Whistleblowers have played a key role in sparking government investigations in areas such as health care fraud and False Claims Act cases. Whistleblowers now may become a force to reckon with in the tax arena, given the lure of hefty bounties and the interim guidelines issued December 19, 2007 by the IRS for informants wishing to report large-scale tax evaders -- and to claim a reward for doing so.
Where the unpaid taxes, penalties and interest exceed at least $2 million, whistleblowers could receive awards equal to at least 15 – 30% of the proceeds collected, provided the IRS’ new Whistleblower Office determines that the information submitted by the informant substantially contributed to the IRS’ detection and recovery of unpaid taxes. Whistleblowers must submit their sworn information on an IRS form, including specific and credible specifics concerning the tax evasion being reported and an explanation of how they learned of the alleged violation. Such claims cannot be made: anonymously; by one person (such as an attorney) on behalf of another; by an entity other than a natural person; by federal or state employees or contractors who learned of the underlying information in the course of their employment; by an individual required by law to disclose the information; or by an individual precluded by law from making the disclosure. An award will be denied altogether if the informant is criminally convicted of the tax-evasion scheme which he then sought to disclose, but an award may only be reduced if the informant participated in or even initiated the scheme but was not criminally prosecuted.
The IRS interim guidelines are set forth in Notice 2008-4 (“Claims Submitted to the IRS Whistleblower Office under Section 7623). They implement a December, 2006 law (the Tax Relief and Health Care Act of 2006, Pub. L. No. 109-432 (120 Stat. 2958) amending Title 26, United States Code, § 7623).