IRS Whistle-Blowing for Fun and Profit
The financial community is all astir with the recent news that
Bradley Birkenfeld was awarded $104 million for blowing away the entire
Swiss banking community’s veil of secrecy.
OK, that’s not really what he did. That was just a side-effect. In fact, all he did was provide detailed information about the illegal financial practices of his employer, UBS.
Granted, whistle-blowers are not popular. And Birkenfeld is going to jail for his own illegal activities. But when he gets out, he won’t have to worry about being ostracized in the financial community and making a living. He’ll have enough money to do whatever he likes. (I’ll bet he doesn’t stash that money in Switzerland.)
In fact, like many graduates of Club Fed, he’ll probably make a fortune hitting the speaker circuit. (Think Michael Milken and Martha Stewart, among others)
Why bring this up here?
Because of the IRS program designed to encourage snitching and whistle-blowing. There is a special form, Form 211, you can use to turn someone in to the IRS and collect a reward.
There are two ways to get the reward:
- You can bring a case that is worth over $2 million in taxes, penalties and interest, involving an individual with at least $200,000 annual income. The reward is 15%-30% of whatever the IRS collects. Should you disagree with the outcome, you can take the IRS to Tax Court and plead your case. Note: Cases on the Tax Court docket are open to public scrutiny. Your name will be on the docket. The issue will not. But the final determination is usually published.
- The individual’s income is under $200,000 and the amount at issue is less than $2 million. The reward can be up to 15% or $10 million. All IRS actions at this level are discretionary and you have no protest or appeals rights.
You can get more details at IRS’s special web site for informant awards.
It’s not all that easy to collect a reward. In order for informants to collect a reward, a few things must happen:
- You must be the first person to file a claim against this taxpayer. If anyone else reported them first, you lose.
- You must reveal your identity to the IRS. How else could IRS know who to pay?
- You must provide specific information about the illegal activities and how they are being done, so that IRS has the means to start the investigation.
- You must provide as much information as possible about the identity of the person so that IRS doesn’t make a mistake and investigate the wrong person. For instance, Social Security number, taxpayer ID numbers, home and/or business addresses, etc.
- You must provide information about the extent of the illegal activities. After all, IRS isn’t going to waste a lot of time investigating someone who’s engaged in penny-ante tax evasion. Resources are limited — without an open-and-shut case worth at least high six figures, or better yet, seven figures, it’s not worth pursuing.
- This is the most important part about collecting a reward: You need to provide solid information about where that person’s assets are, and approximately how much they are worth. This is especially important when the tax crook is hiding assets under someone else’s name. In which case, it would really help if you could explain how it got into that other person’s name illegally. Remember, you only collect a reward based on a percentage of the amount that the IRS collects.
Let’s analyze the rules a little more closely.
First of all, the IRS doesn’t investigate all referrals. So filing a Form 211 does not guarantee that the IRS will follow up. Staff is limited. They will only follow up when they have enough detail to help build a case; or the information you provide indicates that this taxpayer’s behavior may be affecting a lot of tax returns (a tax preparer or promoter); or there is a lot of money at stake, with assets available to pay the potential taxes due.
That first condition about being the first person to turn someone in may be something you can protest. After all, if someone filed an earlier Form 211, but didn’t provide enough specific information so that the IRS could find the ways in which a taxpayer was specifically evading tax, but you did — was their initial claim valid?
Also, if they did not provide detailed information on how to find this taxpayer’s assets (which might have been hidden, or elusive), then the IRS would never have been able to collect on the judgment. So, it may be worth your while to appeal a rejection of your submission when the IRS tells you the reason is that you are not the first person to turn in this taxpayer.
Then there’s that condition about identifying yourself. That can be pretty scary. After all, what if the person you turned in learns you’re the rat? Or even suspects you. Can they get proof? Some people can get quite violent and retaliate physically — even if they only suspect you.
With a good attorney, demanding to see all documents under the Freedom of Information Act, will your identity be revealed? According to IRS counsel in Los Angeles, in a number of relatively informal conversations, the answer is no. The documents, including the Form 211, will be redacted to conceal the whistle-blower.
Naturally, you can see that Bradley Birkenfeld’s identity is not concealed. Well, when it comes to testifying, and being a witness…Yup, your identity is just apt to be revealed, isn’t it? The IRS promises to notify you before this happens. Uh huh…
Even when you qualify for a reward, it can take years for IRS to build the case and collect the taxes. So even after you’ve gotten the award approved, don’t count on getting paid anytime soon.
But, if you know of someone who is an outrageous tax criminal, and is throwing their ill-gotten gains in your face, get even. Who knows, perhaps someday you’ll be able to live well on the proceeds of their crime.
Eva Rosenberg, an enrolled agent, is the publisher of TaxMama.com , where your tax questions are answered for free. She is the author of several books and ebooks, including “Small Business Taxes Made Easy.” She teaches tax courses at IRSExams.com and CPELINK.
OK, that’s not really what he did. That was just a side-effect. In fact, all he did was provide detailed information about the illegal financial practices of his employer, UBS.
Granted, whistle-blowers are not popular. And Birkenfeld is going to jail for his own illegal activities. But when he gets out, he won’t have to worry about being ostracized in the financial community and making a living. He’ll have enough money to do whatever he likes. (I’ll bet he doesn’t stash that money in Switzerland.)
In fact, like many graduates of Club Fed, he’ll probably make a fortune hitting the speaker circuit. (Think Michael Milken and Martha Stewart, among others)
Why bring this up here?
Because of the IRS program designed to encourage snitching and whistle-blowing. There is a special form, Form 211, you can use to turn someone in to the IRS and collect a reward.
There are two ways to get the reward:
- You can bring a case that is worth over $2 million in taxes, penalties and interest, involving an individual with at least $200,000 annual income. The reward is 15%-30% of whatever the IRS collects. Should you disagree with the outcome, you can take the IRS to Tax Court and plead your case. Note: Cases on the Tax Court docket are open to public scrutiny. Your name will be on the docket. The issue will not. But the final determination is usually published.
- The individual’s income is under $200,000 and the amount at issue is less than $2 million. The reward can be up to 15% or $10 million. All IRS actions at this level are discretionary and you have no protest or appeals rights.
You can get more details at IRS’s special web site for informant awards.
It’s not all that easy to collect a reward. In order for informants to collect a reward, a few things must happen:
- You must be the first person to file a claim against this taxpayer. If anyone else reported them first, you lose.
- You must reveal your identity to the IRS. How else could IRS know who to pay?
- You must provide specific information about the illegal activities and how they are being done, so that IRS has the means to start the investigation.
- You must provide as much information as possible about the identity of the person so that IRS doesn’t make a mistake and investigate the wrong person. For instance, Social Security number, taxpayer ID numbers, home and/or business addresses, etc.
- You must provide information about the extent of the illegal activities. After all, IRS isn’t going to waste a lot of time investigating someone who’s engaged in penny-ante tax evasion. Resources are limited — without an open-and-shut case worth at least high six figures, or better yet, seven figures, it’s not worth pursuing.
- This is the most important part about collecting a reward: You need to provide solid information about where that person’s assets are, and approximately how much they are worth. This is especially important when the tax crook is hiding assets under someone else’s name. In which case, it would really help if you could explain how it got into that other person’s name illegally. Remember, you only collect a reward based on a percentage of the amount that the IRS collects.
Let’s analyze the rules a little more closely.
First of all, the IRS doesn’t investigate all referrals. So filing a Form 211 does not guarantee that the IRS will follow up. Staff is limited. They will only follow up when they have enough detail to help build a case; or the information you provide indicates that this taxpayer’s behavior may be affecting a lot of tax returns (a tax preparer or promoter); or there is a lot of money at stake, with assets available to pay the potential taxes due.
That first condition about being the first person to turn someone in may be something you can protest. After all, if someone filed an earlier Form 211, but didn’t provide enough specific information so that the IRS could find the ways in which a taxpayer was specifically evading tax, but you did — was their initial claim valid?
Also, if they did not provide detailed information on how to find this taxpayer’s assets (which might have been hidden, or elusive), then the IRS would never have been able to collect on the judgment. So, it may be worth your while to appeal a rejection of your submission when the IRS tells you the reason is that you are not the first person to turn in this taxpayer.
Then there’s that condition about identifying yourself. That can be pretty scary. After all, what if the person you turned in learns you’re the rat? Or even suspects you. Can they get proof? Some people can get quite violent and retaliate physically — even if they only suspect you.
With a good attorney, demanding to see all documents under the Freedom of Information Act, will your identity be revealed? According to IRS counsel in Los Angeles, in a number of relatively informal conversations, the answer is no. The documents, including the Form 211, will be redacted to conceal the whistle-blower.
Naturally, you can see that Bradley Birkenfeld’s identity is not concealed. Well, when it comes to testifying, and being a witness…Yup, your identity is just apt to be revealed, isn’t it? The IRS promises to notify you before this happens. Uh huh…
Even when you qualify for a reward, it can take years for IRS to build the case and collect the taxes. So even after you’ve gotten the award approved, don’t count on getting paid anytime soon.
But, if you know of someone who is an outrageous tax criminal, and is throwing their ill-gotten gains in your face, get even. Who knows, perhaps someday you’ll be able to live well on the proceeds of their crime.
Eva Rosenberg, an enrolled agent, is the publisher of TaxMama.com , where your tax questions are answered for free. She is the author of several books and ebooks, including “Small Business Taxes Made Easy.” She teaches tax courses at IRSExams.com and CPELINK.
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