The IRS Tax Whistleblower Program: Part I, Whistleblower Awards
In 2012, Swiss bank whistleblower Bradley Birkenfeld received a record-breaking $104 million award from the IRS for helping uncover widespread U.S. tax fraud by Swiss bank UBS and numerous wealthy Americans.
Most tax whistleblowers will never see anything close to the award received by Birkenfeld, who is widely credited with lifting the veil of Swiss banking secrecy and whose information brought more than $5 billion in unpaid taxes from individuals and banks into the IRS coffers.
Cash awards to whistleblowers
The IRS is authorized to pay private citizens for information leading to the collection of underpayment of taxes and for identifying individuals guilty of tax evasion. There are two types of awards:
The large-awards program under 26 U.S. Code Section 7623(b): If the individual being reported has gross income in the tax year at issue in excess of $200,000 and the amount in dispute exceeds $2,000,000, the amount of the whistleblower award is between 15 and 30 percent of the sum collected, including penalties, interest and any additional taxes or other amounts.
Note that the upper limit is 10% if the information was gleaned from a source such as a judicial or administrative hearing, governmental report, hearing, audit or investigation, or the news media, and the award may be reduced further or denied altogether if the whistleblower initiated the actions that led to the tax underpayment or evasion.
The small-awards program under 26 U.S. Code Section 7623(a): If the case does not meet the $200,000/$2,000,000 threshold set forth under Section 7623(b), an alternative discretionary program under I.R.C. Section 7623(a) provides awards of up to 15% or $10,000,000.
A reward may also be paid if the information provided leads to the denial of a claim for a refund that otherwise would have been paid.
A Section 7623(b) whistleblower may appeal their award (or denial of their award) in U.S. Tax Court. There is no opportunity for appeal for Section 7623(a) informants.
In its 2013 annual report, the IRS Whistleblower Office reported that following collections of more than $367 million that year alone, it paid out awards to 122 whistleblowers totaling $53 million, an average of $435,000 per person.