Recent news items report a spike in awards by the IRS for “whistleblowers” who turn in tax cheats. [Recent Wall Street Journal item HERE] The spike is real, as is the IRS Whistleblower program. However, the number of whistleblower claims is small. They also appear to vary by region. We have seen little of it in the states in which we do most of our tax controversy practice.
The IRS Whistleblower program was given a big boost by legislation in 2006 that made awards more lucrative and achievable. Final regulations implementing the changes were issued in 2014. Awards are based on percentages of the IRS’s actual monetary recovery (tax, penalty, and interest). Awards are generally at least 15% and can be 30% of the tax recovery. And they are available even to persons who may have participated in the tax underpayment in significant ways.
The IRS maintains a Whistleblower Office to manage these claims. Until 2016, around 100 whistleblower claims were awarded each year. The number of awards jumped above 400 in 2016. In fiscal 2018, the IRS paid over 200 claims totaling over $1.4 Billion. But keep in mind that this is a tiny fraction of the millions of tax returns filed each year.