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Tax Whistleblower Tips To IRS Skyrocket

Oct 14, 2009 | Parker Waichman LLP

Tax cheats beware!  It looks like a 2006 law that increased monetary rewards for Federal tax whistleblowers is working.  According to an Internal Revenue Service (IRS) report detailed by The New York Times, tips about suspected tax cheats owing at least $2 million have jumped more than tenfold.

According to the IRS Web site, its Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts.   Prior to 2006, whistleblower rewards were the sole discretion of the IRS, and could not exceed 15 percent of the money recovered.

The 2006 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, the IRS Web site says. Rewards are paid only after the taxes, penalties and interest are collected, which can take years.

According to The New York Times, in 2008 the IRS Whistleblower office  received tips on 1,246 suspected tax dodgers who owed over  $2 million each.  In 2007, it only received 116 such tips.  More than 200 tips involved over $10 million in unpaid taxes, while  64 involved amounts in excess of $100 million, the Times said.  How much the IRS will actually collect is still up in the air however, as the agency is in the process of conducting audits and processing appeals.

Under the IRS Whistleblower law, informants are promised confidentiality, unless they are needed to testify in court.  According to The New York Times, whistleblowers are not offered immunity and can also be prosecuted if they are party to a tax scam.

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