Congress amended IRC 7623 in 2006, the IRS’ Whistleblower Office has seen significant interest from potential informants with tips about multimillion-dollar cases of tax evasion. Government fraud via tax evasion is now leading to a major trend in whistleblowing.
Section 7623(a) authorizes payments to private citizens for assistance in detecting underpayments of tax and tax evasion. Rewards are paid as a percentage of the taxes, interest and penalties collected, based on the value of the informant’s information. Rewards can also be paid if the information leads to the denial of a claim for refund that otherwise would have been paid but should not be.
The Tax Relief and Health Care Act of 2006 sought to correct these deficiencies. It added section 7623(b), taking away the Service’s discretion in giving high-dollar rewards. Other important changes to the law in 2006 included:
- Boosting the maximum award to 30% of collected proceeds for eligible cases;
- Setting a minimum award of 15% of collected proceeds in those cases;
- Providing appeal rights to claimants up to and including an appeal to the Tax Court; and
- Creating the Whistleblower Office, which reports directly to the IRS commissioner. (Previous efforts were regional and did not provide for any national recordkeeping.)
The 2006 amendment, however, is applicable only to cases where the total taxes, interest and penalties exceed $2 million and, in cases involving individual taxpayers, where the taxpayer has gross income exceeding $200,000 in any taxable year subject to the claim (section 7623(b)
In January 2008, the IRS issued additional guidance in Notice 2008-4, 2008-2 IRB 253, setting forth basic information required of informants when submitting a claim. Also detailed on Form 211 and its instructions, this required information includes documentation supporting the underpayment and its amount or an indication where documentation can be found. The informant is also required to explain his or her relationship to the taxpayer. Providing as much documentation and information as possible helps assure that the information will be acted upon.
If frequently cited tax gap projections of hundreds of billions of dollars in unreported income and uncollected taxes annually are accurate, plenty of potential claimants are out there.
WHISTLEBLOWERS WOULD BE WELL ADVISED TO RETAIN COUNSEL TO ASSIST THEM WITH TAX WHISTLEBLWING IN ORDER TO COMPLY WITH ALL OF THESE REQUIREMENTS AND MORE