Tax Fraud Rewards

Fraudulent activities in regards to taxes do not fall under the False Claims Act; however the IRS is similarly willing to pay 15 to 30% of the dollars recovered from these submissions.  The minimum they will pay is $1000 for even the smallest of claims.  To knowingly not pay taxes is a violation of US law and punishable both by fines and jail.  OffRecord will assist you in confidentially completing the process of submitting the appropriate documentation to the IRS so the appropriate award is received, while protecting your identity.  But as always, it is important you assemble the strongest data set possible to verify the validity of the unpaid taxes, as well as any evidence that may validate the individual or company having knowingly committed this fraud.   

Rules for Receiving Tax Fraud Rewards

There are three types of Tax Fraud Rewards:

           1.  If the taxes, penalties and other amounts exceed $2 million plus a few other qualifications, then the IRS will reward the reporting individual 15 to 30% of the amount recovered.

           2.  If the case deals with individuals, the IRS only wants to prosecute wealthy individuals, and the gross income of this person must exceed $200,000 per year.

If the ultimate decision on the above two cases is not satisfactory to the reporting individual and he or she disagrees with the outcome, they can appeal in the Tax Court whose rules are found at IRC Section 7623(b) - Whistleblower Rules.

          3.  If the case deals with an amount totalling less than $2 million dollars or with a citizen whose total income is less than $200,000 per year, then the program rewards up to a maximum of 15 percent of the recovered money, up to $10 million. The reward amounts are at the full discretion of the court and the rewards and decisions can not be appealed in the Tax Court.  The rules for these cases can be found at IRC Section 7623(a) - Informant Claims Program.

If the IRS takes action to fine a tax evader primarily on evidence that came as a result of the judicial or administrative proceeding, government reports, audit, investigations, or the news media versus the evidence provided by the whistleblower, then an award of a lesser amount, subject to the discretion of the Whistleblower Office, may be provided. That amount however can not be greater than 10 percent of the proceeds collected in taxes, penalties, interest and fines. But this reduced percentage does not apply if the reporting individual was the initial source of the information.

If fraud is proven to exist in a case, it can significantly impact the fines and penalties paid by the perpetrator, while increasing the rewards in a meaningful way.  In the context of whistleblower claims, there are some statute of limitations implications -- so it is important that you do not wait a long time before reporting the incident, because extended times can make it impossible to report and reward the violation.  Unlike a False Claims Act whistleblower, if the reporting individual is found guilty of planning or initiating the tax fraud under investigation which was reported, then the IRS Whistleblower Office is not allowed to reward this individual whatsoever.  They will deny his claim to a reward altogether. The IRS Whistleblower Office makes the full decision regarding the fines and penalties paid by both the violating entity, and the amount rewarded to the whistleblower. 

Process for Evaluating the Tax Fraud Reward

1. The main hurdle for receiving a Tax Reward (in accordance with 26 USC 7623) is that the IRS must receive information and evidence that leads to a judicial or adminstrative action, such as an investigation or audit that results in the collection of the proceeds.  Without that collection, there is no reward.
2. An analyst will review the submitted case from OffRecord in the Whistleblower's Office, to ensure that all data and evidence have been submitted in accordance with required procedures.  It is fully up to the IRS whether they view the case worthy of pursuing.
3. On large corporate tax issues, an adminstrative action may yield the requirement for a new issue under the Audit Plan or a change in the way information is collected or analyzed.  If it is proven that this yields signficant dollars returned to the IRS, the informant can be rewarded for the provision of this information, assuming the IRS believes it would not have otherwise been able to assemble or discover this information without the informant's assistance.
4. Additionally, in the case of an individual whom the informant is reporting on, the adminstrative action may put the taxpayer under an audit.

Time Table on the Tax Fraud Process

• From submission of the report from OffRecord to the IRS, to the final point where the proceeds are collected, the process can take several years to complete.  
• Reward payments will only be made after the taxes, penalties, interest, additions to tax and additional amounts owed to the IRS have been collected from the guilty individual or corporation.  
• The time period for receiving awards may also need to extend beyond the initial settlement agreement and may require waiting for the guilty party to conclusively waive their right to appeal their tax deficiency.  
  • The other time it can become final in accordance with the meaning in section 7481 and ready for payment is following a taxpayer petition and the decision becoming final.