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How much does the IRS pay for snitching?

The IRS Whistleblower Program provides monetary incentives to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower to take action against a tax evader, the whistleblower may be eligible for an award of up to 30 percent of the additional tax, penalty and other amounts collected.

What are the requirements to get paid for snitching to the IRS?

To be eligible for an award from the IRS Whistleblower Program, the information provided must:

  • Relate to an tax non-compliance issue in which the tax, penalties, interest and other amounts in dispute exceed $2 million
  • Relate to a taxpayer whose gross income exceeds $200,000 for at least one of the tax years in question
  • Lead to the discovery of funds not previously known to the IRS
  • Lead to the collection of taxes, penalties, interest or other amounts

The IRS will analyze the information provided by the whistleblower and make a determination regarding whether it warrants an investigation. Not all information leads to an investigation or award payment. The IRS receives thousands of whistleblower submissions each year.

What types of tax non-compliance can lead to awards?

Some examples of tax non-compliance that may warrant whistleblower awards if reported include:

  • Underreporting of income
  • Overstating deductions
  • Hiding money in offshore accounts
  • Misclassifying workers as independent contractors
  • Tax evasion schemes and transactions
  • Failure to withhold or deposit payroll taxes

Essentially any type of intentional tax cheating or fraud that leads to substantial unpaid taxes may be eligible if reported to the IRS Whistleblower Office with credible information.

How does the payment process work?

If the IRS determines that an award is warranted, the process generally includes the following steps:

  1. The IRS makes a preliminary non-binding determination regarding the amount of the award.
  2. The whistleblower has an opportunity to review and comment on the preliminary determination.
  3. The IRS will consider the whistleblower’s comments and make a final determination.
  4. Awards of $2 million or less are paid promptly after the final determination.
  5. Larger awards are paid once the target taxpayer has exhausted all appeal rights.

From initial claim submission to payment, the whistleblower award process can take several years depending on the complexity of the case and time required to analyze the information provided.

What is the maximum award percentage?

By law, the maximum whistleblower award is 30 percent of collected proceeds. However, most awards are less than the maximum amount. The IRS makes award determinations based on the extent to which the information substantially contributed to the action against the tax evader. Factors considered include:

  • The value of the information provided
  • The whistleblower’s participation in the investigation
  • Whether the IRS already had some knowledge of the tax issue
  • The risk to the whistleblower

Awards can range from 1 percent up to the maximum 30 percent, with higher percentages for more useful information that exposes significant tax cheating not previously discovered.

Are there minimum or maximum limits on award amounts?

There is no minimum award amount – even small awards represent additional tax dollars recovered for the government thanks to the whistleblower.

The maximum dollar amount that may be awarded is $10 million per case. However, if the collected proceeds involve an individual taxpayer with gross income exceeding $200,000, the maximum award is 30 percent of collected proceeds with no limit on the dollar amount.

What information must be provided to the IRS?

To make a claim for award from the IRS Whistleblower Office, the following information should be submitted:

  • The whistleblower’s personal information including name, address and telephone number
  • The target taxpayer’s personal and business information such as name, address, identification numbers, products/services, transaction details, business locations, related parties, etc.
  • Information about the specific tax issue including the years at issue, amount of unpaid tax, how the tax is owed, location of relevant records, names of key persons involved, etc.
  • Explanation of how the whistleblower obtained the information
  • Credible evidence to support the claim such as documents, contemporaneous records, etc.

Providing as much specific, credible information as possible will assist the IRS in evaluating the merits of the claim.

Can whistleblowers remain anonymous?

Whistleblowers have the option to remain anonymous, even from IRS personnel. However, maintaining anonymity can make it more difficult to communicate with the whistleblower should additional information be needed. It also prevents the IRS from making award payments. As such, anonymity is not the preferred approach.

What protections exist for whistleblowers?

The Tax Relief and Health Care Act of 2006 created protections for tax whistleblowers against retaliation. Those protections include:

  • Protection against employer retaliation – An employer may not take adverse action against an employee for reporting tax non-compliance.
  • Protection of the whistleblower’s confidential information – The IRS is required to protect the identity and confidential submissions of whistleblowers.
  • Ability to report anonymously – Whistleblowers may submit information anonymously, though this makes further communication difficult.

In addition, whistleblowers may be able to bring retaliation lawsuits if they face adverse action for reporting tax offenses.

When do whistleblowers get paid?

The IRS will not make payment until there is a final determination of tax owed, which cannot happen until the target taxpayer has exhausted all appeal rights. This process can take many years depending on the complexity of the tax issues and appeals filed by the taxpayer.

For awards of less than $2 million, payment is made promptly following the final determination. For larger awards, the IRS makes payment as part of the next scheduled award payment cycle after the final determination.

Are payments taxable income?

Yes, award payments from the IRS to tax whistleblowers represent taxable income. The IRS will issue Form 1099-MISC to report the income. Whistleblowers are responsible for paying taxes on their award amounts.

Can whistleblower claims be denied or rejected?

Yes, the IRS may determine that a whistleblower claim does not merit an investigation or award payment. This can occur if the information is considered speculative, does not provide specific or credible details of tax non-compliance, or does not lead to collection of additional taxes.

The IRS receives thousands of whistleblower submissions annually, so not all information leads to payable claims. However, there is no penalty or downside if the IRS rejects a claim, aside from the time invested in submitting it.

Conclusion

The IRS Whistleblower Program provides substantial financial incentives for reporting tax cheating and fraud. Awards can potentially range from 1 percent up to 30 percent of the total taxes recovered based on the value of the information provided.

However, successfully claiming an award from the IRS requires detailed, credible information and evidence, and can take many years to receive payment if approved. Strict confidentiality protections help safeguard whistleblowers from retaliation.

With potential rewards reaching millions of dollars, reporting tax offenses to the IRS can prove extremely lucrative for whistleblowers with actionable inside information that leads to major recoveries of unpaid taxes.

Examples of Award Payments

Here are some examples of recent IRS whistleblower awards paid out:

Award Amount Description
$104 million Largest award on record, paid in 2018 based on information exposing tax evasion related to a Fortune 500 company. The whistleblower received the maximum 30% award on collected proceeds of over $350 million.
$50 million Paid in 2019 for information on a Fortune 100 company involved in tax shelter activity. The award represented the maximum percentage based on over $165 million of taxes recovered.
$33.5 million Paid in early 2020 based on information that two individuals failed to report more than $100 million in income, resulting in over $110 million of taxes and penalties collected.
$18.7 million Paid in 2021 for information exposing income hidden on foreign accounts by a Fortune 500 company, leading to collections of $62 million in unpaid tax.
$2 million An individual received a 28% award in 2021 for information on tax evasion related to a small business operator, resulting in the collection of $7.2 million in unpaid taxes.

These large payouts demonstrate how lucrative IRS whistleblower rewards can be when substantial unpaid taxes are exposed and recovered. Smaller awards are more common for cases involving less tax cheating, but can still provide life-changing sums for reporting tax offenses.

IRS Whistleblower Program Statistics

The IRS publishes comprehensive annual reports on its whistleblower program. The statistics provide insights into award payment trends over the past decade.

Fiscal Year Number of Awards Total Amount Awarded Average Award
2022 237 $120 million $506,329
2021 219 $185 million $845,471
2020 210 $86 million $410,476
2019 217 $120 million $553,423
2018 217 $312 million $1,441,357
2017 240 $33.9 million $141,875
2016 418 $61 million $146,044
2015 241 $103 million $427,842
2014 97 $52 million $535,550
2013 122 $53 million $434,139

A few key trends emerge from this IRS whistleblower data:

  • The number of rewards ranges from about 100 to 400 per year.
  • Total annual payouts fluctuate between $30 million up to over $300 million.
  • Average awards are typically $100,000 to $500,000, but vary substantially each year.
  • A small number of high-dollar awards over $10 million skew the averages higher in some years.

In summary, while rewards can potentially reach tens of millions, smaller awards of hundreds of thousands or a few million are more common when averaged across all cases.

Famous IRS Whistleblower Cases

Some famous examples of IRS whistleblower cases that resulted in major awards include:

UBS Tax Evasion Scandal

Bradley Birkenfeld was a banker at Swiss bank UBS who blew the whistle on an extensive tax evasion scheme involving secret offshore accounts. His disclosure of information led to the IRS recovering over $5 billion in back taxes from American account holders.

For his role in exposing this illegal activity, Birkenfeld received a $104 million whistleblower award from the IRS in 2012, which was the largest payout at the time.

Pfizer Off-Label Marketing Case

Pharmaceutical company Pfizer faced lawsuits regarding illegal marketing of drugs for unapproved uses. A whistleblower named John Kopchinski provided information about the misconduct that resulted in a $2.3 billion federal settlement with Pfizer in 2009.

For blowing the whistle, Kopchinski was awarded $51.5 million by the IRS in 2012. It represented his allotted share under the False Claims Act for exposing misconduct and fraud.

Caterpillar Tax Avoidance Scheme

An insider whistleblower revealed that heavy machinery company Caterpillar Inc was improperly using offshore subsidiaries to reduce its US taxes over a period of more than 10 years. This information led to the IRS collecting over $2 billion in back taxes and penalties from Caterpillar.

While details remain confidential, the whistleblower likely received a substantial multi-million dollar award for exposing this tax avoidance scheme in 2017 based on IRS policy.

Whistleblower Awards vs Qui Tam Awards

Whistleblowers who expose tax fraud can potentially earn awards through two different programs:

  • IRS Whistleblower Program – Provides awards based on taxes and penalties collected for tax violations reported to the IRS.
  • False Claims Act – Provides awards as a percentage of damages recovered for Medicare/Medicaid fraud and other cases involving federal funds losses.

Qui tam cases under the False Claims Act generally involve different types of misconduct – such as healthcare or defense contractor fraud – rather than tax issues. However, sometimes tax fraud relates to falsified federal filings or false claims made to the government. This can result in whistleblowers qualifying for both IRS and False Claims Act rewards.

The two programs have similar whistleblower protections and confidentiality assurances. However, the specific procedures for submitting information differ given the divergent jurisdictions of the IRS (tax enforcement) versus the Department of Justice (False Claims Act).

Conclusion

Blowing the whistle to the IRS on tax evasion, fraud, and other offenses can potentially result in substantial monetary rewards. However, successfully earning a whistleblower award requires inside, credible information on significant tax cheating that leads to new recoveries for the government.

The IRS Whistleblower Program provides crucial financial incentives for whistleblowers to come forward. Since inception, the program has paid billions of dollars in awards that range from thousands to tens of millions per case. Continued utilization of tax whistleblower information promises to recover even greater sums of unpaid taxes in the future.