Do You Get a Reward for Reporting Tax Evasion?

The Internal Revenue Service (IRS) offers monetary rewards to individuals who report tax evasion. This system encourages people with knowledge of tax noncompliance to come forward by providing specific and credible information. Whistleblowers can help the government recover unpaid taxes from non-compliant individuals and businesses, and the program helps the IRS uncover tax fraud that might otherwise go undetected.

Eligibility for an IRS Whistleblower Reward

Eligibility for a reward is governed by Internal Revenue Code Section 7623, which outlines two distinct programs. The information provided must be specific, credible, and generally not known to the IRS from other sources.

The primary program targets large-scale tax evasion where the information leads to substantial recovery efforts. To qualify for an award under this program, the total amount of tax, penalties, and interest in dispute must exceed $2 million. If the report concerns an individual taxpayer, their gross income must also be more than $200,000 for at least one of the tax years in question.

For cases that do not meet the $2 million threshold, a second, discretionary program exists. This program provides the IRS with the authority to pay rewards in a wider variety of cases, including those involving smaller amounts of unpaid tax, as long as the information is useful to the IRS.

Almost anyone with knowledge of tax noncompliance can file a claim, including former employees, accountants, or business partners. However, certain individuals are ineligible, such as government employees who gained the information through their official duties. An award will also be denied if the whistleblower is convicted of a crime connected to the tax fraud they are reporting.

How the Reward Amount is Determined

The calculation of a whistleblower reward depends on which program the claim falls under and the amount of money the IRS successfully collects. For significant cases, the law mandates the reward to be between 15% and 30% of the collected proceeds, which includes taxes, penalties, and interest.

The specific percentage awarded within this range is determined by the IRS Whistleblower Office. This office evaluates several factors, such as the significance of the information provided. A higher percentage is often awarded if the whistleblower provides exceptional cooperation or offers assistance that is instrumental to the investigation. Conversely, the award can be reduced for negative factors, like the whistleblower’s own contribution to the tax underpayment.

Under the discretionary program for smaller cases, the potential reward is capped at a maximum of 15% of the collected amount. There is also a total cap on the reward itself, which cannot exceed $10 million per case. The determination of this award is at the discretion of the IRS and is based on the value of the information provided.

Rewards are not paid until the IRS has concluded its investigation and collected the owed taxes from the non-compliant taxpayer. This process includes the expiration of all periods for the taxpayer to file a claim for a refund. If a whistleblower disagrees with the final award determination, they have the right to appeal the decision to the United States Tax Court.

Information Needed to File a Claim

Submitting a claim for a whistleblower reward requires filing IRS Form 211, Application for Award for Original Information. This form must be completed accurately and thoroughly. It requires the whistleblower to provide key details about the person or business being reported, including their name, address, and any known taxpayer identification numbers.

The core of Form 211 is the narrative description of the alleged tax evasion. The whistleblower must explain the scheme in detail, including the specific tax years involved and an estimate of the dollar amount of unpaid taxes. The form also requires the whistleblower to explain how they obtained the information and to attach copies of all supporting documents. The completed form must be signed under penalty of perjury.

A strong submission is built on detailed documentation that substantiates the allegations. Examples of powerful evidence include:

• Financial statements
• Internal ledgers
• Receipts
• Email correspondence detailing the scheme
• The names of banks or other financial institutions involved

The Submission and Review Process

Once Form 211 and all supporting documents have been prepared, the package must be submitted to the IRS Whistleblower Office for review. The claim should be mailed to the Internal Revenue Service, Whistleblower Office – ICE, 1973 N. Rulon White Blvd., M/S 4110, Ogden, UT 84404.

After the claim is submitted, the whistleblower should expect an acknowledgment letter from the IRS. The review and investigation process is confidential and can be lengthy, often taking several years. The IRS is legally bound to protect the whistleblower’s identity and cannot share details about the ongoing investigation, but it is required to provide certain notifications about the status of the claim.