The IRS has the ability to pay you for information leading to the recovery of unpaid taxes. The payouts from the IRS’s “whistleblower” program can be significant. The payout can be up to 30 percent of the tax, penalties, and interest the IRS collects. There are a number of rules that have to be considered when submitting a whistleblower claim.
The IRS’s Whistleblower Program
The IRS’s whistleblower program is set out in the Code. The Code simply says that the IRS “is authorized to pay such sums as he deems necessary” from amounts collected in the detection of underpayments of tax. These discretionary awards are only limited by the amount of the tax (plus penalties and interest) actually collected.
The IRS’s whistleblower program has been the subject of quite a bit of criticism. In most cases, the criticism relates to the IRS’s refusal to pay claims. The IRS has even lost a number of court cases in which the courts ordered the IRS to make payments. Congress has even criticized the IRS’s handling of the whistleblower program. Congress amended the Code in 2006 to take away the IRS’s discretion in making certain awards and to allow taxpayers to have the U.S. Tax Court review the IRS’s determinations.
The non-discretionary award rules require payment of an award if the IRS pursues any administrative or judicial action to collect the taxes based on information an individual provided to the IRS. The IRS has to pay a minimum of 15% and not more than 30% of the proceeds collected as a result of the action or settlement with the taxpayer. The amount of the award, whether it is 15% or 30% or some amount in between, is based on the extent to which the whistleblower’s information contributed to the taxes being collected.
These non-discretionary awards only apply to certain claims. Specifically, the taxpayer’s gross income must exceed $200,000 for the tax year involved in the IRS action and the tax (plus penalties and interest) must exceed $2 million. As the term “non-discretionary” imparts, the IRS has to pay these awards. In Smith v. Commissioner, 148 T.C. 21, the court recently said that the $2 million includes any tax that the IRS pursues in a matter initiated by a Whistleblower, even if some of the amounts that make up the $2 million was not identified by the whistleblower.
We help taxpayers submit whistleblower claims. If you know of someone who is not paying their fair share, we want to hear from you. Call us today for a free consultation.