Who can get an award?

The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the non compliant taxpayer.

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.

What are the rules for getting an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistle blower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) – Whistle blower Rules.

The IRS also has an award program for other whistle blowers – generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15 percent up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. The rules for these cases are found at Internal Revenue Code IRC Section 7623(a) – Informant Claims Program, and some of the rules are different from those that apply to cases involving more than $2 million.

If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.

Process for Evaluating Whistleblower’s Claim

• A threshold requirement for any award under 7623 is that the information must lead to judicial or administrative action – an audit or investigation resulting in the collection of proceeds.
• An analyst in the Whistle blower Office will consider the information provided by the whistleblower. The IRS has to decide that the case is worth pursuing.
• In the case of a large corporate taxpayer whose returns are audited each year, an administrative action can mean the creation of a new issue under the Audit Plan or a change in the way information about an issue is collected or analyzed, which would not otherwise have occurred without the information provided by the whistle blower.
• In other cases, an administrative action can mean placing a taxpayer under audit who was not already under audit.

Duration of Process

• The process, from submission of complete information to the Service until the proceeds are collected, may take several years.
• Payments of awards will not be made until after the taxes, penalties, interest, additions to tax and additional amounts that are finally determined to be owed to the Service have been collected.
• Examples of when a final determination of tax liability can be made include, but are not limited to
  • at the administrative level when the Service and the taxpayer enter into a closing agreement wherein the taxpayer conclusively waives the right to appeal or otherwise challenge a deficiency or additional tax liability determined by the Service;
  • if a taxpayer petitions United States Tax Court; when a decision becomes final within the meaning of section 7481; and
• After the expiration of the statutory period for a taxpayer to file a claim for refund and to file a refund suit based on the claim against the Untied States, or
  if a refund suit is filed, when the judgment in that suit becomes final.
• A finding of fraud in a tax case carries some significant additional implications for penalties, fines and jail time. In the context of whistle blower claims, it also has statute of limitations implications that can make a big difference for the whistle blower.

Percentage Applied to Awards Under Section 7623(a)

• The discretionary maximum percentage of award for an (a) case is 15 percent, up to $10 million.
• If the whistle blower planned and initiated the actions that led to the underpayment of tax, or the violation of the internal revenue laws, the award may be reduced.

Percentage Applied to Awards Under Section 7623(b)

• The Whistle blower Office will make the final determination whether an award will be paid and the amount of the award.
• Award will be paid in proportion to the value of the information furnished voluntarily with respect to proceeds collected, including penalties, interest, additions to tax and additional amounts.
• The amount of the award will be at least 15 percent but not more than 30 percent of collected proceeds in cases in which the Service determines that the information submitted substantially contributed to the Service’s detection and recovery of tax.
• If an action is based principally on allegations resulting from judicial or administrative proceeding, government reports, hearing, audit, or investigation, or the news media, an award of lesser amount, subject to the discretion of the Whistle blower Office, may be provided. The award will not be more than 10 percent of collected proceeds as described above.  This reduction in award percentage does not apply if the whistle blower was the initial source of the information.
• If the whistle blower planned and initiated the actions that led to the underpayment of tax, or the violation of the internal revenue laws, the Director, Whistle blower Office may reduce the award.
• If the whistle blower is convicted based on his/her role in planning and initiating the action, then the Whistle blower Office is required to deny the award.

Tax Treatment of Awards

• Prior to issuing an award check, the IRS will verify the informant’s mailing address.
• All awards will be subject to current federal tax reporting and withholding requirements.
• Whistle blower will receive a Form 1099 or other form as may be prescribed by law, regulation, or publication.

Appeal Rights

• The Whistle blower Office will communicate the final claim determination, in writing to the claimant. Final determinations regarding awards under 7623(b) may, within 30 days of such determination, be appealed to the United States Tax Court.
• Decisions under section 7623(a) may not be appealed to the Tax Court.