Disclaimer - By publishing this information on this Web site, the Boston, Massachusetts law firm of Altman & Altman LLP is not claiming to represent any clients or cases mentioned here. The content provided is designed to inform readers and is not intended as legal advice.

IRS Tax Evasion Whistleblowing – What You Need to Know

What if revealing information could land you with millions in rewards?  The IRS can award money to those who provide “specific and credible information” to the IRS if the material yields collection of taxes, penalties, interest or other forms of collection from the defiant taxpayer.  The IRS is specific in noting that the information needs to be concrete and proven, not simply “educated guesses” and that proves a substantial Federal tax issue.  The information must also be relatively new, as the statute of limitations on corporate and individual cases can be as short as three years.  There is no statute of limitations for fraud, but these issues are more difficult, and therefore are often avoided by the IRS.

If a case is strong, there are two types of potential awards granted by the IRS.  First are awards issued to those who report cases with total values less than $2 million or with individuals who earn less than $200,000 annually.  These awards are smaller but still can be substantial.  The IRS can offer a maximum reward of 15 percent up to $10 million.  These awards are discretionary and therefore cannot be appealed to the Tax Court.  In 2006, the IRS instituted a new whistle-blower program to attempt to catch more “big cheaters”.  In these cases, the total amount in dispute must surpass $2 million in addition to a few other requirements.

If the case involves an individual, his or here annual gross income must be upwards of $200,000.  If the case adheres to these clauses, the IRS will pay 15 to 30 percent of the amount collected to the whistleblower.  In these cases, the whistleblower can appeal the claim to the Tax Court.  Since new incentives have been implemented, the IRS has received various tips from about 476 individuals identifying 1,246 taxpayers in 2008, the first full year the program was implemented.  These tips have been well supported with documentation involving billions of dollars in taxes, penalties, and interest.

Most often, the individuals who contact the IRS with tips are disgruntled middle-ranking employees at large corporations.  It is believed that these workers inform on those in upper management because they feel stuck in their positions at work and frustrated with the tax evasion that they know to be occurring.  Informant identity is not made public, but often times the person’s name is obvious based on the information provided.  This fact which might incite retaliation, along with the extensive amounts of information that are required to complete the forms in a report to the IRS (i.e. the accused’s social security number) often deter individuals from making reports. 

The IRS also does not take all of the cases that are reported.  Laura Saunders from the Wall Street Journal notes that they actually take relatively few cases, and these often take over five years to resolve.  Much of the tedious work must be completed by the informant, not the IRS.  However, this legwork may be worth it depending on the case.  The first award under the new program was a whopping $4.5 million to a former accountant of a large financial services firm.  This outcome is not necessarily common, but substantial and concrete information could land you a great deal of money.

 

Ellis, Blake. “Rat out a Tax Cheat, Collect a Reward.” CNNMoney. Cable News Network, 3 Mar. 2010. Web. 13 June 2016.

“Whistleblower – Informant Award.” IRS. N.p., 10 Feb. 2016. Web. 13 June 2016.