The IRS Whistleblower Program, authorized in 2006, is designed to give an incentive to tip off the IRS to find businesses that have errors in their financial statements, reporting or other potentially erroneous business practices resulting in non-payment of taxes. The program originally got off to a slow start but now has about 17 employees who investigate around the country. The Whistleblower Office received nearly 1,000 tips involving more than 3,000 taxpayers in fiscal years 2008 and 2009. Hundreds of the alleged tax underpayments were more than $10 million, and many were more than $100 million or more.
While many people would ignore the possible fraud or other routine, the IRS rewards tipsters with a percentage of the dollars being returned to the Treasury. Many of the tips involved small operations or ex spouses, but many also included larger employers.
In a recent case, an in-house accountant, tipped off the IRS about a tax lapse his employer ignored during 2007. After the IRS investigated, the accountant (who remained anonymous) received $4.5 million in the first IRS “whistleblower award.” This accountant’s tip netted the IRS $20 million in taxes and interest. The award issued a 22 percent cut of the recovered taxes.
The whistleblower program only promises awards for returns of $2 million or more. The IRS is looking for solid leads related to noncompliant taxpayers. This program is a significant change to the way the IRS had formerly operated. New Internal Revenue Code Section 7623, has been issued to further detail the program.
The program is designed to be a win-win for both the government and taxpayers as the dollars that are being returned to the Treasury normally wouldn’t be.