IRS Whistleblowers To See Faster Payday

According to the Internal Revenue Service’s “Fiscal Year 2010 Report to the Congress on the Use of Section 7623,” a report that the IRS recently released to Congress, more tax whistleblowers are coming forward and, under new whistleblower program rules, they are likely to see faster results from the IRS Whistleblower office.  Not only did whistleblowers increase by 30 percent between fiscal years 2009 and 2010, but also total whistleblower rewards more than tripled from $5.8 million to $18.7 million.  The IRS pays between 15 and 20 percent of recovered taxes, interest and penalties collected from disputes exceeding $2 million.  Before the passage of the Tax Relief and Health Care Act of 2006, the IRS could choose whether or not to pay whistleblowers – today, under Section 7623(b), the payout is mandatory.

The IRS Whistleblower office receives thousands of tips annually, but only a fraction qualify reporters for whistleblower rewards.  In fiscal year 2010, the IRS received nearly 8,000 cases and paid out 97 rewards, but only 9 reports led to collections of $2 million or more.  This past April, the IRS paid $4.5 million – its first award under 7623(b) – to an accountant who blew the whistle on his employer for failing to pay taxes.  The amount represents more than 20 percent of the loot recovered by the IRS.  Associated Press reported that the accountant originally filed his complaint in 2007, but after two years of silence from the IRS, he hired an attorney to help him pursue the case.

According to David J. Marshall, a partner with the firm of Katz, Marshall & Banks who represents whistleblowers before the IRS whistleblower program, says that he expects the IRS to begin paying out awards to whistleblowers at a much faster rate in the next year or so.  “There are many whistleblowers whose information has allowed the IRS to collect large sums in unpaid taxes,” Marshall said, “and it’s getting to the point where there is no reason for the IRS to continue holding on to the awards these people have earned.  I think the Service will pay out a good number of them soon.”