The IRS pays awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer. The IRS looks for solid information, not guesses or speculation.
If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. 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. These rules are found at Internal Revenue Code IRC Section 7623(b) – Whistleblower Rules.
An IRS tax whistleblower claim is independent of other whistleblower claims. Reporting an SEC claim, for example, will not cause the IRS to investigate the tax issues of the company. Likewise, filing a federal or state False Claims Act qui tam action is a separate process from filing an IRS tax whistleblower claim. Sometimes, for example, where a company is publicly traded and violates tax laws, there may also be a potential claim to file before the Securities and Exchange Commission.
The IRS also has an award program for other whistleblowers – generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) – Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million.
New York State also has a tax whistleblower statute like the federal IRS whistleblower statute. The New York Attorney General’s Office prosecutes whistleblowers reporting unpaid taxes and has been very successful doing so, especially recently.
The highest IRS whistleblower award was $105 million to Bradley C. Birkenfeld, a former banker at UBS. The Internal Revenue Service acknowledged that information he had provided was so helpful that he would receive a $104 million whistle-blower award for revealing the secrets of the Swiss banking system.
Confidentiality of Whistleblower
- The Service will protect the identity of the whistleblower to the fullest extent permitted by the law.
- Under some circumstance, such as when the whistleblower is an essential witness in a judicial proceeding, it may not be possible to pursue the investigation or examination without revealing the whistleblower’s identify.
- The Service will inform the whistleblower before deciding whether to proceed in such case