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A Guide for an IRS/Tax Whistleblower
Thursday, February 29, 2024

If you have found evidence that a corporation or other entity is committing tax fraud or evasion, you probably have questions about becoming a whistleblower. In this article, IRS/tax whistleblower attorney Dr. Nick Oberheiden answers some of the most frequently asked questions about the process and your rights as a whistleblower.

Can I Get Fired for Blowing the Whistle on Tax Fraud?

The most important and pressing question that people have about blowing the whistle on tax evasion is whether they can face retaliation in the workplace for doing so – up to and including getting fired.

The short answer is “no, at least not legally.”

Section 7623(d) of the Internal Revenue Code (IRC) is the anti-retaliation provision of the statute that allows people to bring evidence of tax evasion to the Internal Revenue Service (IRS). This provision provides legal protections to you if you:

  • Provide information about reasonably suspected tax violations to the IRS whistleblower office
  • Cause such information to be provided
  • Assist in an investigation about tax issues and internal revenue laws
  • Testify, participate in, or help the IRS in an administrative or judicial action

If you take any of these actions, your employer – together with any of its agents – is not allowed to take any of the following actions against you:

  • Discharge
  • Demote
  • Suspend
  • Harass
  • Discriminate against you in the workplace, including through an act that happens in the ordinary course of your employment
  • Threaten to take any of the above actions

Note, though, that the answer to the question was “no, at least not legally.”

Employers frequently retaliate against whistleblowers, even when they know full well that it is against the law. The IRC’s anti-retaliation provision, however, has an enforcement mechanism built into it that gives aggrieved whistleblowers the right to file a retaliation claim with the Secretary of Labor within 180 days, and potentially a lawsuit after that. These claims can recover substantial damages for the unlawful termination or retaliation, including:

  • Reinstatement
  • Back pay
  • An additional penalty equal to your back pay
  • Compensation for your lost benefits
  • Court costs and attorneys’ fees for the retaliation claim

Am I Eligible for a Whistleblower Award?

While anyone can blow the whistle on tax evasion or fraud and bring their findings to the IRS, not everyone is eligible for a whistleblower award from the IRS whistleblower program process. Those who are ineligible for financial compensation for disclosing evidence of tax law violations to the IRS are:

  • Employees of the Department of Treasury, or former employees of the Department who are disclosing information about tax violations that they obtained while on the job
  • Federal employees who report tax evasion and acquire the evidence while acting within the scope of their official duties
  • Anyone who is either prohibited by law from disclosing the information or required by law to do so
  • People who obtained the evidence or got access to it through a federal government contract
  • Anyone who received the information from someone who is ineligible for a whistleblower award

The whistleblower award program is, after all, an incentive for disclosure. Providing that incentive to these groups of people would be unfair and unproductive.

What is the Whistleblower Award?

Section 7623(b) of the IRC provides whistleblower awards to people who bring specific, credible, and confidential information about tax violations to the attention of the appropriate IRS office. If the IRS acts on that information, these awards can be between 15 and 30 percent of the proceeds of the resulting case. Those “proceeds of the case” include:

  • Criminal fines
  • Civil forfeitures
  • Penalties assessed
  • Interest
  • Additions to tax imposed

Depending on the magnitude of the tax violation or underpayment, even 15 percent of the proceeds can be a good amount.

Under the Tax Relief and Health Care Act of 2006, whistleblowers who bring specific and credible, but publicly available information to the IRS stand to recover up to 10 percent of the proceeds for their troubles. The IRS’s actions are based principally on the whistleblower’s report.

The award, however, can be reduced or even denied in some circumstances, such as if the whistleblower was the one responsible for the underpayments.

What Tax Violations Can Be Reported?

Reportable tax fraud can come in a huge variety of forms. Just a few examples include:

  • Fraudulent use of tax deductions
  • Using tax shelters
  • Not reporting gross income
  • Overstating business expenses
  • Not reporting cryptocurrency assets
  • 501(c)(3) tax exemption fraud or abuse
  • Estate tax fraud
  • Offshore tax fraud

If you have discovered evidence of any form of tax fraud or evasion, you can become a whistleblower and report it to the IRS.

How Do I Submit a Whistleblower Claim to the IRS?

Reporting evidence of tax fraud to the IRS is straightforward, thanks to the IRS’s creation of its Whistleblower Office. This Office receives so many whistleblower reports that it has simplified and streamlined the submission process.

Whistleblowers simply submit IRS Form 211, which calls for:

  • A description of what the tax violations are
  • Documentation that supports the allegations, such as copies of books and records or emails
  • Any information about additional supporting evidence that the whistleblower does not have in their possession
  • How the whistleblower first became aware of the alleged violation
  • The relationship between the whistleblower and the entity committing the alleged tax violation
  • The whistleblower’s signature and an attestation that the information on the form is correct to the best of their knowledge

Form 211 is then mailed to the IRS office in Ogden, Utah.

Filing the form, though, is only the culmination of what can be a long and drawn-out investigation. Having an experienced whistleblower lawyer with experience handling tax cases and knowledgeable of the IRS Whistleblower Law can make a huge difference on the outcome. They will have a better understanding of what sorts of information the IRS is looking for than the whistleblower will have.

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