IRS Tax Fraud Whistleblower Reward
The Tax Relief and Health Care Act established an IRS whistleblower program and awards for reporting tax fraud. Since 2007, the IRS has awarded nearly $1 billion to whistleblowers for their efforts to curb tax evasion. Nearly half the awards have come from just the last two years:
| IRS Tax Awards | FY 2017 | FY 2018 | FY 2019 |
|---|---|---|---|
| Total Claims Related to Awards | 367 | 423 | 510 |
| Total Number of Awards | 242 | 217 | 181 |
| Total IRC § 7623(b) Awards | 27 | 31 | 24 |
| Total Amounts of Awards | $33,979,873 | $312,207,590 | $120,305,278 |
| Proceeds Collected | $190,583,750 | $1,441,255,859 | $616,773,127 |
| Awards as a Percentage of Proceeds Collected | 17.8% | 21.7% | 19.5% |
IRS Whistleblower Program – Up to 30% of Recovery as an Award
The IRS establishes both a category for mandatory awards and discretionary awards that can be received even if one does not meet the mandatory category requirements.
Mandatory Awards (26 USC § 7623(b)):
The law requires the IRS to give an award of 15 to 30% of the fraud recovery or tax underpayment under section 26 USC § 7623(b), if:
- The IRS collects tax underpayments resulting from the action or related actions;
- The amount disputed exceeds $2 million (and if an individual and not an entity, the defendant earned at least $200,000 one year in income); and
- The IRS acts upon the tip from a whistleblower.
The Tax Relief and Health Care Act differs from the False Claims Act in that qui tam lawsuits are not allowed under the former. A qui tam lawsuit allows an individual to proceed on behalf of the government, potentially winning a case even if the government does not join the lawsuit. For IRS tax fraud and tax underpayment, the IRS prosecutes the case for tax fraud.
Discretionary Awards (26 USC § 7623(a)):
Even if a case does not meet the criteria for a mandatory award, it is still possible for a whistleblower to receive an award. Discretionary awards are possible for cases that result in “detecting underpayments of tax or bringing to trial and punishment persons guilty of violating the internal revenue laws”. The maximum award for discretionary awards is 15 percent of the tax recovery.
IRS Whistleblower Payouts
In 2019, the IRS paid out $120 million to 181 whistleblowers. The prior year the IRS paid out $312 million to 217 whistleblowers. The average IRS tax fraud reward over the last two years is $1.08 million per whistleblower.
The IRS can pay 15% to 30% of the case recovery for mandatory awards, and up to 15% for discretionary awards. The IRS has averaged just over 20% paid to whistleblowers over the last 2 years.
An award can be denied or reduced in some situations. The IRS can reduce an award by 10% or eliminate a reward in these conditions:
- The whistleblower is also an individual who planned and initiated the actions that lead to the underpayment of tax; or
- The whistleblower’s information is sourced from a judicial or administrative hearing, government report, audit, or investigation, or is sourced from public information in the news.
If the IRS determines the source of the information was public information, a public hearing or in the news, that can result in award reductions. Being a party to the fraud, including initiation and planning, can result in a reduced award. A whistleblower that was party to a tax fraud is not necessarily barred from a received an award, especially if the party learned of an ongoing planned and initiated scheme. If you have been asked to take part in an illegal tax scheme, even if you have participated in the scheme, you should contact an attorney and consider reporting the tax fraud to the IRS.
IRS Reward Form
In order to be eligible for reward, one must first properly file forms with the IRS. An IRS whistleblower attorney can assist you with how to proceed and complete the below mandatory IRS forms:
Form 3949-A: To report a business or individual.
Form 14157: To report a tax preparer whom you suspect of fraud, or an abusive tax scheme by a tax return preparer or tax preparation company.
Form 14242: To report someone is promoting or engaging in an abusive tax-avoidance scheme
Form 13909: To report a tax-exempt organization such as a church, charity or trade association
Tax Fraud Reward Lawyer
Schneider Wallace represents whistleblowers. Schedule a consult with our whistleblower law firm for a free and private legal consultation. To speak with a lawyer regarding IRS tax fraud, contact us at 1-800-689-0024 or info@schneiderwallace.com.