IRS Tax Whistleblower Articles

IRS Pays Awards to Whistleblowers

The Internal Revenue Service handed out $53 million to tax tipsters in fiscal 2013
By Laura Saunders
Updated April 18, 2014 7:26 p.m. ET

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Bradley Birkenfeld received a $104 million award from the IRS in 2012. Bloomberg News

The Internal Revenue Service paid $53 million in awards to whistleblowers in fiscal 2013 and collected $367 million based on information provided by tipsters, according to the agency's latest report to Congress.

Both totals are smaller than comparable figures for 2012. The 2012 award total reached $125 million because it included a payment of $104 million to one whistleblower— Bradley Birkenfeld, whose disclosures about Swiss banking giant UBS prompted U.S. officials to mount a massive campaign against undeclared offshore accounts held by U.S. taxpayers in Switzerland and elsewhere.

The 2013 award figure also included one large payment. Gregory Lynam, of the Ferraro law firm in Washington said a whistleblower he represented received a $38 million award in connection with a domestic corporate-tax case.

He declined to discuss the case further, and a spokesman for the IRS said the agency is prohibited by law from discussing issues involving individual taxpayers. Mr. Birkenfeld signed a release allowing the IRS to identify him as the recipient of the 2012 payment.

The IRS has two whistleblower programs. One, which has existed for decades, makes payments as high as 15% of tax collected and now applies in cases involving less than $2 million of tax. The other, enacted in 2006, makes payments of up to 30% of tax collected and is for cases involving tax of $2 million or more. The agency reports combined dollar amounts for awards and collections from the two programs.

In the report, the IRS indicated it had made nine payments under the large-award program since its 2006 inception. The agency also reported the program had open cases based on submissions of information from 1,320 whistleblowers regarding 12,192 taxpayers, which could be individuals, corporations, trusts or estates.

According to Mr. Lynam's analysis of the IRS data, the agency appears to be in the early or middle stages of acting on about two-thirds of those submissions. The IRS process involves at least four layers of review that can take five to seven years or even longer to resolve, experts say.

Cases take years in part because audits are often lengthy, and other delays may arise. For example, it can take the IRS months to decide whether to accept a submission and many more months to decide whether to use the information.

In addition, the IRS says it must wait to make payments to whistleblowers until the taxpayer in question no longer has a right to appeal the case or seek a refund—which can be as long as two years.

"The good news is that the IRS continues to get whistleblower tips and is making some payouts. The bad news is the progress in making payouts is slow," Sen. Charles Grassley (R., Iowa), a sponsor of the large-awards program, said in a statement.

Last year, at least one case still was under review after more than three years, and another had been under audit for more than six years. When an audit is complete, the agency still has to determine how helpful the whistleblower's information was in order to decide whether to make an award.

The remaining one-third of whistleblowers with open cases in the large-award program appear to be near the end of the process, Mr. Lynam says, with awards apparently coming soon for at least three tipsters. Another two dozen whistleblowers appear to be waiting for the statute of limitations on appeals to expire, he added.

Thirty other whistleblowers may be waiting in vain for payments, he says. According to the IRS report, their cases have been sent to a division of the agency that tries to collect from taxpayers who often can't pay what they owe. "If the IRS doesn't collect, the whistleblower doesn't get paid," Mr. Lynam says.

For whistleblowers who do receive awards, the payment is taxable as ordinary income. Typically the agency also withholds at a 28% rate on the entire payment unless the taxpayer enters into a special agreement.

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