Learn all about being an IRS Whistleblower

The IRS receives Whistleblower complaints regularly, but there are several key things you should know first.

Occasionally, you may discover that an entity you know is not paying the correct tax due to the IRS. Naturally, you may want to approach the authorities and tell them about your discovery. If you’re a whistleblower for IRS authorities, is your identity protected? 

That’s what we discuss in more detail in this article. 

In short, the IRS does not guarantee anonymity. However, it does try to provide whistleblowers with the maximum identity protection allowed under the law.

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Is the IRS whistleblower program confidential?

The IRS Whistleblower Program does not guarantee to protect the identity of whistleblowers, unlike the SEC Whistleblower Program. In many cases, the IRS requires the whistleblower to act as a witness in a court of law. So it can’t protect them from scrutiny by the defense. 

However, there are some circumstances in which an IRS whistleblower is anonymous. For instance, tax whistleblowers can appeal IRS award determinations. The tax court will then decide whether to protect their identity or not. They do this by balancing the need for the public to know about the fraud against the social interests of protecting the whistleblower.

This determination may require substantial deliberation. In many cases, the IRS does not award anonymity. However, if there is a risk that the whistleblower could become a target of violent crime, they will.

For example, if a witness testifies against a group related to terrorism, the IRS may decide that the risks to the whistleblower outweigh the benefits to society. In that case, the court may proceed anonymously. 

In other cases, the tax courts will deny anonymity. For example, courts will sometimes deny whistleblowers the right to proceed anonymously if they have an unusual history of tax fraud tip-offs. 

As in many legal situations, therefore, the concept of “balance” comes into play. The court is more likely to issue anonymity if: 

  • There is a chance that the whistleblower may experience physical violence if they come forward with information
  • The whistleblower is at high risk of retaliation – for instance if the offending entity is their employer
  • Disclosing the identity of the whistleblower would severely harm their professional standing in the local community. For instance, whistleblowers are less likely to receive identity protection if retired.

What are IRS whistleblower rewards?

Coming forward with information entails both personal and professional risk. For that reason, the IRS may offer whistleblower reward payments when they identify tax evasion. According to the law, the IRS whistleblower program must pay tax whistleblowers a percentage of the proceeds collected from tax fraud, if they meet certain conditions.

The whistleblower cannot force the IRS to act on a tip. So, for instance, even if they know tax fraud is happening, they cannot legally compel the IRS to take action. 

In small cases (the amount in dispute is $2 million or less; gross income of $200,000 or less for an individual) the IRS decides whether or not to give an award. It’s completely up to their discretion.

For large cases involving more than $2 million, the whistleblower awards are mandatory under the law. The whistleblower is eligible to receive a percentage of the amount recovered by the IRS. The recovery can include not only the taxes owed, but penalties, interest, and even related criminal fines and civil forfeitures.

Finally, the IRS must actually collect the outstanding amount. So whistleblowers cannot collect payment if the fraudulent entity doesn’t pay the money they owe.

Getting help with IRS Whistleblowing

The IRS awards around 500 whistleblowers money every year. In total, the IRS annually pays $50 to $150 million in whistleblower awards. 

If you decide to become a whistleblower, you should seek the advice of an attorney. Dealing with the IRS, Department of Treasury and various internal revenue laws can be challenging.

Attorneys can also provide legal assistance if you experience any retaliation for your actions. On many occasions, becoming a whistleblower can seriously affect your career.

You may, for instance, experience termination of your employment contract, or colleagues will try to “out” you by shunning you from opportunities or tasks. You may even experience harassment or a change in your job duties. 

Attorneys can help protect whistleblowers by: 

  • Helping gain reinstatement to their previous position in the case of a demotion or change in responsibilities
  • Return of any lost wages and benefits related to becoming a whistleblower
  • Compensation or damages for distress or harm resulting from retaliation 
  • Forward pay in return for lost future earnings
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