Want to earn a reward from the federal government? Become an IRS whistleblower.
Bradley Birkenfeld, a former banker who blew the whistle on an elaborate Swiss bank scheme to help wealthy Americans avoid taxes, was awarded a whopping $104 million by the IRS. Birkenfeld’s disclosures led to the bank paying the government $780 million to avoid prosecution.
Birkenfield's multi-million dollar reward may be the largest ever given to a U.S. whistleblower. It was also first major award issued under the IRS's new whistleblower program, which was created in 2006 to encourage people to blow the whistle on tax cheats and help boost tax revenue.
The IRS established a special Whistleblower Office to process whistleblower tips. Since 2006, over 1,300 tips have been received, rumored to have alleged total tax underpayments of $2.6 billion. Most tips are received from employees and ex-employees of companies that play fast and loose with the tax laws.
When a tip is received, a Whistleblower Office analyst reviews it to determine whether it is worth pursuing. The IRS says it is looking for specific and credible information, not an “educated guess” or unsupported speculation. There must be a significant Federal tax issue involved. The IRS does not want to hear about personal problems or disputes about a business relationship.
Tips that are deemed credible are turned over to the appropriate IRS office for further investigation. This may lead to a new audit, expansion of an existing audit, or even a criminal investigation.
Some people--for example, current employees of a tax scofflaw--may be afraid to turn in their employers because they fear retaliation. The IRS says it will protect the identity of whistleblowers to the fullest extent allowed by the law. However, in some cases the IRS may need a whistleblower to testify in court. In this event, the person's identity would have to be revealed. If this happens, the IRS will inform the whistleblower before deciding whether to proceed with the case.
You can get a reward only if your tip leads to an audit or investigation that results in the IRS collecting money, whether in the form of additional taxes, penalties, interest, or other amounts.
There are two types of awards. If the amount involved exceeds $2 million, and a few other qualifications are met, the IRS will pay 15% to 30% of the amount collected.
If the case involves an individual, his or her annual gross income must be more than $200,000.
The IRS also has an award program for whistleblowers who do not meet these dollar thresholds. However, the awards through this program are less, with a maximum award of 15% up to $10 million.
If you decide to submit a tip, use IRS Form 211.
Unfortunately, the process, from submission of a tip to the IRS until the proceeds are collected, may take several years. The IRS will not pay out a reward to a whistleblower until it collects the amount it is owed. Thus, you'll get no reward at all if the IRS can't collect the amount due from the tax cheat.