How is this a property tax fraud? It is your neighbor property and s/he is can do anything with it. If you feel that your neighbor is not allowed to rent, due to local zoning laws, you should talk to the township's zoning department. If you feel your neighbor is renting it, but does not report rental income, you can call IRS. I don't see how any of it relates to property tax.
This is NOT legal advise.....
Property taxes are based on total assessed value (building and land) times the current tax rate. I highly doubt that the taxes would be higher if it's a two family home since the value of the building and the land is based on size not number of families. However I do understand your concern that if there are more children in the home that attend public schools, the owner is only paying taxes as if it were a one family with the standard 2.5 children.
The bigger problem is if it's not a legal multi-family, the owner MAY be in violation of local zoning ordinances and fire codes.
Renting a single family home to ONE family is typically allowed. Renting to several families is usually not. Renting your garage (NOT as living space however) is usually allowed too.
I suggest you voice your concerns first to the zoning officer and fire inspector in your township and let them investigate further.