In 1876, Congress passed a law creating the “Tax Informant Program”. Simply, this program allows the Treasury Department to pay people who provide information leading to the collection of unpaid taxes. One form of this law has been in effect for over 140 years and it has generated millions of dollars of additional receipts every year.
The law was last updated in 2006 when the Bush administration made some minor changes. The program itself is fairly simple. Informants who provide the IRS with information leading the collection of unpaid taxes will be paid an award of between 15% and 30% of the collected proceeds. The maximum award is ten million dollars. Awards are not paid if the information provided was based on publicly available information, or if the informant participated in the tax evasion. Also, the IRS will only pay for original information and not for second hand or older information.
There are other limitations as well. For example, if the case deals with an individual tax return, the annual adjusted gross income must exceed $200,000. Also, the informant must provide solid and detailed information; speculation and educated guesses do not qualify for the award.
How does someone become an IRS informant? If you have original information about unpaid taxes, simply fill out Form 3949 A with as much specific information as you can obtain and send the form to the Internal Revenue Service’s Whistleblower’s Office. The form asks that you provide information such as taxpayer social security number as well as specific information regarding the type of tax evasion. The IRS will require data about the type of violation; everything from “false exemptions” to “organized crime”. You will also be asked to provide an estimate of unpaid taxes and other specific information.
Following are some interesting facts about the Whistleblower program (according to the IRS):
* Most of the cases deal with corporate or business taxes and not individual returns.
* In 2008, the IRS received over 1,200 claims of over $2 million.
* Many whistleblowers do not apply for the financial award. They were simply interested in informing about tax evasion.
* The tax informant award is considered taxable income, so make sure that you include this on as income your tax return.
Under current law, the identity of the informant is required to remain confidential. Only IRS employees with a need to know are allowed access to this information. However, due to the detailed nature of the data provided by the whistleblower, it is likely that the identity will be known (or at least speculated) by the tax violator. Please make very sure that you are willing to have your identity as the whistleblower be known before you provide the information.
Sources: (i) irs.gov, (ii) Brent Kendall Dow Jones Newswire