The IRS Whistleblower Program

The False Claims Act (the “Act”), which governs a wide array of fraudulent conduct, specifically excludes tax fraud as a basis for a qui tam action. Although whistleblowers wishing to expose a violation of the tax laws have no recourse under the Act, they do under the IRS Whistleblower Program.

The IRS Whistleblower Program was created under the Tax Relief and Health Care Act of 2006. The program, which was modeled after the Act, provides that the IRS will pay a whistleblower 15% to 30% of the amount collected by the IRS: 1) if the taxes, penalties, interest and other amounts in dispute exceed $2 million; or 2) if the case involves an individual having an annual gross income exceeding $200,000. To receive the award, the IRS must use the information provided by the whistleblower. The information has to be specific and credible. “Educated guesses” or unsupported speculation will not support the payment of an award.

If the amount in dispute does not meet these thresholds – more than $2 million for companies or more than $200,000 in gross income for individuals – whistleblowers can still receive an award.  The IRS maintains a different reward program in which the award paid is less: a maximum of 15% up to $10 million of the amount collected. The awards under this program are discretionary and the whistleblower cannot dispute the outcome of the claim in Tax Court.

The types of tax law violations falling within the scope of the IRS Whistleblower Program are endless. While the list is not exhaustive, there are a number of common frauds that have been reported, including overstating deductions, underreporting income, keeping multiple sets of accounting records, false recordkeeping, fraudulent shifting of assets to avoid taxes, concealing assets, and using trusts for an illegal tax-avoiding purpose.

Submitting a claim under the IRS Whistleblower Program can be challenging. Therefore, it is critical to present the best case possible in order to increase the likelihood of receiving compensation as a whistleblower. If you are aware of a tax law violation and would like to discuss the matter with Freiberger Haber LLP, please contact us.