Know of someone who owes the IRS taxes but has not paid? Does the IRS not know about these possible taxes? The IRS has paid whistleblowers for over 150 years to tattle on their fellow taxpayers. While paying awards used to be discretionary, it is now mandatory. The catch: the tax dispute must exceed $2 million.
Since 2006, the IRS must pay awards for whistleblowers who provide information if it substantially contributes to the collection of tax, penalties, interest, and other amounts when the amounts in dispute is more than $2 million. Congress set up a Whistleblower Office in 2006 to handle such submissions of information by taxpayers. This Office coordinates with other divisions of the IRS, analyzes information submitted, and makes award determinations. Once the Office determines an award amount, individuals may appeal these determinations to the U.S. Tax Court.
A whistleblower must meet several conditions to qualify for the section 7623(b) award program. To qualify for a whistleblower award, the information must:
• Relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000; and
• Relate to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question.
If the information meets the above conditions and substantially contributes to a decision to take administrative or judicial action that results in the collection of tax, penalties, interest, additions to tax, or additional amounts, the IRS will pay an award of at least 15 percent, but not more than 30 percent, of the collected proceeds resulting from administrative or judicial actions (including related actions), or from any settlement in response to an administrative or judicial action. The maximum award percentage decreases to 10 percent for cases based principally on specific allegations disclosed in certain public information sources (such as government audit reports). The Whistleblower Office also can reduce the percentage if the whistleblower planned and initiated the actions that led to the underpayment of tax.
In 2010, the IRS received 7,577 submissions from taxpayers. Of those submissions, 97 whistleblowers were awarded compensation for their information. Those 97 individuals were awarded $18,746,327. But don’t feel bad for the IRS: it collected $464,695,459 based on the whistleblowers information.
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