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When Is a Whistleblower Eligible For an Award From the IRS?

When you discover that your company has willfully underreported income or engaged in other forms of tax fraud, the choices are stark. If you disclose what you have learned, you might end up losing your job. But keeping quiet isn't a very appealing option either. Indeed, it may well seem unconscionable to you.

There is, however, another path in such a situation: applying for a financial award for informing the IRS about an employer's failure to pay tax. In this post, we will discuss what types of awards are available for providing such information.

There are two types of awards that are possible. If the amount of taxes at stake, including penalties and interest, is more than $2 million for a business, a whistleblower is eligible to receive a monetary award of between 15 and 30 percent of the amount that the IRS collects.

An award of 15 to 30 percent is also possible when blowing the whistle on an individual whose adjusted gross income exceeds $200,000. Section 7623(b) of the Internal Revenue Code gives further details about these requirements for these awards, which have been available since 2006.

There is also a longstanding whistleblower program that applies to lesser amounts. Those awards are limited to 15 percent of the amount at stake and are discretionary with the IRS. Because the awards are discretionary, an informant cannot seek to force the payment of an award by pursuing a claim in Tax Court. The rules for this discretionary program are laid out in Section 7623(a) of the tax code.

The IRS reports annually on the amount of money it pays out in whistleblower awards. But as the Wall Street Journal reported last year, those amounts can be skewed by an especially large award in a single case. This happened in 2012, when a single informant - Bradley Birkenfeld, a former UBS banker -- obtained an award of $104 million for blowing the whistle on offshore tax evasion by the Swiss banking giant.

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