a good reason for this. Our democratic system is based on a delicate balance between the freedom of the citizen and the long arm of the law. If freedoms are too extensive and law enforcement hesitant there will be chaos; as the mishna tells us, "If it were not for the fear of the sovereign, men would eat each other alive." (1) But if law enforcement is too aggressive, then we end up in a police state where freedoms are eroded. For this reason, democratic societies have many built-in safeguards to limit law-enforcement efforts. Among these:

• "Equal protection of the law"; the authorities may not single out particular individuals or groups for selective enforcement. This principle applies also in Jewish law, which holds that sovereign power is legitimate when it is applied equitably. (2)
• Protection against self-incrimination: In the United States and many other democracies, a person can not be compelled to testify against himself. In Jewish law, this protection is even greater; such testimony is inadmissible even if not compelled. (3)
• Admissible evidence: evidence obtained improperly is generally inadmissible in court in free societies, to deter overly aggressive investigations.

One additional safeguard is that law enforcement is in normal circumstances left to law enforcers. Of course if there is a clear and present danger every person has a civil obligation to protect himself and his neighbors by reporting on criminal threats. But in the absence of such a threat, the natural balance is generally the best. I presume that if you have a neighbor who boasts that he speeds on deserted highways you don't rush to report him to the traffic police.

To their credit, the IRS itself does not give much emphasis to informants. The IRS site mentions that "if you suspect or know of" a tax cheat, "you may report this activity" – there is no implication of a civil obligation. Based on figures I found on the internet, informant tips lead to recovered taxes of around 100 million dollars a year – out of total tax revenues of about two trillion dollars. So tipsters bring in something like one dollar out of twenty thousand. (That's .005%.) Let us conjecture that by expanding the program they could multiply this by a factor of ten. Is an additional twentieth of a percent of tax revenue really worth the price of creating a culture of suspicion?

Another consideration is that many tax cheats eventually get caught, so there is a good chance that even without your intervention the tax authorities will eventually get their hands on this person's back taxes.

Jewish law explicitly legitimates reporting someone to the authorities for non-violent crime as a civil duty in cases where their disregard for the law constitutes a substantive danger to the community. (4) In addition, a person may be justified in reporting when he suffers directly from the wrongdoing – for example, if he is being driven out of business because a competitor is evading taxes. My view is that in the absence of either of these considerations, it is best to avoid reporting non-violent crimes like tax evasion to avoid any chilling effect on neighborly relations and communications. A few million dollars of lost tax revenue is a very small price to pay for a culture of openness.

SOURCES: (1) Mishna Avot 3:2 (2) Babylonian Talmud Bava Kamma 113a (3) Babylonian Talmud Sanhedrin 9b. (4) Shulchan Arukh Choshen Misphat 425:1 in glosses of Rema.