Do you know a taxpayer whose underpaid taxes, penalties, interest, and other fees equal a substantial amount? The Internal Revenue Service (IRS) pays individuals who provide information on people or companies who fail to pay the taxes they owe through their designated Whistleblower Office. Our Birmingham whistleblower lawyers explain who can report, what information the IRS is looking for, and how whistleblowers are protected.
How a Reward is Calculated
The IRS rewards whistleblowers between 15% and 30% of the total amount collected as a direct result of the whistleblowing. This total amount includes penalties, interest, additions to tax, and other proceeds arising from criminal fines, civil forfeitures, and violations of reporting requirements.
When the IRS determines what amount to award a whistleblower, it considers a number of factors. Factors that support increasing award percentages include:
- The whistleblower acted promptly to inform the IRS or taxpayer of the issue;
- The information provided included an issue or transaction type previously unknown to the IRS;
- The information provided included behavior difficult to detect or unlikely to be caught by the IRS;
- The whistleblower provided the information in such a clear and organized manner that it saved the IRS work and resources;
- The whistleblower or the whistleblower’s legal representative was exceptionally cooperative and helpful to the IRS during the process;
- The information provided included assets belonging to the taxpayer that could be used to pay off the tax liability, especially if the IRS did not know of the assets;
- The information provided led to connections between transactions and taxpayers of which the IRS was unaware; and
- The taxpayer corrected his behavior based on the information provided.
Factors that support decreasing award percentages include:
- The whistleblower delayed informing the IRS of known facts, especially where the delay affected the IRS’s ability to pursue the issue;
- The whistleblower contributed to the underpayment or other tax noncompliance;
- The whistleblower profited from the underpayment or other tax noncompliance;
- The whistleblower or the whistleblower’s legal representative violated IRS instructions, especially at the IRS’s expense;
- The whistleblower violated the terms of its confidentiality agreement or contract with the IRS; and
- The whistleblower provided false or misleading information.
Navigating these factors can provide a significant challenge to a whistleblower. To ensure the largest award possible, a whistleblower should engage an attorney to help navigate the process.
The IRS has explained exactly the kind of whistleblower information that it rewards. The information must be solid information, consisting of more than an educated guess or unsupported speculation.
The information provided must concern a taxpayer whose underpaid taxes, penalties, interest, and other amounts exceed $2 million. The underpayment need not necessarily be fraudulent, and information about a conspiracy to violate tax laws may qualify.
If the information is about an individual, that individual must have an annual gross income greater than $200,000.
Who Can Report
Generally, any individual is eligible to file a claim and receive a whistleblower award.
However, the Department of Treasury has enumerated some important exceptions:
- A current employee of the Department of Treasury or an individual who was an employee of the Department of Treasury when the individual obtained the information on which the claim is based;
- An individual who obtained the information through the individual’s official duties as a Federal Government employee or within the scope of those duties;
- An individual who is or was either required to disclose or precluded from disclosing the information by Federal law;
- An individual obtained or accessed the information based on a contract with the Federal Government; or
- An individual who filed a claim received from an ineligible whistleblower for the purpose of avoiding that ineligible whistleblower’s rejection.
The IRS has also placed some restrictions on the award some whistleblowers can receive. Awards may be reduced when the whistleblower contributed to or profited from the underpayment. Awards may especially be reduced when the whistleblower planned and initiated the actions that led to the underpayment. Finally, if the whistleblower is convicted of criminal conduct arising from planning or initiating the underpayment, the award may be denied altogether.
The IRS will protect the identity of the whistleblower to the full extent of the law. In some circumstances, the IRS may require the whistleblower to serve as a witness in a judicial proceeding, which may require revealing the whistleblower’s identity. However, the IRS will notify the whistleblower before revealing the whistleblower’s identity. Moreover, when the case is adjudicated in the U.S. Tax Court, the whistleblower may proceed anonymously.
If, for whatever reason, the whistleblower loses anonymity, in the Taxpayer First Act of 2019, Congress provided extensive protection for whistleblowers against retaliation by their employers. When the employer discriminates against its employee in retaliation for whistleblowing, the whistleblower can sue the employer for compensation, including reinstatement with the same seniority status that the employee would have had but for the reprisal, 200% of back pay and 100% of lost benefits with interest, and any special damages, including attorney fees. This right cannot be waived by agreement, policy form, or condition of employment, including a pre-dispute arbitration agreement.
Do you have information you would like to report to the IRS? Our Birmingham whistleblower lawyers can help make the process simple while also protecting your identity. Contact us today to schedule a free, confidential consultation.