DBTC Law Firm

Getting Paid for Getting Revenge: THE IRS Whistleblower Provisions.

It was recently announced that an individual had collected $38 million from the IRS as a reward for information about a tax dodge involving a large corporation. The IRS does provide cash rewards for tips that lead to recovery of taxes otherwise lost from tax cheating. Referred to as the Whistleblower program, this is an interesting dynamic for businesses of any size. Almost always, low to mid level employees (bookkeepers, secretaries, administrators) are a necessary part of the “cheat” in order to process false paperwork. Armed with that sensitive information, they thus become a ticking time bomb against the employer if they are ever fired, demoted, as a paramour jilted, or otherwise offended by the boss – not only can they get revenge, they can get rich – legally!

26 United States Code, Section 7623 provides an award of 15% to 30% of amounts recovered from tax underpayments based upon information provided by individuals leading to that recovery. The reward can be reduced if the IRS has already developed other principal sources of information leading to that recovery. This process has been available for decades, but the process was completely overhauled in 2006.

The program requires an annual report to Congress. The 2014 report reflected that the IRS Whistleblower Office had received 14,365 claims during 2014. Because Whistleblower claims cannot be paid until the taxpayer audit is completed as well as all related appeals and refund claims have been made or expired, it is typically five to seven years before a Whistleblower claim is paid. The first awards under the 2006 Act were made in 2011, and included the $38 million dollar award first mentioned above. In that case, the audited corporation was never aware its audit was the result of a Whistleblower claim, much less who the Whistleblower was.

In 2014, the IRS paid 101 claims totaling over $52 million, representing about 16% of the monies recovered from Whistleblower claims. There are obviously many more claims, worth many times more than that, in the pipeline.

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