Every year, millions – perhaps billions – of dollars in tax revenue go uncollected because of questionable practices that allow for tax evasion. However, the IRS has been hoping to reduce that amount, and encourage whistleblowers to come forward and share what they know.
While the program hasn’t been as effective as many hoped, and was even on hold for a while, it is back in full force as of August 1, 2012. One of the first awards since the new rules went to Bradley Birkenfeld, a whistleblower who was given $104 million for blowing the whistle on UBS practices.
Could You Be a Tax Whistleblower?
If you want to be a tax whistleblower, you first need to document practices that represent tax evasion. The IRS requires that you have actual, solid evidence that a taxpayer is noncompliant. Your guess isn’t good enough to warrant the title of “whistleblower.”
It helps to have supporting documents, or at least be able to show some sort of accounting from your end. In the case of Birkenfeld, he had carefully documented the infractions at UBS for years. He had a great body of evidence to share with the IRS.
Those who do have credible information, and hope to qualify for an award, need to contact an IRS employee, getting the name of the employee, and noting the date. Then, an IRS Form 211 needs to be filled out in order to claim the award. Look over Form 211 before you contact the IRS in order to get an idea of what information you’ll need when you report the infraction.
How Much Money Could You Receive?
Chances are that you won’t end up with an award the size that Birkenfeld saw. How much money you receive as a whistleblower depends on how much the IRS ultimately collects from the noncompliant taxpayer, including taxes, interest, and penalties.
If the total collected from the taxpayer exceeds $2 million, you will receive between 15% and 30% of the amount collected, depending on the situation. Realize, though, that you will only collect an award for blowing the whistle on individuals if his or her annual gross income is more than $200,000. In these cases, it’s possible for you to appeal the claim and the award at the Tax Court, so if you don’t agree, you can ask for more money.
Even if the IRS doesn’t collect $2 million or more, or if the individual you report makes less than $200,000 a year, it is possible to blow the whistle still. The maximum award for these cases, though, is 15% of the total. Realize, too, that the award is completely discretionary, so you might not get anything. On top of that, you are not allowed to dispute the claim in the Tax Court.
For more information on the rules related to whistleblowing for the IRS, you can read IRC Section 7623(a) and IRC Section 7623(b). It’s a good idea to read through this information ahead of time.
Nearly anyone can be a whistleblower, and collect a reward for it. However, make sure you understand the procedure, and that you have good evidence, before you contact the IRS. You want to make sure that you really do deserve the credit for whistleblowing.