The IRS whistleblower program gives the public a unique opportunity to get money from the IRS, instead of paying money to the IRS as is usually the case.  Under the whistleblower program, the IRS pays money to people who “blow the whistle” on individuals or businesses who provide information to the government regarding tax underpayments or other violations of internal revenue laws.  This includes providing information about unfiled tax returns, underreported income, undisclosed bank accounts and undervalued taxable estates or gifts.

If the IRS uses information provided by the whistleblower to successfully collect taxes, interest, and penalties from a person or business that violates tax laws, the IRS will award the whistleblower up to 30% of the additional amounts collected by the IRS.

To receive a whistleblower award from the IRS, the whistleblower must provide a highly detailed description of what they know about the case.  In particular, a whistleblower claim should contain:

• A very detailed, specific written narrative of the tax noncompliance issue
• Information based on first-hand knowledge to support the story, such as the location of assets and financial records.
• Description of documents that the whistleblower has that support  the story
• Explanation of how the whistleblower learned about the story
• Description of the relationship between the whistleblower and the subject of the claim.

Whistleblower claims will be rejected if they are speculative or not credible.  

The IRS may decide not to pursue a whistleblower claim due to the quality of claim information or if the statute of limitations is too short for enforcement action.  Claims will also be denied if the information provided does not result in the collection of any proceeds by the IRS.

In 2019, nearly 51% of whistleblower claims were rejected due to allegations that were not specific or credible.

Understanding the IRS Whistleblower Program

The IRS Whistleblower Program, established under the Internal Revenue Act, empowers individuals to report tax violations and fraudulent activities to the Internal Revenue Service (IRS). Initially authorized in 1867, the program underwent a significant transformation by enacting the Tax Relief and Health Care Act in 2006.

It underwent significant changes in 2006 with the Tax Relief and Health Care Act. The key change was making rewards mandatory for whistleblowers in major tax cases, ranging from 15% to 30% of the amount recovered by the IRS. 

The program has been successful, with over $5.9 billion collected and $1 billion awarded to whistleblowers from 2007 to 2020. It also attracts international whistleblowers, with 97 participants from outside the U.S. in Fiscal Year 2020. Overall, it is an important tool in combating tax fraud and evasion.

How the IRS Whistleblower Program Works

Here is how the IRS whistleblower program works:

1. Reporting Process

To participate in the program, whistleblowers must submit detailed information about the alleged tax fraud. This information is provided using Form 211, “Application for Award for Original Information.” The form requires whistleblowers to outline their allegations clearly, providing evidence and specifics about the tax noncompliance.

2. Evaluation and Investigation

Once the IRS receives Form 211, it undergoes an initial evaluation to determine whether the information warrants further investigation. If the IRS decides to pursue the case, it will conduct a thorough investigation to verify the allegations and assess the potential tax underpayment.

3. Determination of Awards

If the IRS collects any additional taxes, penalties, or interest due to the whistleblower’s information, the whistleblower may be eligible for an award. Under Section 7623(b), the award can range from 15% to 30% of the collected proceeds, depending on the significance and usefulness of the information provided. The exact award percentage is determined based on the contribution of the whistleblower’s information to the investigation of the case outcome.

Key Features of the Program

1. Eligibility: Anyone with specific and credible information about tax fraud can file a whistleblower claim. It includes current and former employees, business partners, or individuals with insider knowledge of a taxpayer’s wrongdoing.
2. Types of Violations: The program covers a wide range of tax violations, including but not limited to underreported income, improper deductions, false tax credits, and non-filing of tax returns.
3. Anonymity and Protection: While the IRS strives to keep whistleblower identities confidential, absolute anonymity cannot be guaranteed. However, the Whistleblower Protection Act offers safeguards against retaliation for federal government employees.
4. Monetary Awards: Whistleblowers can receive between 15% and 30% of the collected proceeds, including taxes, penalties, and other amounts if the information provided substantially contributes to the recovery. For cases where the disputed amount exceeds $2 million, the rewards are more substantial, reflecting the importance and impact of the provided information.

Understanding the IRS Whistleblower Office

The IRS Whistleblower Office is a specialized division within the Internal Revenue Service that manages and oversees the whistleblower program. This office plays a crucial role in processing claims, evaluating the information provided by whistleblowers, and ensuring that eligible individuals receive appropriate rewards for their contributions to uncovering tax fraud and non-compliance. The Whistleblower Office will reject any claim for award filed by an ineligible whistleblower and will provide written notice of the rejection to the whistleblower.

Key Responsibilities of the IRS Whistleblower Office

1. Processing Claims: The Whistleblower Office is responsible for receiving and processing Form 211 submissions from individuals who report tax violations. The office reviews the initial claims to determine their validity and whether they meet the criteria for further investigation.
2. Evaluating Evidence: Once someone files a claim, the Whistleblower Office thoroughly evaluates the evidence provided. It involves assessing the information’s credibility, specificity, and relevance to the alleged tax violations.
3. Coordinating Investigations: If the claim is deemed credible, the Whistleblower Office collaborates with other IRS divisions to initiate and coordinate investigations. It may include audits, forensic analysis, and other investigative techniques to substantiate the claims and identify the extent of the tax violations.
4. Determining Awards: The Whistleblower Office determines the appropriate monetary awards for whistleblowers. This involves calculating the award percentage of collected proceeds that the whistleblower is entitled to based on the significance and impact of the information provided.
5. Ensuring Confidentiality: Maintaining the confidentiality of whistleblowers is a critical responsibility of the office. While complete anonymity cannot be guaranteed, the Whistleblower Office strives to protect the identity of individuals who come forward with valuable information.
6. Handling Appeals: In cases where whistleblowers disagree with the award decision, the Whistleblower Office manages the appeals process. This includes reviewing additional information and making determinations on the final award amounts.

IRS Whistleblower Timeline

The IRS will tell the whistleblower if their claim is under consideration.  However, the IRS will provide very few updates to the whistleblower other than this.

The whistleblower process requires extreme patience.  On average, the IRS takes 7-10 years to process a whistleblower claim.

IRS Whistleblower Reward

Claim whistleblower awards under the whistleblower program are up to 30% of the amount collected by the IRS due to information submitted by the whistleblower. In some cases, whistleblower claims were awarded millions of dollars.

Is There IRS Whistleblower Protection?

Any person can be a whistleblower and be eligible for a whistleblower award.  However, whistleblowers who were involved in the tax crime of the taxpayer subject to the whistleblower claim do not have immunity from prosecution.  Therefore, if a person does not have clean hands, they should carefully consider whether it makes sense to file a whistleblower claim that may result in criminal prosecution. 

Impact and Importance of the Program

The IRS Whistleblower Program has proven to be an effective tool in uncovering tax fraud and enhancing compliance. By incentivizing individuals to report violations, the program helps ensure a fairer and more equitable tax system. Since its inception, the program has led to the recovery of billions of dollars in unpaid taxes, benefiting both the IRS and compliant taxpayers.

June 2022 Update

The IRS Whistleblower Office published a report in June 2022 stating that in the fiscal year ended September 30, 2021, the Whistleblower Office made 179 award payments to whistleblowers totaling $36 million.  During this same period, proceeds collected by the Whistleblower Office were $245 million, including $22 million collected for criminal fines, civil forfeitures, and violations of reporting requirements.

According to the report, “Whistleblower claim numbers assigned in FY 2021 grew by 55% year over year, the second highest level of new claim numbers in the history of the program and claim closures also increased by 13%.”

To meet the program’s growth and better serve whistleblowers, the Whistleblower Office underwent a major restructuring during fiscal year 2021, as noted in the report.

We hope the IRS and Congress will continue supporting this important program.

If you or someone you know has an issue with the IRS or the state Department of Revenue, please get in touch with us at (678) 235-5460 or by email at Gary.Massey@masseyandcompanyCPA.com.

It is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago, and throughout the country.  Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales taxes, and small business accounting and bookkeeping.

FAQs

 1. What is the IRS Whistleblower Program?

The IRS Whistleblower law encourages reporting tax fraud and underpayment, offering financial rewards to informants whose tips lead to tax recovery.

2. How much can a whistleblower receive in rewards?

Rewards range from 15% to 30% of the collected amount if the information significantly contributes to the recovery, with lower caps for more minor cases.

3. What are the eligibility criteria for submitting a whistleblower claim?

Eligibility requires providing specific, credible information on tax underpayment using IRS Form 211; the whistleblower must not have participated in the tax violation.

4. How does the IRS evaluate whistleblower claims?

The IRS conducts an initial review, detailed evaluation, and potential investigation and determines an award based on the additional taxes collected.

5. What protections are available for IRS whistleblowers?

Whistleblowers are protected by confidentiality and anti-retaliation laws, ensuring their identity is safeguarded and shielded from employer retaliation.