If you've got an IRS letter on your desk right now, you have a decision to make, and the clock matters. I'm Darrin Mish. I've spent 32 years helping people with exactly this kind of situation. Here's what you should do.
Senate Finance Committee Ranking Member Charles Grassley (R – Iowa) took the IRS to task over the slowness its Whistleblower office has been rewarding those who report tax fraud. Since 1897, the IRS has rewarded whistleblowers but the difference is that since 2006, the reward is mandated and no longer discretionary. A whistleblower who reports a genuine case of tax fraud stands to gain a handsome reward of between 15% and 30% of the proceeds collected. The problem is the time taken to receive the money.
Senator Grassley expressed his disappointment in a press release recently. As a result of the slow progress of rewarding whistleblowers, these informants may stop feeding the IRS with valuable information that could lead to further discovery of tax fraud.
Whistleblowers can file IRS Form 3949-A Information Referral with details like who, what, when, how and how much pertaining to suspected tax fraud cases. Alternatively, you could submit these details in a letter to the IRS. Your personal details such as your name will be kept confidential. Another form that can be used is IRS Form 211 Application for Award for Original Information and follow the procedures in Notice 2008-4.
A whistleblower can receive a full reward, even if he is convicted of stealing from the company he blows the cover on. The whistleblower who “planned and initiated” a tax scheme is still eligible for a reduced award unless he or she convicted for that planning role.
A recent example of a successful case of whistleblowing was the tip-off by an informant named Bradley Birkenfeld on the dealings of Swiss bank, UBS that led to the bank’s admission of abetting wealthy American customers in evading taxes on their assets. The bank had to pay the US government a fine of $780 million back in 2009 as a result of its actions. Birkenfeld, a previous UBS bank employee, who blew the whistle that led to the discovery of what UBS was doing is yet to be rewarded.
Birkenfeld did not orchestrating the UBS scheme that began before he started work as a UBS private banker and continued after he complained about it internally and subsequently quit.
Birkenfeld himself has been charged and indicted for his role in an associated case helping a wealthy California billionaire, Igor Olenicoff hide taxable income offshore and is serving 40 months in prison but could leave prison with millions of dollars if he receives his reward by the time he ends his jail term. Senator Grassley also says that what happened to Birkenfeld may discourage more whistleblowers from coming forward with information for fear of being charged and subsequently imprisoned.
There are likely to be many more sizeable tax collections traceable to the actions of whistleblowers.
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