The IRS Whistleblower Program
The IRS Whistleblower Program offers monetary incentives to eligible individuals who voluntarily provide specific, credible information about potential violations of the Internal Revenue Code. If the information results in the collection of taxes, penalties, interest, or other amounts from a non-compliant taxpayer, an eligible whistleblower can receive between 15% and 30% of the amount collected as a result of the information provided by the whistleblower.
In Fiscal Year 2021, the IRS Whistleblower Office collected proceeds of more than $245 million and made 179 award payments to whistleblowers totaling more than $36 million.
Mandatory and Discretionary Whistleblower Awards
Section 7623 of the Internal Revenue Code authorizes awards for eligible whistleblowers who provide information that results in the collection of proceeds based on violations of the tax code. The IRS Whistleblower Office process awards under section 7623(a) or 7623(b) of the Internal Revenue Code.
To qualify for an award under section 7623(b), the information provided by the whistleblower must involve disputed tax obligations (including taxes, penalties, interest, and additions to tax) exceeding $2,000,000. If the information relates to an individual taxpayer, the gross income for that taxpayer must exceed $200,000 for at least one of the tax years at issue.
Any whistleblower submission that doesn’t qualify under section 7623(b) is processed by IRS Whistleblower Office under section 7623(a) of the Internal Revenue Code. Any award under section 7623(a) is discretionary, and there is no minimum statutory award percentage. In addition, there are no appeal provisions for the denial of a claim or the amount awarded to the whistleblower.
Protecting The Identity of Whistleblowers
The IRS makes every effort to protect the anonymity of whistleblowers as a matter of policy. However, the agency advises whistleblowers that their identity could be revealed if they are designated as an essential witness in a judicial proceeding, or if ordered by court of competent jurisdiction. An experienced tax whistleblower attorney can evaluate your circumstances and assess the likelihood that you could be called as an essential witness should the IRS take the case to trial.
Eric Young is a nationally recognized IRS whistleblower lawyer who secured the first-ever mandatory tax whistleblower award on behalf of his client. Eric represented an accountant who had information about a tax evasion scheme involving a Fortune 500 company.
After the IRS investigated the information and secured a monetary recovery from the company, Eric’s client received $4.5 million. This represented the first mandatory award issued under section 7623(b) of the Internal Revenue Code.
Eric also served as an expert in a case involving a $104 million award to international private banker, Bradley Birkenfeld. Eric’s successes have earned him a reputation as one of the nation’s leading IRS whistleblower attorneys.
Reporting Fraud to the IRS Whistleblower Office
A violation of the Internal Revenue Code must be submitted to the Office of the Whistleblower by filing IRS Form 211. The information requested on Form 211 includes details about the whistleblower; the noncompliant taxpayer being reported; the relationship, if any, between the whistleblower and the noncompliant taxpayer; and a written narrative explaining the alleged violations. The whistleblower must explain how they learned of the tax fraud and provide evidence to support their allegations. Supporting evidence can be in the form of copies of books and records, ledger sheets, receipts, bank records, emails, text messages, and the location of assets. The IRS also asks for an estimate of the amount of unpaid tax owed by the delinquent taxpayer.
After receiving Form 211, the IRS first determines whether the amount of the claim exceeds $2 million. If it is less than $2 million, the information is forwarded to the Informant’s Claim Unit and handled under Section 7623(a) of the Internal Revenue Code which provides for a discretionary reward if there is a successful recovery.
A claim exceeding $2 million is assigned a claim file number which the IRS provides to the whistleblower or, if represented, to the whistleblower’s attorney. These claims are processed under Section 7623(b) which provides for a mandatory award when there has been a successful recovery.
If a case has been referred for audit or examination, the IRS Whistleblower Office will notify the whistleblower. During the investigation of a claim, an IRS examiner might request clarification about the details of a submission or seek additional information that could assist in the investigation. In those situations, the IRS will schedule an interview with the whistleblower and their attorney.
“Since 2007, the Whistleblower Office has paid out more than 2,500 awards to whistleblowers totaling over $1.05 billion and has led to the successful collection of $6.39 billion from non-compliant taxpayers.”
IRS Whistleblower Office – 2021 Annual Report to Congress
The Taxpayer First Act of 2019
The Taxpayer First Act of 2019 was signed into law on July 1, 2019 and included changes to the whistleblower notification process. It also provided whistleblowers with protection from retaliation.
When a whistleblower submits information and the case has been referred for audit or examination, the Whistleblower Office will notify the whistleblower. The IRS cautions that notification doesn’t necessarily mean that an audit or examination has been or will be opened, nor does not indicate a claim will receive an award.
Upon written request, the Whistleblower Office will also provide information about the stage and status of an investigation or action involving the whistleblower’s information. For example, the IRS will report whether a claim resulted in an audit; whether an audit has concluded; the existence of any collected proceeds; and whether the case has been suspended. Finally, when a determination of the amount to be awarded under section 7623(b) is made, the Whistleblower Office will provide the reasons for that determination.
Protection from Employer Retaliation
The Taxpayer First Act added anti-retaliation protections for whistleblowers similar to those provided to whistleblowers under the False Claims Act and the Sarbanes-Oxley Act. The penalties for violating the anti-retaliation provisions include “all relief necessary to make the employee whole” and compensatory damages such as reinstatement, 200% of any back pay and special damages like litigation costs, expert witness fees and reasonable attorney fees.
The Act authorized the Occupational Safety and Health Administration to handle employer retaliation against employees who report violations of the Internal Revenue Code as well as other federal statutes. It also prohibits retaliation against employees who testify, assist, or participate in any administrative or judicial action involving tax fraud or other violation of the Internal Revenue Code.
Procedures for Issuance of an IRS Whistleblower Award
At the conclusion of an audit or examination, the IRS will send a decision letter if an award will be issued under section 7623(a). If a claim is rejected or an award is denied, the IRS will provide written notice explaining the reasons for the rejection or denial. Beyond those basic disclosure requirements, the Whistleblower Office is not obligated to respond to requests for additional information on claim rejections, denials, or award payments made under section 7623(a).
For section 7623(b) claims, the IRS will issue a notice of determination when a claim is rejected or denied; it will also provide the reasons for the decision. If an award is recommended, the IRS will provide a written explanation of the factors that contributed to the recommended award amount as well as a summary of how the whistleblower’s information impacted the audit or examination. After a final determination of the award amount, the Whistleblower Office will respond to written requests seeking the basis for that final determination. If an award is denied by the IRS under section 7623(b), the decision can be appealed the United States Tax Court.
All awards paid under the IRS Whistleblower Program are considered taxable income. The IRS will therefore withhold tax from any payment to a United States citizen or resident. If a portion of the award will be paid to an attorney, the whistleblower can file a reduced income tax withholding to reflect the decreased tax obligation. Nonresident aliens who receive an award will also be subject to withholding unless they are exempt pursuant to a United States income tax treaty.
The IRS treats whistleblowers as confidential informants and protects their identity to the fullest extent permitted by law.
Under IRC § 6103, returns and return information are confidential, unless an exception applies. There is no exception in IRC § 6103 that permits the publication of data on identifiable, individual whistleblowers. IRS Whistleblower Office – 2021 Annual Report to Congress
Even though the IRS is committed to protecting the identity of whistleblowers to the fullest extent permitted by the law, there are certain situations when a whistleblower’s identity could be disclosed. For example, if a whistleblower is identified as a witness and called to testify in judicial proceeding, the IRS is compelled to comply with any order issued by a court of competent jurisdiction.
The IRS also maintains a policy that it will neither confirm nor deny the existence of a whistleblower in discovery requests where the whistleblower is not listed as a witness. However, an adverse discovery ruling could lead to disclosure of information that could indirectly reveal the identity of a whistleblower.
News and Media Commentary
DC Circuit Decision Upholds Whistleblower Confidentiality to Protect IRS Whistleblowers from Retaliatory FOIAs, The National Law Review, August 26, 2022
Offshore Tax Loophole Helps Americans Cheat IRS, Senate Says, Bloomberg, August 24, 2022
Tax Whistleblower: Thinking About Going To Tax Court? Recent Court Decisions Show Path Forward, Forbes, August 17, 2022
Former Vanguard Lawyer Seeks ‘Whistleblower’ Status, The Philadelphia Inquirer, July 29, 2022
IRS Completes Its 2022 ‘Dirty Dozen’ Tax Avoidance and Fraud List, Forbes Jun 16, 2022
Grassley, Wyden Introduce Bill to Strengthen Successful IRS Whistleblower Programs, Senator Grassley official website, June 15, 2022
Internal Revenue Service Whistleblower Office Fiscal Year 2021 Annual Report, IRS Whistleblower Office, June 10, 2022
Heightened Eye on Cryptocurrency Industry Could Boost Whistleblowing, Bloomberg Law, February 14, 2022
Can the Whistle Be Blown Against Accidental Americans? Bloomberg Tax, February 14, 2022
Careersource CEO Resigns Following Whistleblower Investigation, The St. Pete Catalyst, February 11, 2022