What is the IRS Tax Whistleblower Rewards Program?
Congress has taken a drastic step to help the IRS in its initiative to catch taxpayers who are paying fewer taxes than they actually owe to the government. The IRS Whistleblower Rewards Program provides a substantial incentive to people to come forward and identify other persons, corporations and businesses, trusts, partnerships, or other entities that are underpaying their taxes in any way, be it as a result of fraud, aggressive or uncertain tax positions, or even simple mistakes.
By law, the incentive is a mandatory award to the person (or whistleblower) who comes forward to reveal an underpayment of tax to the IRS. The award can equal up to 30 percent of the amount of tax, interest, and penalties ultimately collected by the IRS.
The IRS Whistleblower program, as enacted by the Tax Relief and Health Care Act of 2006 (P.L. 109-432), places no cap on the dollar amount of the award, so the person who comes forward to identify a large underpayment of tax by another taxpayer stands to potentially collect millions of dollars of awards from the government for their efforts.
How much of an award can I get from the IRS?
Section 7623 of the Internal Revenue Code provides awards of up to 30 percent of the amount that is ultimately collected by the IRS to persons who identify underpayments of tax. When the tax whistleblower makes a substantial contribution the minimum award is 15 percent of the collection. The award is calculated based on the total of the tax, interest, penalties, and additions to tax that is collected by the IRS as a result of the allegations or information provided by the person who comes forward to reveal the underpayment. An award may also be claimed for reporting information about an underpayment that would reduce the amount of a refund claimed by a taxpayer. There is no cap on the size of the reward, so for example, a whistleblower who reports a billion dollar underpayment of tax (including penalties and interest) could result in an award payment of up to three hundred million dollars.
What is the smallest underpayment that can be reported that will still result in an award?
At this time, the Section 7623 (b) program is targeted at revealing large underpayments of tax. A person can only receive an award under the program if the total amount of the underpayment of the tax, interest, penalties, additions to tax, and additional amounts in dispute that are ultimately collected by the IRS exceeds $2 million. In addition, the income of an individual taxpayer who owes tax that has been reported under this program must exceed $200,000 in the year the tax was due. As a practical matter, penalties ranging from 20-40 percent of the tax due and the effect of compounding interest often result in the doubling of the total amount of a deficiency of tax that would have otherwise been paid if it had been properly reported on a tax return in the first instance.
What if the IRS offers nothing or a reward amount that is very low?
Tax whistleblowers have a legal course of action they can take if they feel the IRS has not been fair in determining their award. While hiring an attorney is a good first step towards making certain that this does not happen in your case, it is no guarantee. If the IRS awards no money or a too-low amount in your case, you can appeal this determination in the United States Tax Court. Our attorneys are licensed to practice before the Tax Court, and our firm will spare no effort or expense to prepare the strongest, most persuasive appeal we can on your behalf.
