IRS Whistleblower Program
The Internal Revenue Service (IRS) Whistleblower Program, administered by the agency’s Whistleblower Office, encourages people to report tax fraud and foreign bank account reporting (FBAR) violations to the IRS. The Program includes anti-retaliation protections for whistleblowers and significant rewards for tips that lead to the recovery of unpaid taxes and penalties.
Who can get awards under the IRS Whistleblower Program?
The IRS Whistleblower Program covers all forms of federal tax fraud, as well as violations of FBAR reporting requirements. For example, our whistleblower clients have reported transfer pricing violations, offshore tax evasion through shell companies and fraudulent trusts, and tax-shelter promoters pushing abusive schemes to high-wealth individuals.
Under the Program, a whistleblower qualifies for an award if the government brings a successful enforcement action based on the whistleblower’s tip. Eligible whistleblowers typically receive an award of 15-30% of the government’s recovery when the IRS recovers in a dispute involving $2 million or more in unpaid taxes and penalties. However, even where the claim involves less than $2 million, whistleblowers can still receive an award under the IRS’s longstanding discretionary award program.
Tips can be submitted by two or more “joint” whistleblowers. The Award Program is open to non-U.S. citizens, and reports can relate to conduct outside the U.S., so long as the violations impact U.S. federal tax obligations or FBAR reporting.
Whistleblowers can also report tips based on publicly available information, but the awards for doing so are much smaller. If the IRS determines that a tip is based principally on allegations already disclosed in a judicial or administrative hearing; governmental report, hearing, audit, or investigation (including public reports on government websites, like SEC filings); or from the news media, a whistleblower can receive no more than 10 percent of the proceeds collected, unless the whistleblower is the original source of the prior disclosures.
Although many corporate insiders who submit a tip to the IRS have reported concerns to their employer first, internal reporting is not required under the IRS Whistleblower Program. Those who do report internally must be careful not to reveal any privileged information when they bring their concerns to the IRS. If you have any questions about whether a communication is privileged, it’s important to make sure you talk to an attorney to ensure you’re protecting your claim.
How does the IRS whistleblower process work?
To be eligible for a whistleblower award, a whistleblower must submit their information on IRS Form 211. Currently, this form must be mailed or faxed to the IRS, though the Service is currently exploring online submissions. In addition, if a whistleblower is represented by an attorney, they must complete a power of attorney (Form 2848) authorizing their attorney to represent them before the IRS. Unfortunately, the IRS does not permit anonymous submissions, though the agency is diligent in protecting whistleblowers’ identities during its investigations.
Upon receiving Form 211, the IRS will assign a claim number and forward the tip to the appropriate IRS operating division for classification. At the classification stage, the operating division assesses whether it should deny the tip or forward it to an examination team for investigation. In making this determination, the operating division will consider the significance of the issues presented and whether the tip presents an actionable tax issue. The operating division can also forward the tip to a subject matter expert, who has the option to “debrief” the whistleblower in an interview before determining whether to send the tip to an examination team.
A whistleblower’s initial submission is typically the most important part of their claim. After filing, a whistleblower has little ability to influence either the classification or investigation of their tip, so their initial submission should be persuasive, accurate, and to the extent possible, supported by documents and other evidence. Working with experienced whistleblower attorneys can help improve a whistleblower submission by sharpening its legal analysis and ensuring the whistleblower’s material is packaged in a manner that is most beneficial to the IRS, which will ultimately investigate the claim.
When a whistleblower’s submission is forwarded for investigation, they should expect that investigation to last for years, with little to no contact from the IRS. If the IRS successfully recovers proceeds based on the whistleblower’s tip, they will move to the award stage, discussed below.
How are IRS whistleblower awards determined?
As discussed above, if a whistleblower’s tip leads to an IRS recovery of over $2 million, a whistleblower can receive a mandatory award of 15-30% of the proceeds recovered. Typically the award process will not begin until the taxpayer has fully paid
The award process usually begins only after a taxpayer has paid in full and/or the period for the IRS to collect has expired. At that stage, the IRS will send the whistleblower a Preliminary Award Recommendation Letter (PARL), identifying its preliminary computation of potential proceeds collected, the recommended award percentage and resulting amount, and a summary of the factors the Whistleblower Office considered in reaching its recommendation. The whistleblower has 30 days to respond to the PARL by either accepting the proposed award, arguing for a higher reward, or entering a confidentiality agreement to obtain access to a more detailed record of their claim.
Once the whistleblower accepts an award, or the time for responding has passed, the IRS will make a final determination on the award. However, the IRS will not make a final award decision until there has been “a final determination of tax”–meaning the proceeds resulting from the tip have been collected and either the time for filing a refund claim has expired or the taxpayer at issue in the tip has reached a final agreement with the IRS and waived the right to file a refund claim.
A whistleblower also can challenge a final award determination in tax court.
How does the IRS protect whistleblowers?
The IRS is generally required to maintain the confidentiality of whistleblowers, and in the vast majority of cases, the IRS keeps the identity of the whistleblower confidential throughout its investigation. The IRS Whistleblower Program also protects whistleblowers from employer retaliation, including firing, demoting, suspending, threatening, harassing, or discriminating against whistleblowers. Whistleblowers who are retaliated against may sue for reinstatement, back pay, and other damages. These protections apply whether or not a whistleblower receives an award, as long as the whistleblower reasonably believes that a violation of the tax laws occurred.
History of IRS Whistleblower Awards
The IRS Whistleblower Program is one of the oldest in the country. Since 1867, the Secretary of the Treasury has had the authority to reward whistleblowers “for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.” Using this authority, the IRS operated a discretionary award program for over a century.
Nearly 140 years later, Congress greatly strengthened the IRS Award Program through the Tax Relief and Health Care Act of 2006. Among other things, this law established mandatory awards of at least 15% of collected taxes and penalties for whistleblowers whose tips lead to a successful recovery. It also established the IRS Whistleblower Office, which is responsible for administering the Program. In 2014, the IRS and Treasury issued final regulations that further detail the requirements and process for the IRS Whistleblower Program. Since the 2006 amendments to the Program, the IRS has recovered more than $6 billion in back taxes, interest, penalties, and criminal fines and sanctions based on whistleblower tips, and whistleblowers have received more than $1 billion in awards for their efforts.
More recently, the Taxpayer First Act of 2019 established important anti-retaliation protections for whistleblowers and notice requirements to keep whistleblowers informed of how their tips are proceeding.
Contact a Whistleblower Attorney
These descriptions of the IRS Whistleblower Program are general in nature and do not constitute legal advice. Tax frauds can take many forms, and the rules of the IRS Whistleblower Program are complex and evolving. The attorneys at Whistleblower Partners have handled dozens of matters under the IRS Whistleblower Program and understand this complicated, constantly changing legal landscape. We are happy to discuss any potential matter further.