IRS: Tax Fraud
What is the IRS Whistleblower Program?
The IRS Whistleblower program is designed to ferret out fraud and underpayment in excess of $2 million per taxpayer liability. If the IRS uses information provided by a whistleblower, the whistleblower can receive an award of 10 to 30 percent of the total amount collected.The IRS whistleblower law went into effect for whistleblower claims filed after December 20, 2006, and this law is a major step in an ongoing effort to root out big-dollar tax evasion.
IRS whistleblower awards in successful cases are mandatory, and the award percentage ranges are statutory, with a general range of between 15 and 30 percent, with some exceptions. There is no limit on the dollar amount of the award. A reduced award of up to 10 percent may be made in cases where the information provided to the IRS is principally based on information derived from:
judicial or administrative hearings;
a governmental report, hearing, audit or investigation;
the news media, or;
if the whistleblower “planned and initiated” the tax fraud scheme.
IRS whistleblower awards are subject to appeal to the U.S. Tax Court. Unlike the False Claims Act, there is no private right of action in a declined IRS whistleblower case. Learn more about the IRS Whistleblower Program history and statistics here.
Think you have a case? Read below to learn about the process.
The IRS Whistleblower Program Process:
The IRS whistleblower program is not a tip line. Awards are being made on the basis of a whistleblower coming to the IRS with a considerable amount of solid information in hand. Examples of such evidence might include cashed checks, invoices, the numbers to hidden bank accounts, emails, internal audits, contracts, and video or audio tape. The Internal Revenue Service whistleblower program is not a vehicle for resolving personal or business disputes.
Who is eligible for an award?
Persons who provide specific and credible information about tax fraud of over $2 million per taxpayer liability (including the collection of taxes, penalties, and interest) are eligible for an IRS whistleblower award. The IRS is only interested in whistleblower complaints that are supported by a considerable amount of solid evidence. Your complaint should detail how the tax fraud works, how you know about the fraud, and the level of physical evidence you have in hand to support your allegations.
How long does it take for the IRS to take action on a case?
An IRS whistleblower case is likely to take many years to resolve itself, in part because large tax cases are complex, in part because tax cases are subject to appeal and protracted litigation, and in part because the IRS is encumbered by finite resources and weak management controls governing whistleblower tape.
Do you need a lawyer to file a claim?
In theory no, but in practice probably yes. The Internal Revenue Service has a legendary bureaucracy and so far the Service seems to be more intent on denying whistleblower claims that in actually making awards. Tax matters are complex and with the IRS you are likely to get only “one bite at the apple,” which means that any weakness or deficiency in your initial submission is likely to be fatal to your claim.
Can I just give the IRS a tip and have them look into the matter?
You can, but you will not get a whistleblower award in the end, nor will your telephone tip necessarily result in even a cursory investigation. The Internal Revenue Service is understaffed and overwhelmed, and so they are looking for cases that are based on a considerable amount of physical, well-presented evidence. The IRS whistleblower program is not a tip line, nor is it a vehicle for resolving personal or business disputes. Awards are being made on the basis of a whistleblower coming to the IRS with a considerable amount of solid information in hand. Examples of such evidence might include cashed checks, invoices, the numbers to hidden bank accounts, emails, internal audits, contracts, and video or audio tape that illuminates an illegal tax-avoidance scheme.
Do you need to be a U.S. citizen to obtain a whistleblower award?
You do not need to be a U.S. citizens to receive an award under the IRS whistleblower program.
Can you report fraud anonymously?
No, you cannot report fraud to the IRS anonymously, nor can an entity (a corporation, partnership or nonprofit) file a case. Only individuals can file IRS whistleblower cases. Having said that, IRS privacy laws are very strict and keep the IRS from disclosing the existence of whistleblowers or naming them upon settlement.
What if you are not the first person to report the tax fraud to the IRS?
The IRS pays awards to those who are first to file on an alleged fraud.
Do taxes have to be paid on IRS whistleblower awards?
Yes. In most cases, the IRS will automatically withhold estimated taxes, but whistleblowers may submit an application for a reduced rate of withholding.
How do you file an IRS whistleblower case?
If you decide to submit an IRS Whistleblower case and seek an award for doing so, you need to fill out IRS Form 211, an application for Award for Original Information.
All whistleblower claims must be submitted under penalty of perjury and sent to:
Internal Revenue Service
Whistleblower Office – ICE
1973 N. Rulon White Blvd.
Ogden, UT 84404
A prudent whistleblower will consult an attorney before submitting IRS Form 211, as only the strongest possible case should be presented, and all aspects of the fraud should be detailed within the four corners of the original submission.
The IRS may not allow whistleblowers to amend their initial submission, and if a case is declined by the IRS, the whistleblower does not have a private right of action to pursue the case on their own.
After a complaint has been submitted, the IRS will not tell the whistleblower or his or her lawyer about actions taken in the case, only if the case is still open or has been closed. If a case has been closed and is payable, the whistleblower will be informed of this fact and the amount. If case is denied the IRS may not say why it has been denied, other than it might be because:
the IRS already had the information from another source,
an audit or investigation was conducted but there was no finding of taxpayer liability,
a finding or liability was made but the taxpayer prevailed in an administrative or judicial proceeding, or;
a finding of liability was made and sustained but there no assets were collected.
What happens next?
After IRS Form 211 is received, the IRS examines the complaint to determine if:
The $2 million threshold requirement for an award might be met;
If the case seems to be worth pursuing based on the nature of the complaint and quality of evidence presented;
Whether an administrative action, such as an audit, is needed.
Collection of taxes and disbursements of awards under the IRS whistleblower program follows an incredibly slow and arduous timeline. It may take five to eight years, or longer, before the IRS collects the taxes, penalties and interest owed, and the IRS will make no whistleblower awards until after all proceeds are collected and all the statutory periods for a taxpayer to file a claim for a refund has expired.
All whistleblower awards are subject to federal tax reporting and withholding requirements
What are the rules for getting an award?
The size of whistleblower awards are determined by the IRS within the range of 10 to 30 percent as detailed by Congress. If a whistleblower disagrees with the outcome of a whistleblower claim or award, he or she can appeal to the Tax Court. A complete set of rules covering the IRS whistleblower program can be found at Internal Revenue Code IRC Section 7623(b) – Whistleblower Rules.
For more information on the IRS Whistleblower Program process, see the IRS publication The Whistleblower Claim Process.