IRS whistleblowers who provide information about tax fraud or tax underpayments that exceed $2 million to the Internal Revenue Service can do so confidentially and receive awards.
The IRS awarded a Phillips & Cohen whistleblower client $20 million for his help in exposing an abusive tax shelter involving billions of dollars. This is one of the largest publicly announced awards from the IRS whistleblower program. The IRS also has awarded the Phillips & Cohen client two separate whistleblower awards: one for $2 million and another for $1.1 million.
The IRS whistleblower reward program
The tax fraud whistleblower law establishes certain provisions regarding whistleblowers who provide the IRS with information about tax fraud or tax underpayments:
- Whistleblowers may receive a reward of 15 percent to 30 percent of the amount the IRS collects as a result of information about tax fraud provided to the IRS.
- To qualify, the whistleblowers must provide information about tax fraud or tax underpayments that exceeds $2 million (counting tax, penalties and interest).
- The annual income of an individual tax cheat must exceed $200,000.
- If a reward from the IRS fails to recognize the whistleblower’s contribution, the whistleblower may appeal the reward amount to the U.S. Tax Court.
- If the whistleblower initiated or planned the tax fraud, the IRS may reduce or deny a reward. A whistleblower reward also may be reduced if the whistleblower’s allegations have been previously disclosed.
Whistleblowers are still covered by the previous existing law for confidential informants to the IRS:
- The IRS will keep the whistleblower’s identity confidential.
- The IRS pays rewards after it completes an investigation into the tax fraud or tax underpayments, collects all amounts owed in the case and the matter officially is closed.
Before the 2006 tax whistleblower law was enacted, the IRS rarely paid rewards to tax fraud informants, and the rewards paid were small: just 1 percent to 15 percent of the amount the IRS recovered.
Phillips & Cohen partner Erika Kelton proposed that California could easily create an effective tax whistleblower program in her article, “Bridge the Tax Gap: Bring in the Whistleblowers,” and would greatly benefit from it.