SUBMITTING A CLAIM WITH THE IRS WHISTLEBLOWER OFFICE

The IRS Whistleblower Office pays a handsome reward to those who provide information to the IRS that leads to the collection of unpaid taxes. I call it a “handsome” reward because the IRS awards a whistleblower between 15% and 30% of the total proceeds it collects as a result of that information.[1] The idea behind the Whistleblower Office seems simple enough: provide a tip that leads to the collection of unpaid taxes and get paid. However, there are requirements that need to be met, considerations that need to be taken into account, and timelines that need to be taken note of, in order to ground whistleblowers’ expectations. It is important to note that the IRS will only pay a whistleblower “when the amount identified by the whistleblower (including taxes, penalties and interest) is more than $2 million. If the taxpayer is an individual, they must have at least $200,000 in gross income.” In other words, they’ll only pay you for a tip if its going to be worth their while. Considering that many whistleblowers are employees of the very people whom they report to the Whistleblower Office, those individuals must make sure that the $2 million threshold is met, as they are highly likely to lose their jobs if word gets out that they are the ones who blew the whistle.

Furthermore, the Whistleblower’s Office does not simply accept any claim that comes through the door, even if the $2 million threshold is seemingly met. At a tax-related conference I attended, the director of the Whistleblower Office, Lee Martin, stated that 53% of all submitted claims get rejected for either or all of the following three reasons: 1) the claims are not specific enough; 2) the claims are not credible enough; or 3) the claims are too speculative in nature. Thus, when submitting a claim, whistleblowers should make sure their claims are specific, credible, and not speculative to maximize the chances of their claims being accepted.

Many whistleblowers complain about a lack of communication with the Whistleblower Office after submitting a claim, and/or that the process takes too long.  Here’s why: The Whistleblower Office will make contact with the whistleblower at a maximum of only three points in this process: first, to acknowledge that the claim has been received and accepted; second, to debrief the whistleblower about the tip and known facts, only if necessary; and third, after the proceeds from unpaid taxes have been collected from the taxpayer by the IRS. The IRS is not allowed to give more substantive information before the collection of proceeds because doing so may violate the taxpayer’s confidentiality protected by Title 26, section 6103, of the United States Code.[2] It is also important to note that once a claim has been accepted, the information is then passed onto the IRS field agents to conduct their investigation, and is out of the hands of the Whistleblower Office.

Finally, according to Mr. Martin, the average whistleblower claim takes 5-7 years for an award to be paid. The main reason for this is because the IRS waits until the taxpayer has exhausted all appeal remedies and also waits until the taxpayer’s 2-year statute of limitations to file a claim for credit or a refund for overpaid tax has lapsed.[3] Hence, the time period between when a whistleblower’s claim has been acknowledged and when the whistleblower has finally been paid out can easily exceed several years, during which little to no contact is likely to be made with the whistleblower by the IRS.

Preparing and submitting a claim to the IRS Whistleblower Office can be quite tricky. With over half of the claims being rejected, whistleblowers need to make sure it’s done correctly. If you or someone you know is contemplating or would like to submit a whistleblower claim, make sure to hire a competent and experienced tax attorney to maximize the chances of that claim being accepted by the Whistleblower Office.

--Ara M. Baghdassarian is an associate attorney with Barnes Law, licensed to practice law in California.

 The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.irs.gov/uac/Whistleblower-Office-At-a-Glance

[2] https://www.law.cornell.edu/uscode/text/26/6103

[3] https://www.law.cornell.edu/uscode/text/26/6511