How Much is the Reward for Reporting Tax Evasion?

The IRS estimates that the United States loses more than $450 billion per year to tax evasion. The Tax Relief and Health Care Act of 2006 created an IRS Whistleblower Office tasked with working exclusively with whistleblowers, and providing eligible whistleblowers with a percentage of the government recoveries. Prior to 2006, the IRS had a whistleblower program, but this program had no provision for a reward and it was hugely ineffective. As a result of the changes made to the program in 2006, the IRS Whistleblower program has been a huge success. Since 2007, the Whistleblower office has collected over $5.7 billion and made awards in the amount of $931.7 million.

IRS Whistleblower Provisions:

The IRS whistleblower reward law is divided into two sections. The first section is 26 USC & 7623(a), and it gives the IRS the discretion to pay whistleblower awards. The Federal law gives the whistleblower the right to an award of 15% to 30% of the amount recovered by the IRS as a result of the information provided by the whistleblower to the agency. In order to qualify for the program, the total debt to the IRS must exceed $2 million, including interest and penalties. In addition to this, if the person who owes taxes is an individual (rather than a business), the taxpayer must have earned at least $200,000 in one of the years for which he or she owes taxes. Those who participate in tax fraud and then report it to the IRS may still be eligible for an award if they did not plan or initiate the fraud, and are not convicted in a criminal proceeding related to the underpayment.

How the Whistleblower Law Works:

The whistleblower with detailed information to the IRS on the illegalities is guaranteed at least 15% of the amount recovered by the agency from the prosecution and settling of the tax fraud if:

• They provide relevant information to the IRS whistleblower office using IRS Form 211 and the IRS decides to take action with the information provided (a whistleblower cannot force the IRS to act on a tip);
• The fraud has not been reported before;
• The whistleblower makes the report within three years of the filing of the incorrect tax return, or six years if the tax return understates income by at least 25%. There are no time limits on claims if a false tax return was filed with the intent to commit tax evasion.
• The amount in dispute (the tax underpayment, including interest and penalties) exceeds $2 million (if the taxpayer is an individual, his or her gross income must exceed $200,000 for at least one of the  tax years in question); and the IRS collects tax underpayments emanating from the action which happened as a result of your report.

A denial of an award or reduction of up to 10% may be made in cases where the information provided to the IRS is:

• Brought by an individual who “planned and initiated” the actions that led to the underpayment of tax.
• Based on information derived from a judicial or administrative hearing; a governmental report, hearing, audit, or investigation; or the news media

Tax whistleblower awards are subject to appeal to the U.S. Tax Court within 30 days of an IRS determination. In passing the IRS whistleblower bounty legislation, Congress provided compulsory awards to tax whistleblowers for better and detailed information that will aid the Internal Revenue Service (IRS) in apprehending any form of tax fraud. However, a big question came up about the safety of the whistleblower from any form of violent response as a result of his or her information that brought the attention of the IRS Whistleblower Office to the tax fraud. So in lights of this, on July 2, 2019, the Taxpayer First Act was signed into law. The law provides tax whistleblowers, among other things, significant protections against retaliation.

Blowing the Whistle on Tax Fraud:

Tax fraud is reported through the Internal Revenue Service (IRS) Whistleblower Office. A whistleblower must provide the IRS Whistleblower Office with credible, detailed and specific information and actionable evidence to support it and also help the agency to apprehend a tax fraud. The information that is provided by the whistleblower must lead to at least $2 million. A whistleblower that provided the IRS with credible information and evidence is entitled to 15 to 30% of the Government’s recovery. An IRS Whistleblower must disclose his or her identity to the IRS when reporting and submitting tax fraud information and evidence, but the Agency has a strict policy that protects the whistleblower’s identity. The IRS takes steps to ensure the targeted taxpayer of a tax fraud investigation does not know that there is a whistleblower, much less the whistleblower’s identity. There is a law that protects tax whistleblowers from any form of retaliation. You do not need to be a citizen of the United States of America, to receive an award under the IRS Whistleblower Program. A whistleblower that disagrees with the amount of a whistleblower award can appeal to the Tax Court. Notable successes of the IRS Whistleblower Program include:

• Bradley Birkenfeld was awarded $104 million after blowing the whistle on the Swiss Bank, UBS, for helping wealthy Americans hide their assets and evade taxes.
• An unidentified whistleblower received $38 million for exposing a corporate tax avoidance scheme.
• In Whistleblower 21276-13Wv. CIR, two whistleblowers were issued an award for more than $17.5 million.  Importantly, the Tax Court’s Final Order confirmed that when the IRS determines an award based on “collected proceeds,” this encompasses all dollars collected by the U.S. government, including criminal penalties, FBAR, etc.
• An unidentified accountant received $4.5 million after discovering a $20 million-plus tax liability at a Fortune 500 company. The accountant reported the liability and was subsequently ignored by the company.
• Wall Street insider nets a $2 million reward after exposing an alleged tax avoidance scheme by manufacturer Illinois Tools Works. This was the third seven-figure reward from the IRS for the anonymous IRS whistleblower.