Does the IRS Pay Awards to Whistleblowers?

The Internal Revenue Service (IRS) operates a formal program that pays monetary awards to individuals who provide information leading to the collection of taxes. Managed by the IRS Whistleblower Office, this program provides a pathway for private citizens to report wrongdoing and potentially receive a significant financial reward for their contribution to upholding tax law.

Eligibility for an IRS Whistleblower Award

An individual’s eligibility for a whistleblower award hinges on the nature and scale of the tax non-compliance they report. The IRS administers two distinct award programs. The primary program applies to significant cases where the amount in dispute, including taxes, penalties, and interest, exceeds $2 million. For these cases, if the taxpayer is an individual, their gross income must also be more than $200,000 for at least one of the tax years in question.

For situations that do not meet these high-dollar thresholds, a separate discretionary program exists. Under this program, the decision to grant an award and its amount is determined by the IRS, though awards are generally smaller. The information provided must be voluntarily submitted. While tips based principally on public information may result in a reduced award, a submission can still be valuable if it adds significant context or analysis that is not publicly available.

Nearly anyone with original information can submit a claim, but the whistleblower’s role can affect the outcome. For instance, individuals who were involved in planning or initiating the tax avoidance scheme they are reporting may have their potential award reduced.

Calculating the Potential Award

The calculation of a whistleblower award is directly tied to the amount of money the IRS successfully recovers based on the submitted information. For claims that meet the high-dollar thresholds, the award is set by law to be between 15% and 30% of the collected proceeds. Collected proceeds include the tax, penalties, and interest the government is able to collect as a direct result of the whistleblower’s tip.

Several factors influence where an award falls within the 15% to 30% range. The significance of the information is a primary consideration; a tip that provides a complete picture of the non-compliance may warrant a higher percentage. The extent of the whistleblower’s assistance during the investigation can also impact the final award amount.

For smaller cases falling under the discretionary program, the award is calculated as up to 15% of the collected proceeds. Awards are considered gross taxable income. The full award amount must be reported on the individual’s tax return, even if a portion is paid directly to an attorney, meaning a whistleblower may pay taxes on money they do not personally receive.

Required Information for a Claim

Preparing a claim requires the careful assembly of specific information and documentation. The central document for any submission is Form 211, Application for Award for Original Information, which must be completed thoroughly. The applicant must provide their own name, address, and taxpayer identification number, along with the same information for the person or business being reported, if known.

The application requires a comprehensive narrative describing the alleged tax non-compliance, the tax years involved, and an estimate of the taxes owed. Beyond the form itself, the strength of a claim lies in the supporting evidence provided. This documentation should be specific and credible, directly substantiating the allegations. Examples of evidence include:

• Financial ledgers
• Bank records
• Internal company emails
• Contracts
• Internal memos that reveal the tax scheme

The whistleblower must also explain on Form 211 how they obtained the information, as it must be from a private source.

The Claim Submission and Review Process

The completed Form 211 and all supporting documents must be mailed to the Internal Revenue Service, Whistleblower Office – ICE, 1973 N. Rulon White Blvd., M/S 4110, Ogden, UT 84404. It is advisable to send the submission via a method that provides proof of delivery. After the claim is received, the office will send an acknowledgment letter to the whistleblower.

The claim then enters a lengthy and confidential review phase. The information is forwarded to the appropriate IRS division, which will assess the credibility of the allegations and determine whether to initiate an examination or investigation. While taxpayer privacy laws limit communication, the IRS can provide certain updates, such as notifying the whistleblower if their information has been referred for an audit and the general status of an investigation. This process can last for several years.

If the IRS uses the information to successfully collect proceeds, the Whistleblower Office will determine the award. The whistleblower will then receive a final determination letter outlining the decision and the award amount, if any. Payment follows this final determination, concluding a process that requires significant patience.