The Internal Revenue Act permits individuals who provide original information to the Internal Revenue Service (“IRS”) about a violation of the tax laws or the underpayment of taxes to obtain a monetary reward if their information results in a sanction against the tax law violator.
No actual tax fraud needs to be proven to qualify for a reward, the law covers the underpayment of taxes. Additionally, under the “related action” provisions of the law, rewards may also be paid based on criminal penalties, civil forfeitures and/or violations of IRS reporting requirements.
The IRS whistleblower reward law is codified at Title 26 U.S.C. § 7623
A “relator” is another word for a whistleblower. It originated in the False Claims Act whistleblower reward law signed by President Abraham Lincoln on March 2, 1863, during the Civil War. The term “relator” is the term used in the statute to identify the original source of the frauds against the government. The term “whistleblower” was not in use in 1863. Consequently, in modern whistleblower reward laws, the term “relator” is often used by the Courts and parties to signify a whistleblower.
The IRS whistleblower reward law is divided into two sections, The first section is 26 U.S.C. § 7623(a). Section (a) gives the IRS the discretion to pay whistleblower awards. This section is based on an older provision in the law originally enacted in the 1800s. Awards paid under this provision are strictly within the discretion of the IRS and there is no appeal of a denial.
In 2006, the IRS tax whistleblower law was amended to include a section 26 U.S.C. § 7623(b). This section of the law created a mandatory reward law. If a whistleblower qualified for a reward under this provision, the IRS is required to pay a reward of not less than 15% and not more than 30% of any collected proceeds obtained by the IRS based on original information provided by the whistleblower.
Section (b) does not cover all award claims. It only covers claims filed in cases in which the “proceeds in dispute exceed $2,000,000.” Additionally, if the claim is filed against an individual, that individual’s gross income must also exceed $200,000.
In other words, small tax cases are covered under section (a) of the law, and any award is discretionary. But large tax cases are covered under section (b) of the law, and payment of awards to qualified persons is mandatory.
If the Secretary of Treasury/IRS uses the information provided by the whistleblower in a successful judicial or administrative action (including a settlement), the IRS whistleblower “shall” “receive as an award at least 15 percent but not more than 30 percent of the proceeds collected as a result of the action (including related actions).”
Awarded are based on the amount of “proceeds” collected. The statute defines proceeds to include the following:
- Taxes owed, including penalties and interest, under the internal revenue laws;
- Proceeds obtained in related actions, that include monies obtained from other “laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate.”
- The “related actions include all “criminal fines and civil forfeitures” collected under tax laws, and sanctions obtained for “violations” of IRS “reporting requirements.”
Tax law whistleblower claims are filed with the IRS Office of the Whistleblower. The whistleblower must fill-out, sign and file an IRS Form 211, and also must provide the IRS with all relevant information to trigger an investigation and ultimate successful enforcement action. The IRS Form 211 must be signed under oath (i.e. “penalty of perjury”) by the individual whistleblower and cannot be anonymously submitted. However, the internal rules covering the IRS whistleblower program require that the IRS protect the identity of the whistleblower to the fullest extent of the law.
Whistleblowers may be represented by counsel.
The IRS has an official Whistleblower Office. The IRS Whistleblower Office is authorized to make the final award decisions on behalf of the IRS and Department of Treasury.
Final award decisions by the Office of the Whistleblower can be appealed to the Tax Court within 30-days of a denial.
The IRS whistleblower law does not contain an anti-retaliation provision. The only remedy for tax whistleblowers under the tax code is an award. However, tax whistleblowers may be protected under relevant state laws and/or other federal laws that prohibit discrimination against whistleblowers and/or the federal obstruction of justice laws.
If you need help finding an attorney, visit Resources for Locating an Attorney.
For additional information on IRS whistleblower rights, please read Rules 4 and 7 published in The New Whistleblower's Handbook: A Step-by-Step Guide to Doing What's Right and Protecting Yourself (Lyons Press, 2017).
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