The IRS Whistleblower Program
The IRS Whistleblower Program, established by Congress in 2006, allows citizens to submit information showing that individuals and corporations have underpaid their federal taxes. The IRS uses the whistleblower program to supplement its own investigative resources to uncover tax fraud and underpayments. While underpayments may be part of a fraudulent tax evasion scheme, criminal acts are not required under the whistleblower program. Any errors that result in an underpayment of over $2 million may be the subject of an IRS whistleblower submission. Where the taxpayer is an individual, he or she must have had income of $200,000 or more in at least one year in question.
Here are just a few of tax underpayment schemes that the IRS Whistleblower Office generally considers:
- Abusive trusts
- Falsified data and records submitted with returns
- Failure to file tax returns and pay taxes due
- Unreported illegal income
- Return preparer fraud (i.e., accountants assisting clients in evasion)
- Cash payment abuses
- Failure to declare taxable business and personal assets
- Offshore tax evasion
- Failure to declare foreign gambling income
- Improper deductions
Previously, the IRS had an informant program, but that program paid only very small rewards, and those rewards were not guaranteed. Under the new IRS Whistleblower Program, awards may be substantial and safeguards have been put in place to ensure that whistleblowers are fairly compensated. Now, depending on the quality of information provided by a whistleblower, he or she is entitled to 15% to 30% of the taxes recovered as a result of the assistance.
While the IRS Whistleblower Program does not provide protections from employer retaliation, as under the False Claims Act, it is important to note that often an IRS whistleblower’s identity to be kept secret permanently, unlike under the FCA where his or her identity will almost certainly be disclosed when the lawsuit is unsealed or settled.