This year, the IRS Whistleblower Office is celebrating its 10-year anniversary. The office was created under the Tax Relief and Health Care Act of 2006 to oversee the IRS whistleblower program, which is a critical part of overall enforcement and compliance.

Informants have helped the IRS collect $3.4 billion in additional revenue since the program began. This includes tax, penalties, interest, additions to tax and additional amounts in dispute. In turn, the IRS has approved more than $465 million in monetary awards to whistleblowers.

New Program

In addition to establishing the IRS Whistleblower Office, the Tax Relief and Health Care Act raised reward percentage amounts for informants. They are currently at least 15%, but not more than 30%, of the proceeds collected from an administrative or judicial action, as long as certain conditions are met.

The previous whistleblower program collected a modest $27.3 million in total collected revenue for the five fiscal years that ended in 2005. In contrast, the IRS Whistleblower Office has collected nearly $1.2 billion in additional revenue for the three fiscal years that ended in 2016, though it’s also paid out more than $217 million in awards to informants.

The IRS views today’s enforcement efforts as “very productive,” according to its latest report to Congress, which was released on January 13, 2017, as they collected nearly $369 million in 2016 alone. The IRS had originally hoped that the invigorated program would bring in $182 million in previously uncollected revenue in its first ten years.

The number and amount of awards paid each year can vary significantly, especially when a small number of high-dollar claims are resolved in a particular year. For example, though the amounts collected in 2016 (approximately $369 million) were less than the amounts collected in 2015 (approximately $501 million), there were more awards made in 2016 (418 awards totaling about $61 million) than in 2015 (99 awards totaling about $103 million).

Looking Ahead

The IRS deployed resources from across the agency to help address or eliminate backlogs of whistleblower claims. They reported that 2016 was a “transformative” year for its Whistleblower Office.

As the IRS addressed its backlog, it closed more than 21,000 open claims in 2016, a 99% increase from the previous year. Common reasons for closures include:

• Claims being rejected due to a nonspecific, noncredible or speculative allegation,
• The issues being below the threshold for IRS action,
• Claims being denied due to examination or whistleblower issues, and
• The information being already known to the IRS.

In 2016, the IRS re-engineered and streamlined its claims process to avoid future backlogs.

Whistleblowing Basics

You may feel an ethical obligation to file a claim with the IRS Whistleblower Office if your boss, neighbor or archenemy brags about underpaying taxes. There are two types of awards. Information for the first type of award must meet the following criteria to qualify:

• It must relate to an action in which the tax, penalties, interest, additions to tax and additional amounts in dispute exceed $2 million.
• It must be signed and submitted under penalties of perjury.
• It must relate to a taxpayer, and for individual taxpayers only, whose gross income exceeds $200,000 for at least one of the tax years in question.

If a submission doesn’t meet these criteria (for example, it doesn’t meet the dollar threshold of $2 million or the case involves an individual with a gross income of less than $200,000), the IRS may consider it for the discretionary whistleblower award program. The awards through this program are less, with a maximum award of 15% up to $10 million.

To file a comprehensive whistleblower claim, contact your tax advisor. The IRS also wants to know how and when you learned about the information that forms the basis of the claim, as well as a complete description of your present or former relationship to the taxpayer you’re filing a claim against. Also be prepared to provide a written narrative that includes a description of the amounts due and supporting documentation, such as the location of assets and copies of books and records, ledger sheets, receipts, bank records, contracts and emails.

Time Frame for Whistleblower Claims

Once you submit a claim, the IRS Whistleblower Office will mail you an acknowledgment letter within days of receiving your claim. The office will send you a claim denial letter if the IRS doesn’t use the information. As the claim is investigated, a subject matter expert may contact you to make sure that the IRS fully understands the information that’s been submitted.

It’s also important to note that awards are based on collected proceeds. Because the IRS can’t make award payments until the accused taxpayer has exhausted all appeal rights and no longer has the ability to file a claim or refund, whistleblowers often must wait five to seven years after filing a claim to receive an award.