Tax fraud by individuals and businesses has been estimated to cost the United States government over $450 billion annually. Tax evasion or fraud can be carried out by filing false or deceptive tax returns, hiding assets and income in offshore bank accounts, concealing business ownership or other financial activities, or through outright identify theft.
Cracking down on tax fraud is a simple matter of fairness to the vast majority of taxpayers who regularly pay the government what they owe. Tax whistleblowers are a vital weapon in the fight against tax fraud.
Individuals who bring information to the Internal Revenue Service (IRS) relating to tax fraud or tax underpayments exceeding $2 million may be eligible to receive a reward if their information leads to a successful enforcement action.
IRS Whistleblower Program
For many years, no law harnessed the power of whistleblowers to address tax fraud. That changed with the passage of the Tax Relief and Health Care Act of 2006.
Since the law was passed, IRS whistleblowers have helped detect and deter tax noncompliance and evasion, helping to protect the integrity of our country’s tax system. Information submitted by tax whistleblowers has helped the IRS collect billions in revenue that would have otherwise been lost due to fraud.
Under the Tax Relief and Health Care Act of 2006, the IRS is required to offer rewards to tax whistleblowers that provide information that exposes significant “underpayments of tax” or permits, thus allowing for the IRS to bring to trial and punish “persons guilty of violating the internal revenue laws or conniving at the same time.” The IRS whistleblower office processes tips from individuals who have knowledge of tax fraud in their place of work, who notice tax fraud in the course of conducting personal business, or anywhere else tax fraud may be encountered.
The IRS is required to pay awards to a tax whistleblowers when the amount identified by the whistleblower (including taxes, penalties and interest) is greater than $2 million. If an IRS whistleblower is reporting an individual, the tax cheat’s annual income must exceed $200,000.
Tax whistleblowers are entitled to receive between 15 and 30 percent of the total proceeds recovered by the IRS. In the event that the IRS fails to recognize the contributions made by a tax fraud whistleblower, he or she can appeal the reward amount in U.S. Tax Court.
If the whistleblower “planned or initiated the actions” that led to the underpayment or fraud, the IRS may reduce or, in certain cases, deny the award. The agency can also reduce a reward if the allegations brought by a whistleblower had previously been disclosed.
The IRS will keep the identities of tax whistleblowers confidential. The agency pays rewards after successfully collecting any amounts owed from an enforcement action and the matter is officially closed.
What the IRS Wants From Tax Whistleblowers:
- “Specific and credible information concerning the person(s) that the claimant believes have failed to comply with tax laws and which will lead to the collection of unpaid taxes;
- “Documentation to substantiate the claim (e.g., financial data; the location of bank accounts, assets, books, and records; transaction documents or analyses relevant to the claim);
- “An explanation of how the information that forms the basis of the claim came to the attention of the claimant, including the date(s) on which this information was acquired, and a complete description of the claimant’s present or former relationship (if any)” to the person or persons they believe have violated tax laws.
Tax whistleblowers who are aware of supporting documents, but not able to get them, are instructed to describe these documents and identify their location to the best of their ability.
“The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue – this is not a program for resolving personal problems or disputes about a business relationship.” — IRS Whistleblower Office