IRS Hands out $53M to Whistleblowers in 2013

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In fiscal 2013, the Internal Revenue Service (IRS) paid $53 million in awards to whistleblowers and collected $367 million based on information they provided. Wall Street Journal reports that one large payment of $38 million was made to a tipster who provided information about a domestic corportate-tax case.

The IRS has two whistleblower programs, one for smaller awards involving less than $2 million of tax and one for large awards for cases involving more than $2 million of tax. The small awards program has been around for decades and allows whistleblowers to receive up to 15 percent of tax collected, while the large awards program was started in 2006 and allows awards of up to 30 percent.

Wall Street Journal notes that awards made to whistleblowers were especially large in fiscal 2012, due to a $104 million payment to whistleblower Bradley Birkenfeld. Birkenfeld, who signed a release that allows him to be identified, disclosed information about Swiss banking giant UBS that caused the US to investigate offshore accounts held by US taxpayers.

Whistleblower cases can be lengthy; there are at least four layers of IRS review that can take five to seven years or more. This is because the audit process takes a long time, and delays can lengthen the process. Additionally, the IRS makes payments to whistleblowers once the taxpayer is no longer able to appeal the case or seek a refund. Awards made to whistleblowers are taxable as ordinary income, and the IRS usually withholds at a 28 percent rate on the whole payment unless the taxpayer enters a special agreement, WSJ says.

In its most recent report to Congress, the IRS indicated that it had a number of open cases in the large rewards program based on submissions from 1,320 whistleblowers involving 12,192 taxpayers, the Wall Street Journal reports. These taxpayers can include individuals, corporations trusts or estates. About two-thirds of those submissions are in the early or middle stage. The remaining one-third are nearing the end of the process, and three whistleblowers are expected to receive awards soon.