Even though the Internal Revenue Service has had a Rewards Program for many years, until recently, there was very little encouragement for tax whistleblowers or informants to come forward concerning their knowledge of the under-reporting of taxes. While it is well known that income tax evasion costs taxpayers approximately $300 billion a year, the Internal Revenue Service in the past has failed to aggressively address this problem. While enforcement actions against criminals are designed to help deter tax fraud, the $300 billion annual figure is proof, in and of itself, that such deterrence has not been effective in collecting back taxes. Moreover, the old “Form 211” IRS Rewards Program was singularly unsuccessful.
According to government statistics, between the fiscal years 2001 and 2005, only $27.3 million was paid by the Internal Revenue Service to informants as rewards for tips and information. The average individual reward under the old IRS Rewards Program was a mere $24,000.00. This is in stark contrast to results achieved under the Federal False Claims Act where awards for whistleblowers can and typically are in excess of 6 or 7 figures. The new IRS Whistleblower Rewards Program provides enhanced inducement for whistleblowers to come forward when they have knowledge of under-reported income. The new program is greatly improved because it provides that the whistleblower will receive anywhere between fifteen to thirty percent (15 – 30%) of any collected back taxes, plus interest and penalties on the back taxes owed. Moreover, to encourage the whistleblower to have confidence in the system, the whistleblower even has the right to appeal to a U.S. Tax Court any decision by the IRS that their rewards should be reduced below 30%, if the Internal Revenue Service is successful in collecting back taxes based on information provided by the whistleblower.
Our firm has already seen very encouraging signs that the new program is working as intended. We have received numerous inquiries from informants, on a nationwide basis, coming forward with significant information about the evasion of back taxes owed. We have also been encouraged by the response of the Internal Revenue Service to these claims when we have presented them. Thus, it appears that the new IRS Rewards Program is actually encouraging whistleblowers and informants to come forward and provide the Internal Revenue Service with information concerning their knowledge of income tax evasion. While the program is less than seven months old and is just getting started with very little back taxes actually collected, the most encouraging news is that the IRS has opened numerous files and is now embarked on numerous investigations which otherwise would not be taking place at all had the whistleblowers not come forward under the new program. This is certainly a change in the right direction.