In 2007, the Internal Reporting Service (“IRS”) Whistleblower Office was established as part of a series of enhancements made to the existing IRS Informant Program and is found in the Tax Relief and Health Care Act of 2006. The act imported concepts found in the False Claims Act (FCA) in order to better address a 2006 report that detailed rampant, unchecked abuses of the tax system that amounted to trillions of dollars in unpaid taxes. Under the old system there was no incentive for persons with knowledge of tax abuse to blow the whistle, as it would likely destroy ones career with no reward for information that led to a successful recovery of unpaid taxes. Under the new FCA-inspired IRS Whistleblower system incentives were included to encourage persons with specific and credible evidence of tax fraud to come forward.
The law provides financial rewards to whistleblowers in cases where the potential amount owed to the IRS by a business – any combination of back taxes, penalties, interest and additions to tax – exceeds $2 million. If the potential tax cheat is an individual, their gross income must exceed $200,000. Should the IRS whistleblower’s information lead to an action, the IRS code mandates that the whistleblower be awarded 15-30% of the money it collects from the violator. The percentage is determined by how much was the recovered was based on the whistleblowers’ information. It is worth noting that if the whistleblower planned and/or initiated actions that led to the tax fraud for which they are blowing the whistle, the award may be reduced.
While the FCA inspired it, the IRS Whistleblower Program has some key differences. In IRS whistleblower actions the government must intervene; if the government declines, then the action is over and the whistleblower cannot continue the action. In a False Claims Act lawsuits, the whistleblower can continue if the government chooses not to intervene. Another key difference is that unlike FCA actions, which are filed under seal with a court, IRS whistleblowers file a claim directly to the IRS using a Form 211.