IRS has recouped billions from whistleblower claims. Tipsters can wait a decade for their cut (2024)

The IRS expects it will recover billions of dollars in taxes owed — just as soon as it sorts through a backlog of more than 30,000 whistleblower claims.

Not all claims, the agency expects, will have merit. A recent annual report finds the IRS Whistleblower Office received hundreds of “purely speculative” claims that don’t lead to any enforcement action.

Whistleblowers also submit credible leads that, in time, result in the IRS recovering substantial funds from tax cheats.

The IRS Whistleblower Office, since 2007, has helped the IRS recover nearly $7 billion in taxes owed — and whistleblowers whose tips initiated these cases have gotten a more than $1 billion cut of the money.

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It’s no quick payday. The IRS states whistleblowers wait, on average, between 10 and 11 years before receiving a financial award for their disclosure to the agency, depending on the claim type.

Stephen Kohn, a whistleblower attorney at Kohn, Kohn & Colapinto, said the IRS needs to invest more resources and overcome “bureaucratic obstacles” to ensure credible tips keep coming into the agency.

“They have to look at the way they do their enforcement actions to ensure that the whistleblower who triggered it isn’t an afterthought,” Kohn said. “They have to be on their minds. The whistleblower gave them the case. The whistleblower risks their job, and it’s unfair to make them wait 11 years. That’s intolerable.”

The time it takes for the IRS to pay out whistleblower claims depends on legal challenges raised by the taxpayers who are the subject of an investigation, and whether they take their case to the IRS’ Independent Office of Appeals.

“The IRS pays awards from proceeds collected and as such, award payments cannot be made until the taxpayer has exhausted all appeal rights and the taxpayer no longer can file a claim for refund or otherwise seek to recover the proceeds from the government,” the report states.

Whistleblowers eligible to receive an award from the IRS generally receive about 15% of the revenue collected from their disclosure, but no more than 30% of what the IRS recovers.

Among the proposed reforms,Sen. Chuck Grassley (R-Iowa), co-chairman of the Senate Whistleblower Protection Caucus, introduced the IRS Whistleblower Improvement Act in March 2023.

The bill requires the IRS to pay interest on whistleblower awards if they’re not paid within one year of receipt of proceeds collected from whistleblower disclosures.

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“The IRS is a strange agency — they’re totally money-driven. It’s all about collective revenue, counting the change. So this mechanism will force the top-level people to say, ‘OK we don’t want to pay that interest. Let’s get the awards out.’ It’ll be a financial incentive to treat whistleblowers fairly,” Kohn said.

The bill would also allow whistleblowers to remain anonymous in tax court proceedings.

The IRS is looking to further improve its Whistleblower Office, as part of the Strategic Operating Plan it released, detailing how it will use the billions of dollars in multi-year modernization funds it received in the Inflation Reduction Act.

“The IRS Whistleblower Office is an active participant in the IRS transformation effort,” IRS Whistleblower Office Director John Hinman wrote in the report.

Among its goals, Hinman said the IRS Whistleblower Office is “increasing our capacity to use high-value whistleblower information effectively, awarding whistleblowers fairly and as soon as possible, keeping whistleblowers informed of their claim’s status and the basis for IRS decisions on claims, and strengthening our collaboration with stakeholders of the IRS Whistleblower Program.”

“While we are pleased that the number of submissions increased in FY 2023, our fundamental goal is to increase the number of actionable submissions received and decrease submissions that are unlikely to result in an enforcement action,” he wrote.

The IRS, he added, receives hundreds of whistleblower claims that are “purely speculative in nature.”

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“The Whistleblower Office uses significant resources responding to these claimants (often repeatedly), maintaining records, and engaging in litigation to defend an administrative enforcement decision not to pursue the information provided,” Hinman wrote. “The administrative burdens of these claims far outweigh any benefit of the information to the IRS.”

The IRS Whistleblower Office received 6,455 submissions in 2023, which generated nearly 17,000 claim numbers.

The IRS Whistleblower Office had nearly 50 full-time employees in 2023, “with decades of experience from a broad array of IRS compliance programs.”

Hinman wrote in the report that his office is “monitoring for the collection of several billion dollars in additional amounts assessed attributable to information submitted by whistleblowers.

“The continued success of the IRS Whistleblower Program is dependent on people who become aware of tax fraud and tax non-compliance and report that information to the IRS Whistleblower Office, and on the dedicated IRS workforce that supports this important program,” Hinman wrote.

The IRS paid nearly $89 million to 121 whistleblowers in fiscal 2023, from a total pot of $338 million collected through whistleblower tips — about 26% of what the IRS recovered. That’s more than double the nearly $38 million paid out to whistleblowers the previous year.

Common whistleblower allegations include tips of unreported or underreported income, overstated or false deductions, and failure to file a tax return or information return.

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IRS has recouped billions from whistleblower claims. Tipsters can wait a decade for their cut (2024)

FAQs

How long does an IRS whistleblower case take? ›

The process of reporting someone to the IRS, from submission of complete information to the IRS until the proceeds are collected, may take several years. The IRS does not pay a whistleblower award until after the taxpayer exercises the right to administrative and judicial appeals, which can take many years to resolve.

How much do IRS whistleblowers get paid? ›

This includes criminal fines, civil forfeitures, and violations of reporting requirements. In general, the IRS will pay an award of at least 15 percent, but not more than 30 percent of the proceeds collected attributable to the information submitted by the whistleblower.

What is the IRS whistleblower award? ›

The Internal Revenue Service's whistleblower office incentivizes people to report tax evasion and other tax law violations. The IRS Whistleblower Program rewards whistleblowers by paying 15 to 30% of government recoveries that result from the whistleblower's reporting to the IRS Whistleblower Program.

Do IRS whistleblowers remain anonymous? ›

Report Fraud, Waste and Abuse to Treasury Inspector General for Tax Administration (TIGTA), if you want to report, confidentially, misconduct, waste, fraud, or abuse by an IRS employee or a Tax Professional, you can call 800-366-4484 (800-877-8339 for TTY/TDD users). You can remain anonymous.

How far back can the IRS prosecute? ›

Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.

What is the average whistleblower settlement? ›

Short answer: According to the National Whistleblower Center, the average whistleblower settlement in California and the rest of the United States is $447,830. For less complex cases whistleblowers could see a settlement amount lower than this while in more complex cases the settlement could surpass $1,000,000.

What evidence does the IRS use for whistleblowers? ›

How do whistleblowers submit a claim for award? Whistleblowers must use IRS Form 211, Application for Award for Original Information, and ensure that it contains the following: A description of the alleged tax noncompliance, including a written narrative explaining the issue(s).

What is the IRS whistleblower threshold? ›

IRS Whistleblower Rewards

The $2 million threshold can be aggregated over several tax years. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court.

What are the payouts for whistleblowers? ›

Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower's identity.

What happened to the IRS whistleblower? ›

Multiple news reports indicate that the whistleblower and the investigative team were removed from the Hunter Biden investigation by the IRS at DOJ's request as retaliation for making protected whistleblower disclosures to Congress.

How long does it take to settle a whistleblower case? ›

All that can take a few years. It can go faster, but in some ways you do not want it to go faster, since you want the government to do a very thorough job investigating your claims, corroborating your allegations, and then bringing the strongest and largest possible action against the defendants.

Who is an eligible whistleblower? ›

Under the whistleblower protection legislation, an eligible whistleblower can be someone who is or was: an officer or employee of the charity. an individual or an employee of a person that supplies services or goods to the entity (including volunteers) an individual who is an associate of the entity.

Do whistleblowers get blacklisted? ›

Most federal laws do not extend rights beyond the employment context, yet some individuals are vulnerable to retaliation due to their relationships with a whistleblower. For example, family members of whistleblowers may also face blacklisting in their career field due to their spouse or parent's whistleblowing.

What are whistleblowers not protected from? ›

For example, you are not protected when disclosing classified information to an unauthorized recipient, even if you reasonably believe the information is evidence of waste, fraud, or abuse.

Does the IRS prosecute all tax evaders? ›

Moral of the Story: The IRS Saves Criminal Prosecution for Exceptional Cases. While the IRS does not pursue criminal tax evasion cases for many people, the penalty for those who are caught is harsh. They must repay the taxes with an expensive fraud penalty and possibly face jail time of up to five years.

How long does a whistleblower investigation take? ›

Additional information on what to expect during an OSHA whistleblower investigation can be found here. Q: How long does OSHA take to investigate a case? A: The whistleblower laws have timeframes for completion of investigations ranging from 30 to 90 days.

How long does whistleblower take to complete? ›

2½ Hours
Single-PlayerPolledAverage
Main Story2862h 25m
Main + Extras1002h 51m
Completionist414h 33m
All PlayStyles4272h 43m

What happens after a whistleblower complaint? ›

A whistleblower case proceeds much like any law suit: there is a pre-hearing period in which the parties conduct discovery, file motions with the ALJ, and work out the hearing schedule. Parties may engage in settlement negotiations.

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