The IRS Whistleblower Program provides rewards to individuals who report evidence of underpayments and tax fraud. If the IRS initiates an action based on the whistleblower’s information and collects funds based on the information, the whistleblower may be entitled to receive an award ranging between 15% and 30% of the proceeds, with some exceptions.
The IRS Whistleblower Program’s statutory awards only apply when the amount in dispute exceeds $2 million and, regarding violations of an individual taxpayer, when the taxpayer’s gross annual income exceeds $200,000. In cases where the IRS initiates an action based primarily on information from judicial or administrative hearings, governmental reports, hearings, audits, or investigations, or from the media, the whistleblower may receive a reduced award of up to 10% of the collected proceeds. However, the limitation does not apply if the whistleblower is the original source of the information. The IRS may also reduce the award if it is determined that the whistleblower “planned and initiated” the fraud. If the whistleblower is dissatisfied with the outcome, he or she can appeal to the Tax Court.
The IRS Whistleblower Program is distinct from the False Claims Act, and a whistleblower cannot file a claim alleging tax fraud under the False Claims Act.
Although the IRS Whistleblower Program has been around for many years – since 2006 – in fact the IRS only began paying rewards under the program in 2012 subsequent to a memo issued by IRS Deputy Commissioner Steven Miller, pressure brought by Senator Charles Grassley (the author and driving force behind the modern False Claims Act, the SEC Whistleblower incentives, and the IRS Whistleblower Program), and by a decision in the Tax Court in an important whistleblower case.
Since these events, the IRS has issued some rather large rewards under the program:
- October 2012: The IRS paid an anonymous whistleblower $38 million for providing information about a tax avoidance scheme by a large corporation.
- September 2012: The IRS paid former UBS banker Bradley Birkenfeld $104 million for exposing pervasive tax evasion by wealthy clients who banked with UBS in secret offshore accounts. Although Birkenfeld served time in federal prison, upon his release he was rewarded with the largest whistleblower payout ever made to an individual. As a result of his whistleblowing, the IRS has recovered more than $5 billion in unpaid taxes and penalties.
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