Everything You Need To Know About The New IRS Whistleblower Program

August 24, 2017 : Gil Charney

Nobody likes a snitch. Well, nobody that is, except the IRS, who will reward you handsomely if you provide them with specific and reliable information about a tax cheat.

Yes, it’s true – there’s a program, called the IRS Whistleblower Program, managed by its Whistleblower Office. The IRS is very serious about collecting its debts and reducing the $460 billion tax gap, the difference between what the IRS thinks it should be collecting and what it actually does. The tax gap is a combination of under-reporting or underpaying tax liabilities, or simply not filing at all.

While the IRS may not send an agent out with a hammer or brass knuckles to ring a tax cheat’s doorbell at 3 a.m., it hopes to enlist honest citizens who know of tax fraud and who are willing to help the IRS collect what’s owed – with an award of up to 30% of the taxes, penalties, and interest it collects.

For the government’s fiscal year 2016, the IRS Whistleblower Program awarded 418 whistleblowers more than $61 million, at an average award of almost $146,000. Not chump change for someone who’s willing to inform on a tax cheat.

But before you snitch on your mother-in-law or your boss, keep in mind that the IRS also rejected 12,395 claims from whistleblowers because the allegations were considered “Not Specific, Credible, or are Speculative in Nature.” Also, be aware that the whistleblower program has a threshold amount of taxes, penalties and interest due before the IRS will take action. If the alleged tax cheat is a company, the unreported taxes must exceed $2 million, but if the alleged tax cheat is an individual, the threshold is gross income of at least $200,000.

Successful claimants generally can expect between 15% and 30% of the amounts collected by the IRS, with the actual percentage depending on several factors, such as the extent to which the whistleblower’s information contributed to the collection action. For example, if the whistleblower’s information was not very substantial or helpful compared to other sources of information, the percentage cannot exceed 10% of the amount collected.

If you know of someone, or some company, that meets the thresholds above, you still need to consider whether you want to start the claim process. For example, there might be other considerations such as who that tax cheat is (a sibling, your employer, etc.), and there may be other options to consider. For example, maybe the non-reporting is due to ignorance, and not willful noncompliance. Also, don’t bother initiating a claim based on speculation, suspicion, or a conversation. To succeed in collecting any taxes and penalties due, the IRS will need much stronger documentation than a hunch.

Only individuals (not companies) can initiate the process by completing Form 211, Application for Award for Original Information. But be patient – a successful whistleblower may not see any award for at least 5 to 7 years. Oh, by the way, any whistleblower award is taxable, so if you actually succeed in receiving any award, don’t forget to report it!

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Gil Charney

Gil is the Director of Tax Law and Policy Analysis for The Tax Institute at H&R Block.