IRS Whisleblower Program for Reporting Tax Fraud

One of the little known programs the IRS operates is the “Whistleblower” program, designed to reward citizens for tipping off the IRS to those who avoid paying taxes. The primary purpose of the program is to encourage citizens to provide any information on others who have avoided their tax liabilities, with the “whistleblower” receiving a percentage of the penalties and fees that the IRS collects.

How the Program Works and Rewards for Whistleblowers

The IRS Whistleblower Program statute requires that the “information must lead to judicial or administrative action – an audit or investigation resulting in the collection of proceeds.” The information needed is any credible information that provides proof and information that someone is evading taxes.

Once an audit or the investigation begins based on the whistleblower’s tips, the claim process begins. Unfortunately, the award for whistleblowing doesn’t get paid at that point. The reward is paid when taxes, penalties, interest, additions to tax and additional amounts that are finally determined to be owed to the IRS have been collected.

The reward for a whistleblower varies for each case. 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. In order to qualify for this amount, the individual charged with tax evasion must have an annual gross income of more than $200,000. For cases below $2 million, a whistleblower can earn 15%, capped at a maximum of $10 million dollars.

Misuse of the program and False Allegations

Typically, in these cases the whistleblower’s identity will be held confidential, unless he/she is needed to testify in a judicial proceeding. Although it is possible that false allegations can be made, the IRS will typically take no action unless there is credible proof and sources of information that can make a case. Of course, if it can be shown that false allegations have been made about a taxpayer’s liability, the IRS can take criminal action for perjuring official government forms (lying on a tax form).

Help from a Tax Attorney

If you are accused of falsifying tax records or tax evasion, it is important that you speak with an experienced tax lawyer immediately. Addressing the allegations as soon as possible with a tax lawyer will ensure that you can build a credible defense and be ready for any questions the IRS investigators will have. If you’re able to prove that the allegations were filled in bad faith and falsified, you may also seek an action in civil court for defamation of character and malicious prosecution if your lawyer advises you to.