July 2015

Tax Controversy Alert: IRS Releases Annual Report on Whistleblower Program


On July 6, 2015, the IRS issued its annual report to Congress regarding the IRS Whistleblower Program.  The IRS Whistleblower Program exists under the authority of Internal Revenue Code Section 7623.  Under this statute, the IRS is generally required to pay awards to individuals who provide information to the IRS which substantially contributes to the collection of tax, penalties, interest and other amounts when the amounts at issue are greater than $2,000,000.  Awards are based upon the extent to which the whistleblower substantially contributes to the IRS’s recovery of funds and can range from 15 to 30% of the collected proceeds.  The IRS may make lower awards of up to 10% of collected proceeds in cases involving less substantial contribution.  The IRS also has an award program for individuals who do not meet the dollar thresholds set forth in Section 7623.

In its recently released report on the 2014 fiscal year, the IRS Whistleblower Office reported that in fiscal year 2014 the IRS made 101 awards totaling $52,281,628 (before reductions required by sequestration).  These amounts were down from 122 awards totaling $53,054,302 in 2013.  In fiscal year 2014, there were nine awards over $2,000,000, up from six such awards in 2013.  The total award amount in fiscal year 2014 represented 16.9% of the amount the IRS collected in tax, penalties and interest as a result of the whistleblowers’ claims.  The IRS received 14,365 whistleblower claims in fiscal year 2014, up from 10,520 the prior year.

The current whistleblower program reflects expansions to the law in 2006 prior to which the IRS had greater discretion as to whether and how much to award whistleblowers.  The IRS report notes that it typically takes five to seven years to analyze, investigate and/or audit and collect proceeds in order to pay an award.  The report further notes that it was in 2011 that the first awards were made under the expanded program and most of the awards in 2014 were from claims filed under prior law.  The IRS expects that the number of awards under the expanded law will increase in 2015.

IRS whistleblower claims are made by filing IRS Form 211 with the IRS Whistleblower Office.  As the report to Congress notes, numerous claims are rejected because they do not present a tax issue or do not present clear, specific allegations.  Well-documented and thorough claims clearly presenting a tax issue are more likely to result in awards.  A whistleblower may seek review of an IRS determination regarding an award in the U.S. Tax Court in the event of a dispute.

Please contact Steve Katz, Emily Kingston or Jay Weill if you need representation by one of our tax controversy attorneys in pursuing an IRS whistleblower award or if you have questions regarding the IRS Whistleblower Program.