Whistleblower awards, part 1: expanding the scope of award amounts

The IRS operates a whistleblower program by which individuals who tip off the government about tax evasion can potentially receive monetary awards.

Critics sometimes contend that whistleblowers have to wait too long for the IRS to act on applications for awards. But when large amounts of unpaid taxes are involved, the awards to whistleblowers can be very substantial.

In this two-part post, we will update you on this program. We will start with a recent decision by the U.S. Tax Court that could make the size of whistleblower awards even more substantial.

It has long been established that the size of whistleblower awards depends on the amount of tax revenue that the whistleblower's information allows the IRS to collect. Whistleblowers who meet the necessary criteria are eligible to receive a percentage of what the IRS collects, based on the whistleblowers information.

In a few cases, this is quite large. For example, in 2012, the IRS paid a $104 million award to a man who provided information about the role of the Swiss banking firm UBS in facilitating alleged tax evasion by U.S. taxpayers.

Awards of that size are exceptional. But the U.S. Tax Court appears to have widened the scope recently on how whistleblowers awards can be calculated.

In a ruling in early August, the Tax Court said that it isn't only a percentage of unpaid taxes that whistleblowers may be eligible for. Under the Tax Court's holding, whistleblower awards can also include part of the amounts collected by the government through civil forfeiture, as well as through criminal fines.

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