The tax attorneys at Nardone Law Group in Columbus, Ohio, continuously monitor the latest developments in the Internal Revenue Service’s efforts to identify taxpayers who are paying fewer taxes than they actually owe to the government. The IRS Whistleblower Program provides an incentive to people to come forward and identify other taxpayers, including individuals and businesses that have failed to pay the tax that they owe. If the IRS uses the information provided by the whistleblower, the IRS may award the whistleblower up to 30 percent of the additional tax, penalty, and other amounts the IRS collects. The recent change to the whistleblower statute gives whistleblowers a right to receive an award for the information they provide to the IRS if the case meets certain thresholds.
Changes to the Whistleblower Statutes
In December 2006, the Tax Relief and Health Care Act of 2006 made fundamental changes to the Whistleblower Program. The IRS Whistleblower Program pays money to people who blow the whistle on persons or businesses who fail to pay the tax that they owe. The key change in the law was the addition of I.R.C. § 7623(b), which makes certain whistleblower awards mandatory. The new law set award ranges based on percentages of the collected proceeds, and established a Whistleblower Office within the IRS to administer those awards. The Whistleblower Office analyzes the information submitted, and makes award determinations. The statute provides that the Whistleblower Office may investigate the claims itself or assign it to the appropriate IRS office for investigation. A whistleblower’s entitlement to an award turns on whether there was a collection of proceeds and whether that collection was in some way attributable to the information provided by the whistleblower. After the 2006 amendments, I.R.C § 7623 now provides for two types of awards a whistleblower may be entitled.
NLG Comment: In a later article, we will address the legal requirements for a whistleblower submission, as well as, the information the Whistleblower Office looks for when analyzing a submission.
1. Discretionary Awards under I.R.C § 7623(a). The first type of award program, governed by I.R.C. § 7623(a), is for cases that do not meet the $2 million in dispute or $200,000 annual income threshold for an award under § 7623(b). The awards through this program are less than what is recoverable under § 7623(b), with a maximum award of 15 percent up to $10 million. The determination of award amount depends upon the extent to which the whistleblower substantially contributed to such action. In addition, the awards are discretionary and the whistleblower cannot dispute the outcome of the claim in Tax Court.
2. Mandatory Awards under I.R.C. § 7623(b). The second type of award program, governed by I.R.C. § 7623(b), is for cases where the taxes, penalties, interest and other amounts in dispute exceed $2 million. If the case is related to an individual, the individual’s annual gross income must exceed $200,000 for at least one of the tax years in question. In these cases, the IRS will pay the whistleblower between 15 and 30 percent of the collected proceeds.
The addition of § 7623(b) is significant because it does not put a cap on the dollar amount a whistleblower may receive as an award. Thus, a person who comes forward to identify a large underpayment of tax by another taxpayer could potentially collect millions of dollars. Further, the awards under this section are mandatory. This section also provides the whistleblower the option to appeal to the U.S. Tax Court, under I.R.C. § 7623(b)(1), (2), or (3), within 30 days of such determination, if the whistleblower disagrees with the amount of the claim. Although § 7623(b) has provided whistleblowers with the opportunity to receive a higher percentage of awards, the IRS has the discretion to reduce whistleblower awards in some circumstances.
NLG Comment: In a separate article we will explain the factors the IRS considers when it determines an award percentage.
Contact Nardone Law Group
Nardone Law Group frequently represents individuals and businesses in federal and state tax issues, including both representation and defense against whistleblower claims. If you have information on an individual or business that is paying fewer taxes than they owe to the government, or you are being investigated or prosecuted by the IRS, you should contact one of the experienced tax attorneys at Nardone Law Group to learn more about the Whistleblower Program. We will thoroughly review your case to determine what options and alternatives are available.