For more than 10 years, the Internal Revenue Service has paid informants to lead investigators to alleged tax dodgers. Since George W. Bush signed the Tax Relief and Health Care Act of 2006, IRS has recovered $3.4 billion, partly through the use of informants and resulted in payouts of $465 million to whistleblowers. It is one way that the IRS seeks to make a dent in the $458 billion of revenue lost every year to tax evasion. During his confirmation hearings, Secretary of Treasury nominee Steven Mnuchin expressed support for the program.
To fink on fellow residents and citizens, an informant must first file a Form 211: an “Application for Original Information” of the IRS. The form requires information on the targetted person or entity, as well as the alleged violation. Once the form is turned sent to the IRS, it is up to the IRS Whistleblower Office to investigate.
If the IRS decides to proceed with an investigation at all, the process may take between five to seven years before the alleged tax fraud goes through all of the proceedings and appeals before the federal government collects its due.
But the wait can be profitable for the informant. If the amount of taxes owed to the federal government -- plus penalties and interest -- exceeds $2 million, and the person investigated has earned in excess of $200,000 in one of the years in question, an informant can reap between 15% to 30% of the amount recovered. But even if the income and taxes owed do not meet the standard, informants can still make as much as 15%, if anything, from the IRS.
A former employee of JPMorgan was a whistleblower who drew the attention of the IRS to hundreds of millions of dollars in alleged tax violations involving retirement accounts. Because blowing a whistle on corporations involves higher amounts of unpaid taxes, resultant higher bounties can mean a payday for lawyers assisting whistleblowers.
Philadelphia lawyer Eric Young earned the first payout from the Whistleblower Program in 2011, netting $4.5 million. Lawyers such as Young assist whistleblowers through the legal complexities of the process in order to prepare a case before presenting it to the IRS. His firm has seen three big payouts and are expecting one that may yield $1 billion to the IRS.
In the 2016 fiscal year, the IRS paid out $61 million to 418 tax whistleblowers, representing a decrease in dollar value over the more than $103 million for fiscal year 2015. In a case settled in January, over $17 million
in unpaid taxes were collected, yielding a payout for a husband and wife pair of whistleblowers and their attorneys.
Retaliation is a possible whistleblowers must face. Having a lawyer can be helpful. The Government Accountability Office and the IRS are planning to implement protections for whistleblowers, as well as penalties for whistleblowers who improperly disclose taxpayer information received from the IRS during an investigation.
Sen. Chuck Grassley (R-IA), who chairs the Judiciary Committee, recently questioned President Trump’s nominee for Secretary of Treasury Steve Mnuchin about the issue of “collected proceeds” for whistleblowers. Grassley asked, “Can I count on you to be support of the whistleblower program and work to ensure its success and would you be willing to review the IRS’s administration program including its very narrow interpretation of the words ‘collected proceeds’?”
Mnuchin gave the senator assurances that he supports the whistleblower program. “We are aware there is tax fraud. There is tax fraud as you said, and we need to be diligent and I believe that the whistleblower laws are very important part of that. I will work very hard with you on that.”