Whistleblower Claims Process
The IRS Tax Whistleblower Program: Part II, The Claims Process
As far back as 1867, the Secretary of the Treasury had the discretion to grant awards of whatever amount he deemed necessary for information leading to violations of the internal revenue laws. The Tax Relief and Health Care Act of 2006 made these awards mandatory and added, among other things, whistleblower appeal rights and caps, which were later amended to the current figures presented in Part I of this blog series.
The Tax Relief and Health Care Act of 2006 also created the SEC Office of the Whistleblower to administer all whistleblower claims and awards. This blog post will focus on the whistleblower claims process and pitfalls.
Submitting a tip to the IRS
Whistleblowers have the option of submitting their information online through the IRS’ Tip, Complaint or Referral Portal or mailing or faxing the SEC directly via the Whistleblower Office.
In addition to identifying information, additional information such as where and how the information was obtained, and evidence unless impracticable. The information must also be submitted under penalty of perjury. The information provided to the IRS must be specific and credible – educated guesses and otherwise unsupported speculation will not be considered. Note that other restrictions apply, such as circumstances in which the whistleblower is already obligated by law to disclose the information, or where the whistleblower orchestrated or benefitted from the scheme to begin with.
If the whistleblower prefers to remain anonymous but still take part in the SEC Whistleblower Compensation Program, they must have an attorney sign the form – which at any rate is highly advisable for reasons we will discuss below.
Making a claim for an award
To make a claim for an award, the whistleblower must file Form 211, Application for Award for Original Information and send it to the IRS Whistleblower Office. The same form is used for awards under both Sections 7623(a) and (b).
For individuals who are not interested in an award, instead of Form TCR and Form 211, they should complete Form 3949A, Information Referral or simply write a letter to the IRS.
Then you wait…
Critics of the whistleblower program state that the IRS is slow to act on informants’ tips, and are concerned that this may "cause the tips to dry up." The number of tips made each year are increasing slightly, so this may not be a valid criticism. However, note that it takes approximately five to seven years to collect the taxes from a noncomplying taxpayer and whistleblower awards are issued from the taxes collected. So in the meantime, you wait.
You should be told the status and disposition of the claim, whether the claim is still open or if it has been closed. If closed, you should be informed as to whether the claim is payable (and for how much) or that the claim has been denied. A claim may be denied for a number of reasons, including:
- The IRS already had the information you provided from another source
- An audit or investigation determines that there is no tax liability
- There is liability, but the taxpayer succeeds in a judicial or administrative appeal
- Collection cannot be made because the taxpayer has no assets from which a collection can be made
As noted in Part I, only claims for awards under section 7623(b) may be appealed. Appeals must be made to the U.S. Tax Court. There is no appeals process for awards under section 7623(a).
Whistleblowing awards are taxable!
Keep in mind that once received, a whistleblowing award is subject to federal tax reporting and withholding requirements.