The IRS pays monetary awards to eligible people–between 15 and 30 percent of the money collected using the information provided. This sounds simple, put this way, but it is not. Awards of cash only come after all appeals are done. The process and awards happen under the authority of various laws and Treasury regulations. These make for some great, light bedtime reading.
Whistleblowers shouldn’t mentally (or literally) plan to cash the checks too fast. Recently Bloomberg Tax had an article about a Federal court denying whistleblower claims in two separate cases. In both cases, there were issues with the company returns.
It is worth noting that, like filing Federal taxes for your business, the details matter. The rules around awards to whistleblowers are complicated. In one of these cases, the whistleblower reported a condominium developer and golf club membership deposits. In plain English, the IRS determined there was a problem but that these deposits were properly reported. They had to pay but the whistleblower didn’t qualify for any payment. The second whistleblower turned in a company that falsely claimed monthly deductions and improperly reduced tax remittances by overpaying its parent company for services. They, too, wound up paying after the IRS made adjustments to deductions. The whistleblower received nothing, however.
On the surface, to the layman, the whistleblowers seem eligible but if you go through the various statutes, linked above, with an attorney’s eyes, the result is different. The D.C. Circuit Court of Appeals found no rewards should be given. The adjustments to the company taxes, in both cases, were for issues that the whistleblowers did not raise. Put simply, if you, as a whistleblower, report a company for committing “transgression A” against the tax code and the IRS looks into it and finds the company instead committed “transgression B” you would not be entitled to a payment.
The IRS wanted the court to go even further in its decision claiming a whistleblower has to establish a “meritorious award claim” before the United States Tax Court can even review the IRS’ rejection of a claim. This assertion was rejected by the court..
Not all IRS whistleblower cases are denied, of course. Accounting Today notes that awards to whistleblowers have “ticked up.” It still is a long process without solid guarantees or even protections. If you let your fingers do the googling you may find another agency that has a better track record for rewarding whistleblowers–the Securities and Exchange Commission.