Berger Montague’s Whistleblower, Qui Tam & False Claims Act practice group represents whistleblowers alleging tax fraud through the Internal Revenue Service’s (“IRS”) whistleblower program.
The IRS has had a reward program for whistleblowers since 2006. Several individuals have received rewards of millions of dollars, although the program has been a bit slow getting started. While claims involving corporate income taxes are most common, a whistleblower is eligible for an award for information on any kind of federal tax underpayment claim that results in a recovery of over $2 million. All information provided to the IRS is treated as confidential.
An individual aware of a substantial tax underpayment has little to lose, and much to gain, by participating in the IRS whistleblower program. Whistleblower actions also deter tax avoidance by high income individuals and corporations. Since a fraud on the IRS is a fraud on all taxpayers, in many situations blowing the whistle is the right thing to do!
IRS Whistleblower Rewards: Is There a Reward for Reporting Tax Fraud?
A whistleblower is entitled to an award if the IRS brings a successful administrative or criminal case “based on information brought to the [IRS] attention” by the whistleblower. If the IRS was previously aware of the information known to the whistleblower, there is no award. Individuals either required by law to report information to the IRS, such as tax preparation professionals, or forbidden by law from providing information, such as lawyers who receive information from their own clients, in some situations, are ineligible for awards.
A whistleblower is eligible for an award of a portion of the government’s recovery only if the “amount in dispute” is greater than $2 million. However, the amount in controversy includes interest and penalties that may be due to the IRS, and many tax frauds affect more than one year’s return, so even relatively modest underpayments may reach this level. Cases against individual taxpayers are eligible only if the taxpayer’s gross income exceeds $200,000.
How to Report Tax Fraud
To commence a proceeding under the IRS whistleblower program, a whistleblower files an “Application for Award for Original Information,” which is better known as Form 211. Generally, in addition to the form itself, whistleblowers include additional information and supporting evidence. Since the goal of the Form 211 is to entice the IRS to take action, it is best to submit underlying documents demonstrating that a tax was underpaid. For example, if the claim is that real estate was undervalued for purposes of estate tax calculation, the whistleblower could include appraisals and documentation of sale prices of the same or comparable properties.
Depending on the nature of the alleged underpayment, the IRS may interview the whistleblower about the information on this form. This interview often takes place several months after the filing of Form 211, but the whistleblower is not required to grant an interview more than once. The whistleblower may even be asked to participate in an investigation, for example to explain the significance of documents that the IRS has obtained, although this is rare. The IRS has complete discretion on whether to initiate an investigation and whether to take any action on the basis of the investigation. Because tax returns and investigations are confidential, a whistleblower may not be informed of an ongoing investigation until the IRS collects the settlement or judgment.
How are IRS Whistleblower Awards Calculated?
If the IRS chooses to move forward, and ultimately recovers money through either judgment or settlement, the whistleblower is usually entitled to an award of 15-30% of the amount recovered. In practice, the awards have almost always been at the lower end of that range. The award may be further reduced if the whistleblower’s contribution was less substantial, for example if the IRS had previously opened an audit of the same taxpayer. A decision by the IRS to deny an award, or award less than 15% of the amount collected, is appealable to the Tax Court.
Contact a Whistleblower Lawyer
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