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The IRS Whistleblower Office Explained: Rewards and Protections

The IRS Whistleblower Office provides monetary awards to people who provide information that helps the IRS detect and address tax problems. This article explains how the program works, the rewards and protections for whistleblowers, and the implications.

Overview of the IRS Whistleblower Program

The IRS Whistleblower Office was created in 2006 to process tips and complaints from people reporting tax problems. This allows the IRS to identify issues that may otherwise go unnoticed. In exchange, whistleblowers may receive financial rewards if their information leads to successful enforcement actions.

Since its inception, the IRS whistleblower program has proven very successful – over $5.7 billion has been collected and $931.7 million paid out in awards so far [source]. The program provides incentives for people to come forward with credible information about significant tax non-compliance.

Type of Awards

Whistleblower awards are typically between 15% to 30% of the total proceeds collected that were attributable to the information provided. The amount depends on several factors:

• The extent the whistleblower substantially contributed to the action
• The significance of the information provided
• The degree of assistance the whistleblower and their representatives provided

Higher awards are paid for more specific, credible information that directly relates to the tax issue, and where the whistleblower cooperates with the IRS investigation.

Eligibility for Awards

To qualify for an award, the information provided must:

• Relate to an IRS action involving taxes, penalties, interest or other amounts in dispute of more than $2 million
• Relate to a taxpayer with gross income over $200,000 for at least one year in question

The IRS also cannot pay awards in certain situations – for example, if the taxpayer does not end up owing additional tax. The information must directly lead to a successful enforcement action.

Confidentiality

The IRS protects the identity of whistleblowers to the maximum extent permitted by law. Any whistleblower information provided is protected from disclosure – civil and criminal sanctions apply for unauthorized disclosure.

Implications of the IRS Whistleblower Program

The IRS whistleblower program has major implications for improved tax compliance and enforcement, but also raises some concerns.

Benefits

On the plus side, the program:

• Enhances IRS enforcement capabilities by encouraging insider tips
• Increases tax revenues recovered from non-compliance
• Deters aggressive tax avoidance when risk of exposure is higher
• Shift enforcement costs from taxpayers to the non-compliant
• Rewards those who expose tax fraud

It leverages public participation to identify high-value enforcement cases that may otherwise go undiscovered.

Drawbacks

However, there are some potential downsides or criticisms:

• Privacy implications of incentivizing reporting on others
• Possibility of false or frivolous claims
• Rewards for information the IRS may have uncovered anyway
• Incentives for overly-aggressive interpretations of tax laws
• Potential for abuse or collusion for financial gain

There are also debates around fairness and whether rewards should be so significant in some cases. However, there are protections against misuse of the program.

Key Protections for Taxpayers

A number of safeguards exist to protect taxpayer rights and prevent abuse of the system:

• Whistleblower submissions must have specific and credible information – mere speculations are not enough.
• IRS maintains confidentiality of whistleblowers.
• Taxpayers are legally entitled to contest any allegations.
• Awards are discretionary – IRS evaluates quality of information provided.
• Awards are only paid from amounts collected from the taxpayer.
• Judicial review is available for award determinations.

There are also penalties for false or frivolous whistleblower claims. Overall, the program has checks and balances to ensure it is used appropriately.

Claiming an IRS Whistleblower Award

If you are considering claiming an award for reporting tax non-compliance, here is the process:

1. Submit Form 211, Application for Award for Original Information, to the IRS Whistleblower Office. This should include detailed information about the tax issue and related facts.
2. The IRS will evaluate your application and may contact you for additional assistance.
3. If the information results in an enforcement action, the Whistleblower Office will determine your reward amount.
4. You will be notified of the award determination. If you disagree with it, you can request an appeal.
5. If approved, the award will be paid following final collection of the taxes, penalties and interest.

The process can take several years depending on the complexity of the case. Documentation should be retained to validate contributions if an award is ultimately paid.

Seeking Legal Help

The IRS whistleblower process involves extensive laws and regulations. Most claimants seek legal advice to navigate the program and maximize their reward potential. Attorneys experienced in tax law and whistleblower claims may:

• Review your information and advise if it meets the threshold for a viable claim
• Help present your evidence to the IRS in the best light
• Guide you in working with the IRS investigation
• Ensure proper confidentiality procedures are followed
• Negotiate for the maximum allowable award
• Represent you in any appeals if you dispute the award amount

While legal help comes with costs, the potential for increased rewards often makes it a wise investment for whistleblowers.

The Bottom Line

The IRS Whistleblower Program provides financial incentives to expose major tax frauds that may otherwise go undetected. It increases IRS enforcement capabilities while rewarding those who bring information forward. However, safeguards exist to prevent misuse and protect taxpayer rights.

If considering blowing the whistle, understand the process, risks and time involved. Consulting experienced legal counsel is recommended to navigate the program successfully and receive the maximum allowable award.

All in all, the IRS Whistleblower Office provides a valuable mechanism to improve tax compliance, but requires careful navigation to be effective for both whistleblowers and taxpayers.

References

[1] IRS Whistleblower Office
[2] Whistleblower Office At-a-Glance
[3] The IRS Whistleblower Office
[4] IRM 25.2.2 Whistleblower Awards
[5] IRS Publication 5251
[6] Success of IRS Whistleblower Program