The IRS Whistleblower Reward
Individuals who expose violations of the tax laws can receive between 15% and 30% of the amount collected by the IRS, including penalties, interest, and additional amounts, as a result of the information provided under the IRS Whistleblower Program.
The actual percentage awarded by the IRS varies and depends upon a number of factors:
- Timing: Prompt action by the whistleblower in informing the IRS of non-compliance is a positive factor; failing to promptly report the non-compliance, particularly if the delay adversely affected the IRS’s ability to pursue an action may negatively impact the percentage of the reward;
- Information Was Unlikely To Be Detected By The IRS: Information about wrongful activity the IRS was unlikely to identify or that was particularly difficult to detect through the IRS’s exercise of reasonable diligence is a positive factor considered by the IRS;
- Information Previously Unknown To The IRS: The whistleblower will be positively rewarded if the information he/she provides is unknown or likely to remain undiscovered by the IRS;
- Factually Detailed Submission: A well-organized and thorough presentation of information that saves the IRS work and resources is a positive factor considered by the IRS;
- Information That Aids In The IRS’s Understanding: Information that connects transactions, or parties to transactions, and enables the IRS to understand the tax implications of the transactions that might not otherwise have been understood by the IRS is a positive factor considered by the IRS;
- Behavior Modification: Information that modifies taxpayer behavior (e.g., prompt correction of a previously-reported improper position) will be positively rewarded;
- Cooperation And Assistance: Whistleblowers who provide exceptional cooperation and assistance during the investigation, audit, or trial is a positive factor considered by the IRS; failing to cooperate by, among other things, not following instructions, violating the terms of the confidentiality agreement between the IRS and the whistleblower, providing false or misleading information to the IRS, or disclosing the existence or scope of an enforcement activity may negatively impact the percentage of the reward;
- The Whistleblower Participated In The Tax Violation: The whistleblower contributed to the underpayment of tax or tax non-compliance is considered a negative factor by the IRS;
- The Whistleblower Is Not The Original Source: Whistleblowers may seek a reward for bringing publicly available information to the attention of the IRS if the information results in the collection of additional taxes. Such information includes trial testimony and evidence, results of state and local investigations, and information published in the news media. The whistleblower may receive a reward of up to 10% of the money collected. If the whistleblower is the original source of the information but uses publicly available information to support the submission, then the percentage awarded may be increased if supported by other positive adjustment factors;
- The Whistleblower Profits From The Tax Violation: The whistleblower directly or indirectly profited from the underpayment of tax or tax non-compliance, but did not plan and initiate the actions that led to the underpayment of tax or actions, is considered a negative factor by the IRS; and
- The Whistleblower Planned Or Initiated The Tax Violation: Whistleblowers who plan or initiate the tax violation may have their award denied or reduced significantly. The amount of the reduction is dependent upon the degree of the whistleblower’s involvement in the alleged wrongdoing.
The factors considered by the IRS are not exhaustive and are not weighted. The presence and significance of positive factors may offset the presence and significance of negative factors. The absence of negative factors does not constitute a positive factor. In any given case, one factor may override several others.
The Award For Multiple and Joint Claimants
If two or more independent claims relate to the same collected proceeds, then the IRS will evaluate the contribution of each whistleblower to the action(s) that resulted in collected proceeds. The IRS will determine whether the information submitted by each whistleblower would have been obtained by the IRS as a result of the information previously submitted by any other whistleblower. If the IRS determines that multiple whistleblowers submitted information that would not have been obtained based on a prior submission, then the IRS will determine how much of the total proceeds are attributable to each whistleblower. The aggregate amount awarded in cases involving two or more independent claims that relate to the same collected proceeds cannot exceed the maximum amount awarded, subject to adjustment factors, if a single claim had been submitted.
When multiple individuals jointly submit a claim, the IRS will pay an award in equal shares to the joint claimants, unless the joint claimants specify a different allocation in a written agreement, signed by all joint claimants and notarized and submitted with the claim. The aggregate award payment in cases involving joint claimants will be within the range of 15% to 30% of collected proceeds, unless one of the reduction factors applies.
If you have knowledge of a violation of the tax laws, you may be entitled to receive an award if you report the violations and the IRS successfully collects on the claim. For more information about IRS whistleblower awards contact Freiberger Haber LLP.