Tax Whistleblower Information

Whistleblowers, the IRS, and Tax Fraud Cases

Whistleblowers who provide information about tax fraud or tax underpayments to the Internal Revenue Service (”IRS”) are now able to gain significantly larger rewards under a law passed by Congress in 2006.

The whistleblower reward section of the Tax Relief and Health Act of 2006 is modeled after the reward section of the False Claim’s Act qui tam provisions.

What Whistleblowers who Report Tax Fraud can Expect

The new tax fraud whistleblower law establishes certain provisions regarding whistleblowers who provide the IRS with information about tax fraud or tax underpayments:

• Whistleblowers may receive a reward of 15 to 30 percent of the amount the IRS collects as a result of information about tax fraud provided to the IRS.
• To qualify, the whistleblowers must provide information about tax fraud or tax underpayment that exceeds $2 million (counting tax, penalties, and interest).
• The annual income of an individual tax cheat must exceed $200,000.
• If a reward from the IRS fails to recognize the whistleblower’s contribution, the whistleblower may appeal the reward amount to the U.S. Tax Court.
• If the whistleblower initiated or planned the tax fraud, the IRS may reduce or deny a reward. A whistleblower reward also may be reduced if the whistleblower’s allegations have been previously disclosed.

Whistleblowers are still covered by the previous existing law for confidential informants to the IRS:

• The IRS will keep the whistleblower’s identity confidential.
• The IRS pays rewards after it completes an investigation into the tax fraud or tax underpayments, collects all amounts owed in the case, and the matter is officially closed.

Before the new tax whistleblower law was enacted in December of 2006, the IRS rarely paid rewards to tax fraud informants, and those they did pay were small: just 1 to 15 percent of the amount the IRS recovered.