April 12, 2019

Reporting IRS Tax FraudThe IRS has a longstanding program that provides “awards” to persons who advise them of persons and entities that are not properly reporting and paying their taxes.  The program is geared toward large cases (tax, penalty, etc. exceeds $2 million or individuals whose income exceeds $200,000) but they also have the discretion to make awards in other cases.

The typical award is 15% but can go as high as 30% of the proceeds collected by the IRS. The award is less if the whistleblower planned the tax avoidance activity or the information was from public sources.  Because “proceeds” is broadly defined to include tax, penalty, interest, criminal fines, civil forfeitures and violations of reporting requirements, even a “small case” can quickly result in a decent award.  Suppose, the reported taxpayer was underreporting by only $10,000 and the IRS goes back only 3 years.  When you add penalty and interest, that $30,000 case can quickly become a $60,000+ case.  A 15% award of $9,000 is pretty good return on the effort to report the tax violation.

Form 211 “Application for Award for Original Information” is used to start the whistleblower process.  You must be able to provide very detailed information and supporting documentation.  Merely stating “at the recent pool party John was telling us all how he had 2 sets of books” may be enough for the IRS to start an investigation but it is unlikely to get you an “award”.

Once you file Form 211, the IRS is limited to telling you if the claim is open or closed.  They are prohibited from disclosing confidential tax information (except to Congress, but that can be the subject of another blog) to you.

The process is also very slow – expect it to take 5 to 7 years for the case to be completed and a decision made on whether an award will be made or not.

In the 2018 Fiscal Year, the IRS paid $312 million in whistleblower awards for cases in which it collected $1.441 billion.

If you need assistance in blowing the whistle or want to work on tax matters to avoid the IRS, please feel free to call us at (717) 724-9821.

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