The Internal Revenue Service (IRS) Whistleblower Program is among the strongest anti-fraud award programs to a whistleblower who discloses tax evasion and fraud. With this, the Tax Relief and Health Care Act of 2006 established the IRS Whistleblower Office to give rewards to the person who can provide credible and specific information, resulting in the collection of taxes, interest, and penalties from the non-compliant taxpayer.
If you have witnessed fraud and tax evasion, here’s a brief overview of the IRS Whistleblower Program to know the rewards, protection, responsibilities, and vital steps to take when you decided to cooperate with the IRS as a whistleblower.
What is the IRS Whistleblower Program?
The IRS Whistleblower Program is found in the United States Code at 26 U.S.C. § 7623. Since 1867, the Secretary of the Treasury has been allowed to give payments as they deem essentially “for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same” under the Internal Revenue Act (IRA).
For the first 140 years, a few alterations of the system have changed everything. This act made vital changes to the IRS Whistleblower Program. As such, in 2006, Whistleblower Office has been established and required the IRS to give rewards to whistleblowers who have reported credible information that leads to the recovery of taxes against individuals who committed tax fraud.
How Does IRS Whistleblower Program Work?
Since whistleblowers provide great help to collect tax payments from non-compliant taxpayers, IRS has established an office exclusively for the whistleblowers working with them. It has specific guidelines and regulations that a person must follow when they want to cooperate with the IRS as a whistleblower.
Once the IRS whistleblower submits the credible information they have acquired, they need to fill out IRS form 211 and submit it to the IRS Whistleblower Office. Professional whistleblower lawyers can give them a hand to submit stronger claims in connection to the evidence they have obtained with the applicable law.
After submitting Form 211, the Internal Revenue Service will examine the evidence from the whistleblower and determine the appropriate action to take. The IRS keeps the strict tax privacy laws from the informant and will not disclose what actions have to be taken on a whistleblower submission and even the status of any investigation.
Basically, the IRS will interview the whistleblower just once and they may receive no further updates until the IRS has come up to an agreement for payment of taxes or decided not to pursue collection. Furthermore, if a case has been closed and is payable, the Whistleblower Office will inform the whistleblower and let them know the amount of tax collection.
On top of that, a whistleblower can’t participate as a “party” in any enforcement action taken by the Internal Revenue Service against the offender. Moreover, if the IRS decides not to pursue collection, the IRS Whistleblower Program does not provide any means for the whistleblower to push through an action independently.
What Violations are Covered Under the IRS Whistleblower Law?
Prior to the 2018 amendments to the IRS tax, underpayment of taxes and tax fraud are the violations covered under the IRS Whistleblower Law. However, there was extensive disagreement about the scope of the law and whether it should cover sanctions and or tax frauds paid for IRS-related violations.
Furthermore, Congress amended the tax whistleblower law in 2018 to widen the scope of its coverage. With this, the IRS whistleblower tax law created a specific definition to the types of “collected proceeds” for which a whistleblower could get a reward. This law clarified the scope of the whistleblower reward provision to include payment for monetary collection of United States for the following violations:
- Tax underpayments,
- Tax evasion;
- Tax frauds;
- The violation of any law or regulation within the jurisdiction of the IRS criminal division; and
- The violation of the requirements outlined in any form that a taxpayer or bank was required to file with the IRS.
In other words, whistleblowers could get a reward even if the violation was not directly related to tax, and the violator did not owe any back taxes. Hiding money offshore is also an area that the IRS will focus on tax evaders, and whistleblowers often send information to IRS about people hiding money overseas. We’ve previously written about the IRS Streamlined Foreign Offshore Procedures.
With the explosion of cryptocurrency tax, this make it even more important to learn how to report your crypto to the IRS.
How to Report to the IRS to Receive A Reward Under the Whistleblower Law?
In order to be eligible for Whistleblower Rewards Program, the informant must submit credible and specific evidence that a certain taxpayer is avoiding tax obligations. If it is proven that such person owes taxes to the federal government, whether fraudulently or otherwise, and the information submitted substantially contributed to the collection of taxes of at least $2 million, the whistleblower will be entitled to a reward.
To submit a whistleblower claim, an individual must fill out IRS Form 211 (Application for Award for Original Information PDF) and make sure it contains the following:
- A description of the whistleblower’s allegations, including a written narrative that explains the issue/s.
- Evidence to support the narrative, such as copies of receipts, books and records, bank records, ledger sheets, emails, contracts, and the location of assets.
- A description of supporting evidence, not in the whistleblower’s control or possession, and their location.
- An explanation of when and how the whistleblower obtains the information that leads to the basis of the claim.
- A complete description of the present or past relationship of the whistleblower to the subject of the claim (if any) — for example, family member, client, acquaintance, accountant, employee, bookkeeper, lawyer, customer, etc.
- The whistleblower’s original signature on the declaration under penalty of perjury and the date of signature. When reporting to IRS, a representative cannot sign Form 211 for the whistleblower.
How Much Do IRS Whistleblowers Get Paid?
When a whistleblower provides credible information, leading to the collection of taxes from disobedient taxpayers, the IRS Whistleblower Reward Program will give them corresponding payments. Mostly asked question is “How much do they get paid?” Well, the Whistleblower Office guarantees whistleblowers at least 15% up to 30% of government tax collections that result from their submitted information, to the extent those recoveries go beyond $2 million.
Furthermore, eligibility for Tax Whistleblower Reward will be determined when the amounts recovered from tax violations, including interest and penalties are substantial. Thus, No reward is paid to the whistleblower until the Internal Revenue Service collects the taxes, interest, and penalties owed, and all the statutory periods for a taxpayer to file a claim for a refund have expired.
IRS Whistleblower Statute of Limitations
The whistleblower statute of limitations for making disclosure under the IRS Whistleblower Program is three years from the moment the false tax return was filed. However, the statute of limitation will be extended up to six years if the disclosure concerns an omission of over 25% of the gross income stated in the tax return filed with the IRS. On top of that, the statute of limitations is not applicable when a fraudulent or false tax return was filed with the intent to carry out tax evasion.
Can you anonymously report someone to the IRS?
Yes, you can anonymously report a tax cheat and fraud to the Internal Revenue Service. In fact, the IRS has been accepting tips from informants for more than 140 years. In 2006, they established the Whistleblower Program to reward whistleblowers who can give credible information about tax violations from the non-compliant taxpayer. When submitting information about another taxpayer — whether it’s a business entity or an individual — you don’t have to give your name to protect your identity.
Is IRS whistleblowing anonymous?
The Internal Revenue Service (IRS) Whistleblower Program does not expressly authorize tax whistleblowers to submit information anonymously and become eligible for a whistleblower reward. However, the IRS always assures whistleblowers to protect their profile to the fullest extent permitted by the law. As such, you don’t have to worry about getting exposed when you work with the IRS as a whistleblower.
Does the IRS protect whistleblowers?
While whistleblowers must reveal their identities to the Internal Revenue Service when submitting information, the submission may be delivered in secret. Moreover, the policy of the IRS includes sections to protect the whistleblower’s identity. Generally, this agency has been cooperative in taking actions to make sure that the targeted non-compliant taxpayer won’t know that there is a whistleblower, much less that individual’s identity.
Can a Whistleblower Appeal a Denial of an Award?
To be eligible for IRS Whistleblower Rewards Program, an individual must submit credible information and evidence to prove their allegations. However, when the award was denied by the Office of the Whistleblower, the informant may appeal such a decision to the Tax Court within 30-days of denial.
Under the IRS whistleblower law, whistleblowers who submit useful and credible information during a pre-existing government investigation can be eligible for monetary rewards; as long as the information submitted may lead to a collection of taxes from non-compliant taxpayers.
Thus, if you want to become an IRS whistleblower, it is vital to know the Whistleblower Law and the dos and don’ts of being one. Furthermore, you should also need to understand the responsibilities of a whistleblower and how to submit information to the IRS to receive an award.