Tax Tattlers Snag $125 Million

Photo (cc) by stevendepolo

Last year, more than 300 people whispered in Uncle Sam’s ear about big-time tax cheaters: people who owed more than $2 million after all the penalties and interest were included.

That’s according to a newly released IRS report, which says its whistleblower program identified 671 taxpayers who may be in big trouble.

Here’s how it works:

Section 7623(b) of the Internal Revenue Code (the Code) generally requires the IRS to pay awards if information an individual provides substantially contributes to the collection of tax, penalties, interest, and other amounts when the amounts in dispute are more than $2,000,000. The law set award ranges based on percentages of the collected proceeds and established a Whistleblower Office within the IRS to administer those awards.

Those percentages range from 15 to 30 percent – so the minimum reward would be $300,000. But it often takes a long time to get it, because audits, investigations and multiple chances to appeal can stretch the process up to seven years. The average appeal takes about eight months, while the longest recorded took nearly three years.

The IRS is just now paying the first awards since the program was revamped in 2006, and says only five claims have been paid under the revised law.

Still, patience pays off. In 2011, just over $8 million was paid out to whistleblowers. In 2012: $125 million. The program brought in $592.5 million last year, far more than the $48 million it collected in 2011. It’s paying an average of 21 percent of the amounts collected to whistleblowers for 2012, a record high – perhaps reflecting changes in the law. Prior to 2006, the reward cap was 15 percent, with a maximum of $10 million.

In most cases, taxpayer privacy laws prevent the IRS from disclosing individual award amounts. But a footnote in the report notes that, “One claim paid in FY 2012 was accompanied by a limited privacy waiver that permits the IRS to confirm that, on August 27, 2012, the IRS paid an award of $104 million to a whistleblower.”

While the report doesn’t name him, the press has. Reuters reported this whistleblower is Bradley Birkenfeld, an ex-employee of UBS, the largest Swiss bank. In 2009, he was sentenced to 40 months in prison for helping people evade taxes. Then, apparently, he started talking.

At the 30 percent reward level, his snitching would have resulted in somewhere around an extra $350 million for the IRS. If the trickster-turned-tipster is receiving a smaller percentage, then he helped bring in an even bigger haul – probably much bigger. The IRS has identified a number of UBS clients involved in tax avoidance, including Wolfgang Roessel, who last May pleaded guilty to filing a false tax return and failing to file a Report of Foreign Bank and Financial Accounts. The plea agreement tax and penalty add up to more than $6 million. There are dozens more cases going back to 2009, many worth millions.

The IRS publishes how many submissions it receives per year, along with how many potential tax cheaters are snagged by that information. The numbers went up sharply between 2007 and 2010. In 2007, 50 submissions affected 875 taxpayers. In 2010, 422 submissions affected 5,545 people. Since then, the numbers of affected taxpayers have gone back down, although submissions haven’t dropped proportionally. The following year, 2011, 314 submissions affected 734 taxpayers.

This suggests the whistleblower program may be working as intended – scaring more people into paying what they’re supposed to. But as long as a few rich people keep cheating, there’s still plenty of money to be made. To submit a claim under the whistleblower program, you have to mail in a completed IRS Form 211.

Be careful, though: The IRS notes the program does not currently provide whistleblower protection. It warns that whistleblowers who snitch on their employees may get fired, or “face threats of physical harm or damage to economic interests.” Depending on state law, you may have a solid court case, but there’s no guaranteed protection from the government.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
8 Things You Should Rent Instead of Buying

You may think you’re looking at a must-have purchase. But do the numbers and think twice.

14 Products That Keep Foods Fresh Longer

We’ve rounded up innovative Amazon purchases to lengthen the life of your favorite foods and beverages.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

7 Other Retailers With Free Prescription Delivery

Amazon’s new pharmacy is hardly the first to offer free shipping.

Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

These Major Appliances Got the Worst Reviews in 2020

Consumer Reports says these home products got the worst ratings from experts.

11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

3 Cable TV Companies Hiking Prices for 2021

Still married to your cable company? Hold on to your wallet!

15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.