Tax fraud and evasion are serious matters. Misrepresenting your income or failing to pay appropriate taxes can carry heavy penalties including fines, jail sentences, and felony convictions. Information on fraudulent tax activity is relayed to the I.R.S. in the following ways. Most often, the Criminal Investigation Division of the I.R.S. will uncover suspicious activities while prosecuting guilty tax offenders. Informants hoping to gain financial reward will often notify the I.R.S. of friends and colleagues falsifying tax returns. Banks are also obligated to notify the Internal Revenue Service of certain questionable transactions. Regardless of how the crime is discovered, there are substantial legal and financial penalties if you are caught in criminal tax activities. If you have any questions about your taxes, or the possibility of a criminal tax matter, consult a tax specialist or tax attorney.