The Internal Revenue Service (IRS) has administered its whistleblower program in some form since 1867. But the Program has become much more active in the wake of improvements made by the Tax Relief and Health Care Act in 2006, which, among other things, made certain awards to whistleblowers mandatory and increased the amount of money that whistleblowers can receive when issued a mandatory award. Indeed, since 2007, the Program has issued more than 2,500 awards to whistleblowers—totaling over $1.05 billion—for information leading to the recovery of $6.39 billion from noncompliant taxpayers.
Under the Program, individuals may be eligible for an award where they provide specific and credible information resulting in the collection of taxes, penalties, interest, or other amounts from a noncompliant taxpayer. To make a submission, the whistleblower must file a Form 211 “Application for Award for Original Information,” under penalty of perjury, with the IRS.
Where the agency collects proceeds of more than $2 million, or where the taxpayer is an individual with a gross income exceeding $200,000, issuing an award to the whistleblower is mandatory. The range of such awards is between fifteen and thirty percent of the amount collected.
The IRS may also issue whistleblower awards, in its discretion, where the collected proceeds are less than $2 million or an individual taxpayer’s gross income is less than $200,000. These awards can reach as high as fifteen percent of the amount collected, up to $10 million.
The definition of “proceeds” was recently expanded by the Bipartisan Budget Act of 2018. “Proceeds” under the Program now include, among other things, criminal fines and civil forfeitures, as well as any proceeds arising from violations of reporting requirements.
In determining the percentage of proceeds to which a whistleblower is entitled, the IRS considers several items. A submission based principally on information disclosed in certain public sources or a whistleblower’s delay in reporting, participation in and profiteering from the tax law violations, or lack of cooperation with an IRS investigation will lead to a reduction in award percentage. On the other hand, a higher award percentage can be expected where the information provided had an impact on taxpayer behavior or the whistleblower reported to the agency quickly; submitted information that was original, specific, and thorough; assisted the agency in its investigation; or helped identify recoverable assets.
In 2019, the Taxpayer First Act added new procedures to the Program that require the IRS to notify whistleblowers when a claim has been referred for examination or a payment has been made by the taxpayer identified by the whistleblower. In addition, the statute requires the agency to provide whistleblowers with updates on the status and stage of their claims.
The Taxpayer First Act also added retaliation protections for IRS whistleblowers. Employers and their officers, employees, contractors, subcontractors, and agents are prohibited from, among other things, discharging, demoting, suspending, threatening, or harassing individuals who have reported tax fraud internally or to the relevant government authorities. An employee who successfully demonstrates employer retaliation is entitled to all relief necessary to be made whole, including reinstatement; double back pay with interest; all lost benefits with interest; special damages for emotional distress and reputational harm; and litigation costs, reasonable attorneys’ fees, and expert witness fees.
Overall, the IRS Whistleblower Program has not had the same success as the SEC and CFTC Whistleblower Program of late. But the Program’s recent (and forthcoming) enhancements will hopefully bring it up to speed. In addition to the laws mentioned above, the IRS Whistleblower Program Improvement Act was introduced on June 15, 2021, and seeks to further address substantive and operational deficiencies the Program faces. Such changes are needed to take on the well-documented epidemic of tax fraud from which our country currently suffers.
If you are considering reporting information to the IRS, please fill out our online form or contact us by phone at (267) 551-5240 or via e-mail at zarbitman@feldmanshepherd.com for a free, confidential consultation.