Internal Revenue Code section 7623 was amended by Congress in December 2006 to increase the payments to individuals who provide information to the IRS about tax abuses that may have resulted in more than $2 million of unpaid taxes, penalties and interest.  The maximum reward an individual can receive is 30% of the recovered taxes. 

The IRS has had the authority to pay whistleblowers since 1867.   The 2006 law created a new Whistleblower Office at the IRS.  The other difference is that the amount is no longer discretionary (that is, dependent on how generous the IRS felt at the time).  Prior to the law the amount was set at 15%.  The new law states that the whistleblower will receive 15 to 30 percent of the collected proceeds.

Think about it… a well-equipped informant can make a lot of money from a prior employer who was engaging in tax hanky-panky!

It is as easy as filing a specified form with the IRS Whistleblower Office.  This is a separate form from the specific one that can be filed to report a suspected tax fraud without seeking a reward. 

It is still too early after the enactment of this new law to analyze the effects on the amounts collected by the IRS and the amounts awarded to whistleblowers.  These IRS investigations are lengthy and tax recovery can take many years (reward payout is dependent on tax recovery).  However, the IRS has seen a considerable increase in the submissions of whistleblower forms and the alleged amounts of tax underpayments in the two years under the new law. 

Maribel Torres-Piñero, CPA