How to Get an IRS Reward for Reporting Tax Fraud

The Internal Revenue Service’s whistleblower program offers a monetary award to individuals who provide specific, credible information that leads to the collection of unpaid taxes and penalties. This program provides a structured way for individuals with knowledge of tax law violations to report them and helps the agency enforce tax laws.

Reward Eligibility and Calculation

The IRS offers two distinct award programs for whistleblowers. The primary program, governed by Internal Revenue Code Section 7623, targets significant cases of non-compliance. To qualify, the total amount of tax, penalties, and interest in dispute must be more than $2 million. If the report concerns an individual taxpayer, that person’s gross income must exceed $200,000 for at least one of the years in question.

If these thresholds are met and the IRS proceeds with action based on the information, the award is mandatory and will fall between 15% and 30% of the proceeds the IRS successfully collects. The specific percentage awarded depends on the significance of the information and the level of assistance provided by the whistleblower. The award can be reduced if the whistleblower planned and initiated the wrongdoing or if the information was sourced from public records.

A second, discretionary program exists for cases that do not meet the high-dollar thresholds of the primary program. This program allows the IRS to pay an award of up to 15% of the collected proceeds, and there is no minimum dispute amount required. Certain individuals are generally ineligible for awards, such as current or former Department of the Treasury employees who obtained their information as part of their official duties.

Information and Documentation for Your Claim

You must provide the IRS with specific and credible information. This includes the name, address, and taxpayer identification number (if you have it) of the person or business you are reporting. You will also need to provide a detailed written description of the alleged tax fraud, including the tax years involved and an estimate of the amount of tax underpaid.

The central document for submitting your claim is IRS Form 211, Application for Award for Original Information, which can be downloaded from the IRS website. This form is the official channel for organizing the information the agency needs to evaluate your tip.

When completing Form 211, you will detail the facts of the alleged non-compliance, explaining how and when you became aware of the information. It is important to attach copies of any supporting documents you possess, such as financial statements, ledgers, or bank records. If you know of relevant documents that you do not have, you should describe them and their location on the form.

The Submission and Review Process

After preparing Form 211 and gathering all supporting documentation, submit the package to the IRS Whistleblower Office. The form and attachments must be mailed to the designated address, found on the IRS website and in the form’s instructions.

After mailing your submission, you should receive a letter from the Whistleblower Office acknowledging receipt of your claim. The subsequent process is confidential and can take several years to conclude. The IRS is legally prohibited from providing you with status updates on the investigation or its actions against the taxpayer.

This confidentiality protects the integrity of the investigation and the taxpayer’s rights. An award can only be paid after the taxpayer has exhausted all appeal rights and the period for filing a refund claim has expired, which contributes to the extended timeline.

Tax Implications of Receiving a Reward

If you receive an award, the payment from the IRS is considered taxable income. You must report this on your federal income tax return for the year you receive it. The income is subject to ordinary income tax rates, not the lower capital gains rates.

The IRS will issue Form 1099-MISC, Miscellaneous Information, to you, which states the total award paid. You must use this information when preparing your tax return, where the payment is reported as other income.

You may be able to offset some of the tax liability associated with the award. Legal fees and other costs incurred while pursuing your whistleblower claim may be deductible. Given the specific nature of these rules, consulting with a qualified tax professional is advisable to ensure proper reporting and to determine which expenses may be deductible.