The Tax Relief and Health Care Act Of 2006 authorized the IRS to establish an IRS Whistleblower Office with the purpose to centralize and monitor tips from whistleblowers so that awards would be paid in a timely manner.
To date, the largest known IRS tax whistleblower award was $104 million. This award was paid to Brad Birkenfeld for information he provided to the IRS with respect to the Swiss Bank UBS. Over the years, thousands of tips have been provided by individuals including accountants, tax directors, CFOs, CEOs, former employees etc. with respect to taxpayers that underreported and under paid their taxes. (Note: there does not have to be tax fraud or tax evasion….just the underpayment of tax.)
The IRS Whistleblower Office:
At the beginning of FY 2014, the Whistleblower Office staff consisted of 40 employees including 17 senior analysts with decades of experience in a broad array of IRS compliance programs. In addition, the IRS Office of Chief Counsel has appointed a senior attorney to serve as Special Counsel to Lee Martin, Director of the IRS Whistleblower Office. The Special Counsel provides legal advice to the Director and coordinates support provided by other Chief Counsel offices. At year end, the total staff of the Whistleblower Office was 43.
The IRS Whistleblower Office has seen steady and consistent growth from year to year in both staffing and claim submissions. Treasury Regulations with respect to the IRS whistleblower program were issued in August 2014.
Responsibilities of the Whistleblower Office:
The Whistleblower Office evaluates the submissions it receives to determine whether the information offered may contribute to the assessment or collection of unpaid taxes, penalties, interest, additions to tax and additional amounts. If an audit or investigation is conducted/expanded based on the information a whistleblower provides, the Whistleblower Office will determine whether an award is payable under either section 7623(a) or 7623(b) and the amount of any award. In most circumstances, an award paid under 7623(b) shall be between 15% and 30% of the amount collected.
Unlike other laws that encourage whistleblowers to report information to the government, the Internal Revenue Code does not prohibit retaliation against the tax whistleblower. Therefore, anyone thinking of filing a tax whistleblower claim should work with an experienced tax whistleblower attorney that will take steps to protect their identity. The IRS policy is to protect the identity of whistleblowers to the fullest extent allowed by the law. However, in some cases the IRS may need a whistleblower to testify in court.
What Are the Rules for Getting An Award?
An individual is only entitled to an award if their information leads to (or expands) an audit or investigation that results in the IRS collecting money, whether in the form of additional taxes, penalties, interest, or other amounts.
There are two types of awards:
- 7623(a) Awards: If the amount is less than $2 million then the award is subject to a maximum percentage of 15% of the amount collected. The award under this program is capped at $10 million.
- 7623(b) Awards: If the amount involved exceeds $2 million, and a few other qualifications are met, the IRS will pay 15% to 30% of the amount collected. If the case involves an individual, his or her annual gross income must be more than $200,000. There is no cap as to the amount of the award under this program. At this time, the largest known award is $104 million. (Whistleblowers have submitted “specific and credible” claims for awards involving billions of dollars in unpaid taxes.)
A whistleblower should use IRS Form 211 to file a Claim.
How Long Does It Take?
Unfortunately, this is a lengthy process as the taxpayer has certain rights that are not forfeited simply because there is a whistleblower involved. The IRS currently estimates that he process can take between 5-7 years. In some cases it may take longer based upon the appeal process and collection of the tax from the taxpayer.