Congress makes IRS whistleblower program easier and more lucrative for whistleblowers reporting major tax evasion

The IRS whistleblower program which allows tax whistleblowers to receive between 15 to 30 percent of any proceeds the IRS collects based upon original information provided by the whistleblower, has now been broadened and significantly strengthened by Congress in favor of the whistleblowers. For years, the IRS has fought with whistleblowers as to what should be considered “proceeds” under the program, arguing that any fines or penalties obtained by the IRS due to a whistleblower’s information should not be credited in the award to the whistleblower.

After much litigation and lobbying, the U.S. Congress finally stepped in and adopted a broader definition of “proceeds” so that whistleblowers can receive the benefit of their cooperation. New legislation signed into law by President Donald Trump settles the debate. Under the new definition of “proceeds” under the statute, IRS whistleblowers will be paid a percentage of whatever criminal fines, forfeiture, or nontax related penalties the IRS collects.

Blow a whistle on a bank doing wrongdoing. If the bank pays a fine, the whistleblower stands to collect tens of millions of dollars. In addition, the IRS whistleblower program is confidential protecting the name and indentity of the whistleblower.

Turn in a businessman with an undeclared foreign bank account and the IRS collects a penalty, the whistleblower can receive a portion of the monies hidden offshore.

A whistleblower can blow the whistle on any underpayment of taxes, intentional or not. However, only reports of underpayments of taxes of over $2 million are automatically eligible for the program.  For lesser amounts, any reward is at the sole discretion of the IRS. Common methods of illegal tax avoidance include underreporting of income, overstating of deductions, hiding of assets, false recordkeeping, keeping multiple sets of books, misusing trusts, stock fraud, or improperly shifting assets offshore to avoid tax.

Federal law gives the whistleblower the right to an award of 15% to 30% of the amount the IRS recovers as a result of information the whistleblower provides to the agency. See 26 U.S.C._ 7623. In order to qualify for the program, the total debt to the IRS must exceed $2 million, including interest and penalties.  Additionally, if the person who owes taxes is an individual (rather than a business), the taxpayer must have earned at least $200,000 in one of the years for which he or she owes taxes. People who participated in tax fraud who then report it to the IRS may still be eligible for an award if they did not plan and initiate the fraud, and are not convicted in a criminal proceeding related to the underpayment. If you think you may be involved in tax fraud, it is important to stop any potentially illegal actions immediately and seek legal counsel before taking any further action.

How it works:

The person reporting such illegalities to the IRS is guaranteed at least 15% of the IRS’s proceeds from prosecuting or settling the tax fraud if

  1. They provide relevant information to the IRS whistleblower office using IRS Form 211;
  2. The fraud has not been previously reported;
  3. The IRS actually uses the information to prosecute or settle the tax fraud; and
  4. The person makes the report within three years of the filing of the incorrect tax return, or six years if the tax return understates income by at least 25%. There are no time limits on claims if a false tax return was filed with the intent to commit tax evasion.

Jeffrey A. Newman represents whistleblowers nation-wide.