IRS Whistleblower Program: An Overview
The IRS Whistleblower Program is one of the strongest anti-fraud award programs available to whistleblowers who report tax evasion and fraud. Congress required the IRS to establish the IRS Whistleblower Office to pay rewards to whistleblowers who report specific and credible information to the IRS and if the information results in the collection of taxes, penalties, interest or other amounts from the non-compliant taxpayer. Below is a brief overview of the IRS Whistleblower Program, along with some important information about rewards, protections, and other crucial steps you can take if you’ve witnessed fraud.
Key Takeaways (feature) of the Program
The IRS Whistleblower program operates similar to other whistleblower reward programs but has its own unique features:
- The ability of qualified whistleblowers to obtain a financial reward of between 15 and 30%, similar to other qui tam reward laws, including the False Claims Act and the SEC whistleblower program, if the information reported results in successful collection of taxes, penalties and interest.
- Financial rewards are available to non-U.S. citizens who blow the whistle on major frauds committed by US taxpayers, including foreign actors and organizations who assist in the tax fraud, such as off-shore banking.
- A broad “related action” provision permitting the payment of rewards based on sanctions obtained from other law enforcement agencies.
- The requirement that the IRS establish a Whistleblower Office.
- The requirement that the IRS strictly protect the confidentiality of whistleblowers, and while anonymous filings are not permitted like under the SEC program, the IRS can grant confidential informant status to whistleblowers.
- Under the IRS whistleblower law awards to whistleblowers are no longer discretionary, in other words, the IRS must pay an award to whistleblower whose information resulted in a collection of unpaid tax, penalties and interest and other eligibility requirements are met.
- If a whistleblower is dissatisfied with a decision to deny an award the whistleblower may appeal the IRS’s denial to Tax Court.
A Brief History of IRS Whistleblower Informant Award Program
The primary purpose of the IRS Whistleblower law was to encourage people with knowledge of significant tax noncompliance to provide that information to the IRS. A principal reason for enacting the law is that Congress recognized that detecting tax evasion and tax fraud is very difficult for the government to detect due to their complexity and the lack of resources to audit or investigate all returns.
As a result of enacting a robust tax whistleblower law, the IRS receives reports of serious tax fraud from whistleblowers, many of whom have inside knowledge of the complex financial transactions and other illegal conduct that results in tax fraud. Whistleblowers often provide extensive documentation to support their claims that would not have been otherwise known to the IRS.
Since it’s inception in 2007, the IRS Whistleblower Office has paid out more than 2,500 awards to tax whistleblowers totaling over $1.05 billion, with the successful collection of $6.39 billion from non-compliant taxpayers.
Examples of Fraud Under the Program
- Offshore Tax Havens — when a company knowingly moves money to a bank in another country to avoid reporting taxable income in the U.S.;
- Shell Accounts — setting up multiple bank accounts and circulating money across these accounts to evade or avoid taxes;
- False Reporting — reporting false information on tax returns, such as underreporting revenues or taxable income;
- Pyramiding — withholding employee taxes and intentionally not remitting taxes to the IRS, then filing bankruptcy and starting another company;
- Failure to Pay or Report Payroll Taxes — failing to file employment tax returns or pay employment taxes on wages.
IRS Whistleblower Rewards
If the information provided by the whistleblower substantially contributes to an administrative or judicial action that results in the collection of proceeds, the IRS will pay an award of at least 15 percent, but not more than 30 percent, of the proceeds.
The $2 million threshold can be aggregated over several tax years. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court.
Kohn, Kohn & Colapinto has successfully helped obtain hundreds of millions of dollars in awards on behalf of IRS whistleblowers.
- Obtaining one of the largest ever individual qui tam whistleblower awards in history ($104 million) on behalf of Bradley Birkenfeld. His information led to collection of $780 million from UBS Bank in Switzerland after UBS assisted US taxpayer depositors to commit major tax fraud. Mr. Birkenfeld’s whistleblower disclosures also forced UBS to close all known U.S. accounts, and for the first time in history, the bank turned over the names of 4450 U.S. taxpayers for prosecution.
- Obtaining a reward of $17,791,607 in first tax whistleblower case ruling that tax whistleblowers were entitled to collect rewards based on criminal fines and penalties obtained by the Department of Justice.
- In 2018, obtaining over $158 million in awards, the most compensation for whistleblowers ever received in a single year by any firm under the IRS tax whistleblower law.
The IRS Whistleblower Program Process
To file a whistleblower claim with the IRS, a whistleblower is required to file a claim form that must be signed under oath. A whistleblower can also request confidentiality or confidential informant status.
While the IRS pays whistleblower awards from collected proceeds which result from an audit or investigation, there can be substantial delays and technical requirements that must be met. Because payments are not made until the taxpayer has exhausted all appeal rights and the statutory period for the filing of a claim for refund has expired or been waived by the taxpayer, the IRS may not make payments for several years after the whistleblower has filed the claim.
It is highly recommended that whistleblowers hire experienced whistleblower attorneys to help them navigate this complex process and to argue for the highest possible award. If you know that an individual or organization is actively defrauding the IRS and American taxpayers, contact KKC and speak to one of our experienced whistleblower lawyers for a free and confidential case review. All communications are protected under strict attorney-client privilege.
Learn how to report someone to the the IRS using our IRS whistleblower guide.
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Frequently Asked Questions
The IRS Whistleblower Program works by rewarding whistleblowers for the sufficient specific and credible information about a criminal tax evasion scheme, and/or the non-criminal underpayment of taxes. In successful cases, the IRS will provide the whistleblower with a reward of between 15 and 30 percent of the sanctions collected. Award amounts are determined by the qualify of information provided, among many other factors.
The main types of frauds include offshore tax havens, shell accounts, false reporting, pyramiding, or the failure to pay taxes. In recent years however, the program also covers the non-criminal underpayment of taxes by unwitting citizens.
IRS whistleblowers may receive an award between 15 and 30 percent of the sanctions collected against a fraudster. However, the fraud must meet a threshold of $2 million, which can be aggregated over the course of several years. If the cases deals with an individual, their gross income must be more than $200,000.
IRS whistleblowers are not eligible to file anonymously. However, the IRS protects the confidentiality of whistleblowers to the fullest extent of the law, and has been known to uphold very strict practices to safeguard information.