The IRS estimates that the United States loses over $450 billion per year due to tax fraud. Therefore, the IRS has instituted a whistleblower reward program providing incentives to report tax fraud. Here is everything you need to know about IRS whistleblower laws and tax fraud reporting.
How Does the Whistleblower Law Work?
Under IRC Section 7623(b), the IRS is required to issue a reward to tax whistleblowers of 15% to 30% of proceeds collected from tax fraud payments if:
- They provide relevant information to the IRS whistleblower office using IRS Form 211
- The fraud has not been previously reported
- The IRS actually uses the information to prosecute or settle the tax fraud
- The person makes the report within three years of the filing of the incorrect tax return, or six years if the tax return understates income by at least 25%. There are no time limits on claims if a false tax return was filed with the intent to commit tax evasion.
What Can Be Reported to The IRS to Receive a Reward Under the Whistleblower Law?
You can report any underpayment of taxes, whether intentional or not. However, only reports of underpayments of taxes of over $2 million are automatically eligible for the program. For anything less than $2 million, any reward is at the discretion of the IRS.
What Are My Responsibilities Under California Whistleblower Laws?
You should obtain a paper trail of the tax fraud, without breaking the law yourself. If you are at all responsible for the fraud, it is important to legally protect yourself when reporting; the IRS will likely discover this, and there are ways you can legally protect yourself. In addition, declarations to the whistleblower office are given under penalty of perjury, so you have the responsibility to report accurately.
What Do I Include When Submitting a Tip to the IRS?
The IRS outlines the type of specific and credible information that whistleblowers should provide when submitting a tip including:
- A description of the amounts due, including a written narrative explaining the issue
- Information to support the narrative
- A description of the documents or supporting evidence, not in the whistleblower’s possession or control
- An explanation of how the whistleblower obtained the information and if there is any relationship to the subject of the claim
It is important to provide the best and most information available as it will not only help the case but also increase the reward percentage you receive.
Related: Do I Have a Case for Wrongful Termination?
What Happens After I Submit a Whistleblower Tip to the IRS?
Once you submit a tip, the IRS whistleblower office will determine if your claim has merit, and then forward the tip to the appropriate division for further development. This initial review generally takes 30-90 days and the Subject Matter Experts examination will take an additional 90 days. During this examination, you may be contacted to ensure that the IRS fully understands the information submitted.
If the IRS does not pursue the claim, the agency will send a claim denial letter. However, if the IRS does decide to pursue the claim, you will be able to receive updates from the IRS concerning the progress of the investigation.
What Should I Do If I Have Information on Tax Fraud That Could Be Useful to the IRS?
The decision to report tax fraud to the IRS could have ramifications, so you should consider seeking legal advice. There are legal protections against retaliation and to preserve anonymity, but an attorney familiar with the IRS whistleblower program can explain how the law specifically applies to you. If you have information about tax fraud, contact Her Lawyer and our experienced attorneys can provide legal advice.