Ever Wondered About Tax Whistleblowers?

A tip concerning tax fraud or a tax crime to the Internal Revenue Service (IRS) can pay dividends to whistleblowers. How does that work?

To the IRS, whistleblowers provide credible tips or information that leads to collection of money owed to the US Treasury. As you might guess, it involves more than a rumor or something someone heard. Vague commentary and hearsay do not guarantee a payday from the IRS.

Since implementation of the program in 2007, the IRS has paid over $931 million to whistleblowers who enabled the agency to collect $5.1 billion in tax arrears. That is not chump change. According to its latest report, the IRS paid approximately $120 million to whistleblowers in 2019, on the collection of $616 million that would have otherwise gone uncollected.

It makes sense that the IRS payment schedule for whistleblowers is structured to provide a higher award to those who provide information that leads to higher recovery. In the higher bracket, the IRS pays 15 to 30 percent of the amount actually collected. The break point is about at a $2 million threshold.

For information that results in collection of lower amounts, whistleblowers are paid a discretionary award of approximately 15 percent up to $10 million. This is generally the case when a taxpayer in arrears earns $200,000 or less each year in gross income.

Protecting whistleblowers

In 2019, the Taxpayer First Act went into effect. Part of the law made it easier for the IRS to communicate with potential whistleblowers. It also enables the agency to offer protections in exchange for information that might lead to a criminal tax investigation or uncover a tax controversy. The legislation makes it harder for employers and other entities to retaliate against someone who notifies law enforcement—or the IRS. The law aims at making a person who has suffered retaliation “whole” through measures that include

• Receipt of back pay at double the usual rate—with interest
• Award of attorney and other litigation event fees
• Job reinstatement
• Special damages for impact to reputation or emotional well-being

There are bone fide reasons for whistleblowers to pull the plug on criminal tax matters. Being a whistleblower comes at a cost and can pay a certain dividend if the information is legit and helps reduce that tax gap between compliant and non-compliant taxpayers.

Submitting information to the IRS is not difficult, but it is important to be prepared. If you believe you have something to say, talk to tax attorney about your next best move to minimize personal fallout and maximize your potential financial payout.

In Cleveland and Chicago, our seasoned tax attorneys can help you if you are dealing with the IRS

At Robert J. Fedor, Esq., LLC we deliver aggressive legal protection if you are dealing with a payroll tax issue or problems with foreign bank account, among other tax challenges. Contact us today or call 800-579-0997.