As this Forbes article states, incentives for whistleblowers who report tax fraud have been codified since 1867. However, it's the 2006 reforms that were supposed to be a boon to whistleblowers everywhere. The relevant provision, codified in 26 USC § 7263(b) reads:
(1) In general:
If the Secretary proceeds with any administrative or judicial action described in subsection (a) based on information brought to the Secretary's attention by an individual, such individual shall [...] receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action (including any related actions) or from any settlement in response to such action[....] (emphasis added)
Provisions are in place to reduce the award if the information comes primarily from public records, and to deny the award if the "whistleblower" is actually the perpetrator of the fraud. Otherwise, the provision is clear--you report tax fraud that leads to a successful recovery of the minimum amount of funds and you are entitled to a reward from the proceeds.
While this works in theory, in practice rewards are so delayed, if they come at all, that potential whistleblowers become demoralized and may decide that it's not worth coming forward at all. We have discussed at least two letters from Ranking Member of the Senate Finance Committee, Chuck Grassley, detailing his frustration with IRS intransigence regarding whistleblowers. However, those are only two of his many missives on the issue.
As a follow-up to his April 30, 2012 letter, Senator Grassley issued a press release summarizing what he sees to be the crux of the problem:
The IRS does not have a problem attracting whistleblowers [... the] IRS has a problem processing whistleblower information and compensating whistleblowers in a timely manner. I'm hearing frustration from whistleblowers, and my worst fears are coming true. The lack of progress is demoralizing whistleblowers, and they might stop coming forward. That would be a bad outcome for the taxpayers.
Whether the IRS will eventually become more diligent regarding whistleblower claims or will it remain that only the "patient whistleblowers" reap rewards is something that is undetermined. In the meantime, should you be one of those patient whistleblowers who possess information about tax fraud, you can provide information by contacting Kansas City Whistleblower Law Office.
Source:
Sen. Grassley To IRS: Whistleblower Office Is A Disgrace, by Robert Wood, published at Forbes.com.
See Our Related Blog Posts:
Whistleblowers and the IRS
Primer on the Foreign Corrupt Practices Act
