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Reporting Tax Cheats: The San Francisco Treat

Kelly Phillips ErbFebruary 2, 2011

Would you report your neighbor for cheating on their taxes? What if you got paid for doing it?

San Francisco has, for the last five years, offered up to 10% of the take for members of public who turn in their neighbors for failing to pay their fair share of taxes. It’s not the only such program in the country; the IRS has a similar program.

However, San Francisco’s program is in danger of going away. The program formally expires on February 16 so last week, Supervisor David Chiu introduced legislation to continue the program with one significant amendment: taxpayer payouts would be limited to $100,000 (the current cap is $500,000). A hearing on the matter is expected in the next few weeks by the full Board of Supervisors (akin to your local City Council).

As currently written, the program targets property owners who fail to report a change in ownership. This is significant because properties are reassessed for purposes of property tax at sale or transfer. It’s estimated that this has resulted in the loss of millions of dollars to the city of San Francisco.

It’s an interesting idea – albeit a little scary – to ask neighbors to turn each other in. At least 62 claims have been filed by members of the public under the San Francisco program – assuming one claim per person, that’s fairly statistically insignificant. But if you project that out to other cities, the numbers are kind of interesting. Assuming the same rate of participation per resident, that would work out to 119 claims in Philadelphia, 312 claims in Los Angeles and 648 claims in New York City (or more than 3,200 in the metro area). If each claim was worth $10,000 (I’m just making that up for the sake of argument), that could result in millions of dollars back to cities and towns across the U.S. But is it worth it? There’s a bit of a scary Big Brother element lurking in the background here…

Would you want a system that encourages residents to turn each other in? Should there be an economic reward for turning folks in – and should it be capped? I guess what I want to know is: what would it take for you to rat our your neighbors?

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Kelly Phillips Erb
Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.
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San Francisco, tax cheats, tax evasion, whistleblower

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5 thoughts on “Reporting Tax Cheats: The San Francisco Treat”

  1. Just Plain Tired says:
    February 2, 2011 at 8:30 am

    That would be a tough call. While I think people should be honest and pay their fair share of taxes it would be tough to actually turn someone in. The tax system in this country is perplexing at best and it’s hard to explain my feelings about it without writing a mini-novel about my thoughts on it.

    Reply
  2. RSR says:
    February 2, 2011 at 8:35 am

    With the theory that tax cheats are cheating their neighbors from services for which the tax revenue would have provided, yes, I think it’s fine.

    Would you report someone–even your neighbor–stealing from you?

    And rewards and compensation regarding criminal activity are fairly well established. This is more of a reward, of course.

    Reply
  3. income tax calculator guy says:
    February 2, 2011 at 5:53 pm

    Firstly cheating on taxes is wrong. Secondly why is the government offering rewards to snitch someone out? Because even with all of the taxes it takes from the people it’s still going broke.

    Reply
  4. TaxSmith says:
    February 2, 2011 at 9:58 pm

    Makes me think of Al Capone.

    Anyways, I think in extreme cases where a LOT of $$ is due because someone is cheating there taxes, then yes reporting them is acceptable. But these rewards can lead to a lot of whistle blowers. Sometimes neighbors just fall on hard times and don’t have the $$ to pay for a tax.
    We have city taxes where I live, if I heard someone hasn’t filed or paid city taxes in 10 yrs I would be kinda ticked and would want to report them. Especially if they are driving a benz and have a heated drive way. But if they didn’t file last year cause they lost their job in november and just had a baby in september, yeah I can understand they are crunched for $$ and can’t afford the city tax by April.

    Just my two cents.

    Reply
  5. City Girl says:
    February 6, 2011 at 12:18 am

    I don’t have a problem with residents turning their neighbors in for failure to pay property taxes. If the property tax whistleblower laws are applied similarly to the IRS’ tax whistleblower regulations, then a cap should be in place that’s a reasonable percentage of the outstanding tax collected. If there’s no fraud and no money collected, then there’s no award. I do wonder how deep the average neighbor’s pockets are, though. Guess time will tell…

    Reply

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