The Internal Revenue Service (IRS) Whistleblower Office administers the whistleblower award program under section 7623 of its legislative code. This section authorizes the agency to issue whistleblower awards in return for information that helps recover significant amounts of taxpayer dollars.
Whistleblowers who provide original information to the IRS that results in the collection of more than $2 million in taxes, penalties, interest, and other amounts are eligible to receive up to 30% of the recovered proceeds.
Over the last several years the IRS has paid hundreds of whistleblower awards totaling hundreds of millions of dollars. An IRS whistleblower does not need attorney representation in order to submit information and be considered for an award, but counsel is highly recommended.
The IRS does not follow up on all whistleblower tips and has discretion over how much to award informants. An attorney can make sure that your submission qualifies under the Whistleblower Act and help you secure the largest award possible. An attorney would work with the whistleblower to ensure that they are reporting tax evasion issues (illegal) rather than tax avoidance issues (legal.)
Below, some common types of whistleblower-reported tax fraud are explained, as well as how you can report them. To speak with our experienced IRS whistleblower attorneys about a potential claim, contact us for a confidential case review.
Committing tax fraud is different than simply making a mistake on your IRS return. Tax law is complex and returns often contain errors. Making an error is considered negligent, but not necessarily fraudulent. Fraud, on the other hand, is committed when a taxpayer intentionally and knowingly falsifies their tax documents. Fraudulent tax returns are typically submitted to reduce tax bills or inflate tax refunds.
Failing to Report Income
Misrepresenting income is one of the most common forms of tax fraud. It is committed when a taxpayer omits income sources (such as hiding money in an offshore account or failing to report income earned from a job or business) or willfully underreports income (i.e. reporting less income than is actually earned).
False Deductions or Credits
A taxpayer can reduce their tax burden by claiming false or overstated deductions or credits. For example, a taxpayer might falsely claim that he made a large, tax-deductible charitable donation without proof of the donation, claim dependents on a tax return who are not truly dependents, overstate home office deductions, or improperly claim earned income tax credit (EITC).
Failing to File a Tax Return
Tax returns are due on April 15 of each year, with limited exceptions. One exception is that those whose income falls below the IRS minimum don’t have to file a return. But if a taxpayer has earned income on which taxes are owed and fails to file a return, this may constitute tax fraud.
When to Report Tax Fraud to the IRS
Although any knowledge of tax fraud should be reported to the government, the IRS is primarily interested in these two fraud types:
- Tax fraud committed by businesses or corporations for which the disputed amounts exceed $2 million; and
- Tax fraud committed by individuals whose gross income exceeds $200,000 per year, and for whom the disputed amount is over $2 million.
The IRS is most concerned with these fraud categories because they have a greater impact on the overall tax system and can be indicative of larger fraud schemes.
Reward Eligibility for Whistleblowers
If a whistleblower reports defrauded amounts over $2 million or fraud committed by individuals with an income above $200,000 or corporations and businesses, a financial reward may be given in the amount of 15 to 30 percent of the total penalty recovered.
For whistleblower reports that do not meet the above criteria, the maximum reward is 15 percent of any amount collected from the fraudulent party.
More Information About Becoming a Whistleblower
The IRS website has a number of helpful resources for would-be whistleblowers, including:
- Information about the whistleblower informant award
- A list of the year’s “Dirty Dozen” list of tax scams
- Whistleblower Office Annual Reports
- How to report suspected tax fraud
Speak with a Lawyer Before You Blow The Whistle on IRS Tax Fraud
Whistleblower cases are complex legal claims with very specific filing requirements and deadlines. It’s in your best interest to speak with a whistleblower attorney before submitting a claim.
The whistleblower attorneys at Morgan & Morgan have the resources and experienced needed to successfully represent IRS informants. Learn how we can help during a no-cost, no-obligation case review.