During Fiscal Year 2015, the IRS awarded whistleblowers more than $103 million (before sequestration). That is a significant portion of the more than $403 million it has awarded since the whistleblower program was substantially strengthened in 2007. And since that time, the Service has collected more than $3 billion in tax revenue based on whistleblower information—in other words, the program has been a resounding success.
The payment of tax whistleblower awards is governed by 26 U.S.C. § 7623. That section, and the governing framework, was significantly changed by The Tax Relief and Health Care Act of 2006, which added section 7623(b) to the Code. Under the whistleblower program, a taxpayer who submits actionable information that allows the IRS to proceed with administrative or judicial action can be entitled to an award equal to amount between 15 to 30 percent of the resulting proceeds. See 26 U.S.C. § 7623(b)(1).
Whistleblower awards come in two flavors: A submission may qualify for an award under section 7623(a) or (b). If the submission does not meet the criteria under section 7623(b), the IRS generally only considers it for an award under its pre-Act discretionary authority (now section 7623(a)). Thus, satisfying section 7623(b) and its regulations can be quite important.
Qualification for an award under section 7623(b) requires that the information be:
- Signed and submitted under penalties of perjury;
- Relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000; and
- Relate to a taxpayer, and for individual taxpayers only, one whose gross income exceeds $200,000 for at least one of the tax years in question.
In fiscal year 2015, there were 19 award payments that involved 49 section 7623(b) claims. (The average whistleblower submission contains information relating to three taxpayers, so each submission results in an average of three claims.)
A whistleblower may submit information on an IRS Form 211, Application for Award for Original Information. After the IRS Whistleblower Office makes a final decision regarding a whistleblower’s section 7623(b) claim, an unhappy claimant has the right to appeal that final decision to the United States Tax Court within thirty days. See 26 U.S.C. § 7623(b)(4).