IRS Tax Whistleblower Reward Program
According to the Internal Revenue Service (IRS), it is estimated that the United States loses more than $400 billion per year due to tax fraud and tax cheats. This is a significant loss of revenue for the government, which could be used to fund important programs and services, such as education, healthcare, and infrastructure and on the flip side when the coffers are short everyone’s taxes seem to go up. Though the IRS is constantly evolving its data analytics and other methodologies to identify non-compliance with tax laws, it is impossible to combat all instances of tax fraud without the assistance of insiders who have detailed information about how people are cheating the system.
Hence, the IRS Whistleblower Program was created by the Tax Relief and Health Care Act of 2006 in an effort to combat tax evasion and hold individuals and businesses accountable for cheating the system. It rewards individuals who provide information that leads to the collection of taxes, penalties, and interest that the IRS would not have otherwise known about otherwise, if the enforcement action leads to over $2 million in recovery for the government. By empowering individuals with knowledge to report wrongdoing, the program has been instrumental in recovering unpaid taxes and holding accountable those who attempt to evade their tax obligations. The IRS whistleblower program however is not meant to combat small, tic-tac violations – it is meant to address deliberate and large scale cheaters who either fail to report large swaths of income and/or come up with complicated schemes that have no defensible legal basis to evade taxes.
It’s a misnomer to say the IRS is cheated, when they are the enforcement agency – it is the taxpayers themselves who are cheated through tax fraud. One common scheme that is not commonly addressed through the IRS whistleblower program but may have other ways to remedy is the classification of employees as Independent Contractors. Employees are entitled to certain benefits and further have payroll taxes subtracted from their pay, but independent contractors do not. There may be certain class actions to file to hold companies accountable, especially when they fail to pay the “independent contractors” overtime (time and a half) and there’s an Fair Labor Standards Act violation (“FLSA”). Those cases are viewed under the ABC tests and economic realities test and amplified under certain state laws, like California and New Jersey which strongly favor an individual being classified as an employee over an independent contractor.
The IRS whistleblower program takes a long, long time. It’s not unheard of for some cases to last almost a decade. Further, the program is very selective about what cases to prosecute, so if you have inside information about tax fraud, you better present it in the best possible light to have any chance of the government taking action, which is why it’s critical to hire an IRS whistleblower attorney. Also, through the use of an IRS whistleblower law firm there’s a chance you can stay anonymous from start to finish.
What is covered under the IRS tax whistleblower reward program?
There is no shortage of schemes used by tax evaders and fraudsters. The IRS Tax Whistleblower Program covers a wide range of tax violations, including, but not limited to:
Underreporting income: Intentionally reporting less income or revenue than was actually received.
Non-filing: Intentionally or negligently failing to file a tax return on time.
Overstating deductions: Falsely claiming deductions, expenses or credits on tax returns.
Underpayment: Not paying enough estimated taxes, not having enough withheld from wages, or paying late.
Falsifying location – Offshore Scams: Claiming you are based out of the country when you are in the United States or falsifying the proportion of time you reside out of the country or the percentage of business conducted abroad.
Puerto Rico scam: Some businesses and individuals falsely claim they live in Puerto Rico for more than half of the year to obtain the income tax benefits of living there – it can save companies and individuals over 30% in taxes and it is estimated that tens of billions of dollars of revenue are evaded through this scheme. Legitimate residences in Puerto Rico are different from fake ones and Congress enabled the tax benefit to promote the growth of the territory.
How does the IRS whistleblower program work?
The IRS Whistleblower Program works by allowing individuals to submit information about potential tax violations to the IRS Whistleblower Office. The Whistleblower Office will then review the information and determine whether to investigate the matter. If the IRS decides to investigate, the whistleblower’s confidentiality will be protected to the maximum extent permitted by law. The program also provides protections against retaliation.
There are no restrictions on who can file an IRS whistleblower claim. Those with first-hand knowledge of non-compliance are encouraged to come forward and play a vital role in ensuring that everyone pays their fair share of taxes. If the IRS collects taxes, penalties, or interest as a result of the whistleblower’s information, the whistleblower may be eligible for a reward between 15% to 30% of the amount recovered. The amount of the reward depends on several factors but is generally based on the value of the information provided and its significance in aiding the IRS in recovering unpaid taxes. Due to the volume of tips and the sensitivity of initiating an investigation into taxes, the IRS will generally only investigate tips that are highly detailed, succinctly articulated with a basis in law and fact about why there is a violation and to what extent and has significant money in play.
IRS Whistleblower Awards
The IRS Whistleblower Award Program has yielded notable successes since its inception. Whistleblowers have played a critical role in exposing various tax fraud schemes, including offshore tax evasion and fraudulent claims for tax credits. Through their cooperation, hundreds of billions of dollars in unpaid taxes have been recovered, bolstering the integrity of the tax system and ensuring a level playing field for all taxpayers.
Since the creation of the Whistleblower Office in 2007, the IRS has given out more than $1 billion in whistleblower rewards. In order to qualify for the Whistleblower Award Program, an individual must:
- Provide specific and credible information. The information must be detailed enough to allow the IRS to investigate the matter and it must be supported by documentation or other evidence.
- Provide original information. The information cannot be generally known or available to the public.
- Provide information that leads to the collection of at least $2 million in taxes, penalties, and interest or relate to an individual taxpayer whose annual income exceeds $200,000.
In 2012, the IRS awarded $104 million to a whistleblower in a breakthrough tax fraud case against Swiss Bank UBS. The Swiss Bank paid a hefty settlement of $780 million in fines, penalties, interest and restitution to settle allegations that it helped thousands of Americans hide billions of dollars in secret Swiss accounts thereby evading United States taxation. This case is often written about in several respects and is one of the prime examples about why to consult an IRS whistleblower lawyer first before blowing the whistle to structure the tip in a manner that won’t or minimizes the risk to the whistleblower and maximizes the upside.
Consulting with an experienced IRS whistleblower attorney can be crucial as they can guide whistleblowers in navigating through the complex process of the IRS Whistleblower Program. An attorney can also ensure that the whistleblower’s rights and interests are protected and ultimately help achieve the best possible outcome.