The whistleblower program is one of the weapons used by the IRS to detect underpayments of tax and violations of the internal revenue laws.
The program is based on the principle “if you know something, say something.”
The statute provides that if the IRS institutes an administrative or judicial action against a taxpayer and collects proceeds as a result of information provided by a whistleblower, the informant will be monetarily rewarded with a portion of the collected proceeds.
Whistleblower Award
The IRS has long had authority to pay awards to persons, now called “whistleblowers,” who provide information leading to the recovery of unpaid taxes.
The Code now provides for two types of whistleblower awards: discretionary and non-discretionary.
Discretionary awards
Section 7623(a) of the Internal Revenue Code authorizes the IRS to pay such sums as it “deems necessary” and mandates that such payments “shall be paid from the proceeds of amounts collected.”
The IRS‘ determinations with respect to these discretionary awards are not subject to judicial review.
Nondiscretionary awards
The second type of whistleblower award, set forth in section 7623(b) of the Internal Revenue Code, provides for nondiscretionary (i.e., mandatory) awards if specified dollar thresholds and other requirements are met.
A whistleblower is eligible for a nondiscretionary award with respect to any action if it:
- Relates to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional proceeds in dispute exceed $2,000,000; and
- Relates to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question.
The IRS will pay an award of at least 15 percent, but not more than 30 percent of the proceeds collected attributable to the information submitted by the whistleblower.
The award percentage decreases for claims based on information from public sources or if the whistleblower planned and initiated the actions that led to the noncompliance.
The whistleblower must have substantially contributed to the detection of the tax non-compliance. If the Whistleblower Office determines that the whistleblower contribution was less than substantial, the award is limited to 10% of the proceeds collected.
How to submit a whistleblower claim for award
Whistleblowers must use IRS Form 211, Application for Award for Original Information, and ensure that it contains the following:
- A description of the alleged tax noncompliance, including a written narrative explaining the issue(s).
- Information to support the narrative, such as the location of assets and copies of books and records, ledger sheets, receipts, bank records, contracts and emails.
- A description of documents or supporting evidence not in the whistleblower’s possession or control, and their location.
- An explanation of how and when the whistleblower became aware of the information that forms the basis of the claim.
- A complete description of the whistleblower’s present or former relationship (if any) to the subject of the claim (for example, family member, acquaintance, client, employee, accountant, lawyer, bookkeeper, customer).
- The whistleblower’s original signature on the declaration under penalty of perjury (a representative cannot sign Form 211 for the whistleblower) and the date of signature.
Whistleblowers must mail (the IRS will not accept faxed or electronic claims) Form 211 to:
Internal Revenue Service
Initial Claims Evaluation Team
1973 N. Rulon White Blvd.
M/S 4110
Ogden, UT 84404
What happens to a claim after the IRS receives it?
If the Whistleblower Office decides the claim warrants further consideration, the allegations are forwarded to the appropriate IRS operating division(s) for further development.
A subject matter expert may contact the whistleblower to make sure that the IRS fully understands the information submitted by the whistleblower.
If the IRS does not use the information, the Whistleblower Office sends the whistleblower a claim rejection or denial letter.
If the IRS decides the claim warrants further consideration, the claim is forwarded to the field for examination or investigation.
It frequently takes 5 to 7 years, or more, to complete the process. Taxpayers may exercise the right to administrative and judicial appeals, which can take many years to resolve.
The IRS can only pay awards from proceeds collected because of the information provided by the whistleblowers. If the taxpayer does not (or cannot) pay, the Whistleblower Office must wait for the ten-year collection statute to expire before making a determination.
Whistleblower and taxpayer confidentiality
IRC Section 6103 requires the Whistleblower Office to keep taxpayer returns and return information confidential.
In response to a phone call, the Whistleblower Office will only tell whistleblowers if their claim is open or closed.
The Whistleblower Office is only authorized to provide additional information in response to a written request for a status/stage update or as part of a decision or determination letter.
The Whistleblower Office will notify the whistleblower if the subject of the whistleblower claim makes a tax payment related to the tax period for which the information provided by the whistleblower relates.
It may take several years from the date of notification before a final resolution of all tax matters has occurred.
The fact that the taxpayer makes a payment or payments does not guarantee an award will be issued.