Whistleblowers
The IRS now has a high-level Whistleblower program in place which encourages citizens to turn in people who they believe have defrauded the IRS. Whether you are the whistleblower or the victim of any such attack, you need to have a tax lawyer on your side to handle interaction with the IRS.
Whistleblower Informant Award
The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty, and other amounts it collects.
Who can get an award?
The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest, or other amounts from the noncompliant taxpayer.
The IRS is looking for solid information, not an “educated guess” or unsupported speculation. They are also looking for a significant federal tax issue - this is not a program for resolving personal problems or disputes about a business relationship.
What are the rules for getting an award?
The law provides for two types of awards. If the taxes, penalties, interest, and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code Section 7623(b).
The IRS also has an award program for other whistleblowers – generally those who do not meet the thresholds of $2 million in dispute or cases involving individual taxpayers with gross incomes of less than $200,000. The awards through this program are smaller, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at Internal Revenue Code Section 7623(a), and some of the rules are different from those that apply to cases involving more than $2 million.
If you decide to submit information and seek an award for doing so, we recommend that you use a tax attorney to protect your identity and also push the award process through. Otherwise, this can be a very time-consuming process.
