Common IRS Whistleblower Questions:
What is the difference between Form 211 and Form 3949-A?
Both Forms 211 and 3949-A are used to report tax underpayments to the IRS. The biggest difference between the forms is that the Form 211 perfects a claim for an award from the IRS for the information provided where the Form 3949-A does not. Additionally, Form 211 must be completed with the whistleblower’s real name and signed under penalty of perjury where the Form 3949-A may be completed anonymously. You can read more about the differences between these forms here.
What is the difference between tax evasion and tax avoidance?
Although the terms tax evasion and tax avoidance are often used together and treated as synonymous, these terms refer to very different acts. The biggest difference is that tax avoidance may be legal where tax evasion is illegal and carries with it serious civil and criminal penalties that may include jail time.
Businesses and individuals may legitimately reduce their taxes owed using tax deductions, tax credits, and tax deferral provisions provided for in the Internal Revenue Code. By fully leveraging the laws in the Internal Revenue Code and other methods approved by the IRS, taxpayers can properly avoid paying more taxes than necessary under the law. Some examples of tax avoidance include accounting for all ordinary and necessary business expenses throughout the year to maximize tax deductions, enrolling in employer sponsored retirement savings plans or contributing to your own IRA to take advantage of tax deductible contributions.
However, businesses and individual taxpayers engage in tax evasion when illegal methods are utilized to reduce or even eliminate taxes owed. Some examples of tax evasion include willfully underpaying taxes owed, failing to file tax returns, filing false or fraudulent tax returns, overstating or fabricating tax deductions, failing to report and pay payroll taxes, making false statements to the IRS, or willfully concealing records or information from the IRS.
Are Whistleblower’s Protected?
Although there is currently not an anti-retaliation provision in section 7623, there are efforts currently underway to add this protection for tax whistleblowers. Generally, the IRS is required by law to maintain confidentiality of whistleblowers and whistleblower information. In our experience, the policies and procedures followed by the IRS ensure that a whistleblower’s identity remains confidential except in the rarest of circumstances. You can read more about whistleblower protection laws here.
How do whistleblowers get paid?
Whistleblowers can get paid by the IRS under section 7623(a) and section 7623(b). Section 7623(a) authorizes the Secretary to pay awards to whistleblowers for information in detecting underpayments of tax or detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws. Importantly, the payment of an award under section 7623(a) is entirely up to the discretion of the Secretary and is not mandatory. The amounts payable under section 7623(a) are paid from the proceeds of amounts collected by the IRS by reason of the information provided by the whistleblower.
Section 7623(b), on the other hand, provides whistleblowers with a mandatory award if the provisions of that section are satisfied. Whistleblowers are entitled by law to an award of between 15 to 30 percent of the proceeds collected by the IRS if:
The Secretary proceeds with any administrative or judicial action against the taxpayer, based on information brought to the Secretary’s attention by the whistleblower, and the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.
The amounts payable under section 7623(b) are paid from the proceeds of amounts collected by the IRS by reason of the information provided by the whistleblower. The determination of the amount of the award to the whistleblower depends upon the extent to which the whistleblower substantially contributed to the action taken by the IRS. The IRS Whistleblower Office uses a series of positive and negative factors to guide that determination.
How do you report a taxpayer to the IRS anonymously?
A Form 211 submitted to the IRS Whistleblower Office will not be processed if the form was submitted anonymously or under an alias. Whistleblowers must use their real name on the Form 211 and sign the Form 211 under penalty of perjury for the Form to be processed. Even though a whistleblower’s real name appears on a filed Form 211, the IRS operates under strict rules and procedures that are designed to protect a whistleblower’s identity. You can read more about whistleblower protection laws here.
Will the IRS tell me if they are taking action on my whistleblower claim?
Once a whistleblower files a properly completed Form 211, the IRS Whistleblower Office will assign a claim number (or numbers if there are multiple taxpayers). From that point forward, the claim number is used in all communications between the IRS and the whistleblower. While the IRS will confirm that a claim number is still open, payable, or denied, the IRS takes the position that it is not authorized under the law to tell the whistleblower the action, if any, that the IRS intends to take on the claim or whether the IRS has already taken action against the taxpayer being reported until there is an award determination from the IRS Whistleblower Office or the claim is litigated in the U.S. Tax Court.
Why was my whistleblower claim denied?
Whistleblower claims are denied by the IRS for a variety of reasons including: there was no tax issue involved, the information was not credible or speculative, the information provided by the whistleblower was already provided to the IRS by another source, there is no collection of proceeds because the taxpayer does not have assets that the IRS can collect against, the taxpayer makes a successful appeal, the statute of limitations has expired, or the IRS audit or investigation results in no finding of taxpayer liability.
A carefully crafted and organized tax whistleblower submission with a completed and signed Form 211 with a legal memorandum of facts and law with supporting exhibits is crucial to increasing the chances of success of the tax whistleblower claim. If you have information about large scale tax underpayments or tax fraud and would like to know more about how to increase the chances of success of your claim, contact us at 202-775-1630 today.