The IRS Whistleblower Program

Substantial Rewards

A little-noticed provision of the Tax Relief and Health Care Act of 2006 created a whistleblower rewards program for individuals informing the IRS of tax fraud and other misconduct.  The law provides monetary rewards in cases where the potential amount owed to the IRS by businesses, in combination for back taxes, penalties, interest and additions to tax, exceeds $2 million. If the tax cheat is an individual, that person’s gross income for the applicable year must also exceed $200,000.

The rewards under the Act are substantial.  Tax whistleblowers can receive a minimum reward of 15% and a maximum reward of 30%. If, however, the IRS determines that the whistleblower’s information was not the original source of information but still contributes to the additional collection, the reward is capped at 10%.  However, if there are two whistleblowers who disclose the same tax underpayment, the whistleblower who made the original disclosure will receive the award.  The fact that an individual participated in the fraudulent activities does not preclude a reward.  Instead, the whistleblower’s involvement may be used by the IRS as a basis to reduce the reward.

Public Information May Be Used By The Whistleblower

Whistleblowers may seek a reward for bringing publicly-available information to the attention of the IRS if the information results in the recovery of additional taxes.  Such information includes trial testimony and evidence, results of state and local investigations, and information published in the news media.  Under these scenarios, the whistleblower may receive a reward of up to 10% of the IRS recovery.

IRS Whistleblower Office

Under the law, the IRS created a Whistleblower Office that is responsible for processing, evaluating, and analyzing information received from individuals who identify tax fraud and other improper activities.

Form 211

A whistleblower should submit his information to the IRS on Form 211, Application for Award for Original Information. The form must be signed, under the penalties of perjury, with the whistleblower’s true name to ensure that any reward is properly paid.

Right To Sue For An Award

The law allows a whistleblower the right to sue the IRS in U. S. Tax Court if the IRS denies a reward.  In the past, a whistleblower had no right to sue the IRS because rewards were discretionary.

Protecting The Confidentiality Of The Whistleblower

The IRS will protect the identity of the whistleblower to the fullest extent permitted by the law.  Under some circumstances, such as when the whistleblower is an essential witness in a judicial proceeding, it may not be possible to pursue the investigation or examination without revealing the whistleblower’s identify.  In those instances, the IRS will inform the whistleblower before deciding whether to proceed in such cases.

If you believe you have information concerning an individual or a company that has made mistakes or committed fraudulent acts, and in doing so, has underpaid their taxes, contact Michael S. Bigin or Laurence J. Hasson.