Tax Cheats Beware: This IRS Program Makes Whistleblowing Lucrative

Three hundred million dollars. That's how much the IRS paid out in whistleblower rewards in 2018 alone. For over 150 years, the U.S. Treasury has enlisted the help of employees, attorneys, bookkeepers, family members and more to collect some of the estimated $1 trillion in unpaid taxes every year. Read on to learn more about the million-dollar fraud-catching IRS program.

The Whistleblower Office

Although the bounty program dates back to 1867, the IRS didn't officially establish an office for whistleblower reports until 2006, when a framework for the program found its way into a spending bill. Since then, the program has seen a handful of minor changes, most recently in 2019.

In the United States, with our system of what the IRS calls "voluntary compliance" tax reporting, it can be difficult to root out taxpayers who are making misstatements and underpaying taxes. And while the IRS has developed some impressive technology-driven tools, it can be difficult for federal agents to catch indiscretions. That's the idea behind incentivizing suppliers, accountants, and managers who know the ins and outs of businesses across the country to turn in fraudsters.

The Whistleblower Office itself manages some thousands of whistleblower reports every year. The Office reviews claims, routes them to the proper IRS unit, and determines and pays awards. Since 2007, claims received by the Whistleblower Office have recovered nearly $6.4 billion and paid out just over $1 billion in awards.

Staking a claim

Helping your favorite government agency, and getting a cut of the proceeds for your trouble, sure sounds like a great opportunity. However, it's not as easy as pointing a finger and depositing a check into your bank account.

The Whistleblower Office generally rewards claims that are substantiated by proof of non-compliance. Without accompanying proof, the chances of the IRS recovering unpaid taxes, and the chances of you receiving an award, are slim. Generally, the Whistleblower Office will want information such as copies of books, records, receipts, contracts, emails, and bank statements.

You will also need to include a written report describing the alleged tax fraud, the evidence you have, where other evidence may be found upon search, your relationship with the taxpayer, and more. Naturally, you will also need to complete a special IRS form.

The reward

Qualifying for a reward based on your claim is a high bar to clear, which is why, since 2007, of the thousands of claims filed annually, only around 2,500 have resulted in a reward. But the payout can be substantial if you can prove your claim.

The size of a whistleblower's reward will depend largely on two factors. Your cut is at the discretion of the IRS, so while specific and credible information might net you 30% of the recovered amount, submitting public information or having taken an active role in the fraud could drop you to the minimum of 15%. Additionally, how much the IRS rakes in will determine your award, as you may qualify to receive a percentage of all underpayment, including penalties and interest, as long as the take-in exceeds $2 million and implicates a taxpayer earning over $200,000.

Enforcing tax laws in the United States can be a tall order for the IRS, and without the help of an insider, it can be almost impossible to detect some frauds. As a result, the Whistleblower Office of the IRS puts a bounty on the heads of tax cheats, and will readily pay hundreds of thousands of dollars for a good tip.