A fancy car, a new house, a dream vacation, all from money awarded by the federal government? It may be difficult to come by, but not impossible. In fact, one person got a five million dollar check from dropping a dime, or in this case, submitting IRS form 211. The form is for the IRS Whistleblower Informant Award. If you report a tax cheat, the IRS might actually pay up to ten million dollars for your information.
The reward has been around since the 60s, but a few years ago the rules changed. The IRS is now required by law to pay whistleblowers up to 30% for information, if it collects two million dollars or more. “Its probably not an endeavor for amateurs,” says Edward DeFrancheschi, a prominent Boston tax attorney who once worked for the IRS. He is currently representing a whistleblower who is hoping for a pay out. He says it is a long and involved process and informants have to go all in, “you have to give a lot of details about yourself. You have to identify yourself. Anonymous complaints, I’ve been told, are historic dead ends. People come in with an anonymous complaint never gets anywhere,” DeFranceschi says.
Along with providing personal information, whistleblowers must also spill a lot of details about the person they are trying to expose. Form 211 asks for the cheat’s social security number and specific examples of the alleged fraud. CPA, lawyer, and Northeastern academic, Tim Gagnon, says the threshold is high and informant essentially has to spoon feed the dirty details. “Give us an idea of what taxes are missing, gives us an idea of how it came about, give us an idea of what the amounts may be. So they’re really asking for the individual who’s going to whistleblow to do all the digging to make sure it’s not a frivolous claim,” Gagnon says.
As you might expect, the IRS gets a lot of tips from ex-spouses, disgruntled employees, and people just trying to settle a score. It’s estimated that 90% are found to be useless, and the average payout is reportedly about $24,000. “Its far from that easy, because for starters, you have to understand the Internal Revenue Service are a very very busy organization. They can’t run down every lead,” DeFranceschi says. If they do happen to run down yours, remember to claim the reward on your taxes, because if you don’t, someone could fill out Form 211 on you.
TED DANIEL’S BLOG:
It would take a lot to sic the IRS on someone. You think an audit is bad, imagine being the focus of an IRS criminal investigation.
I spoke to several people who told me they would never "rat" anyone out to the IRS regardless of the circumstances or how much they might collect.
According to published reports the IRS recovered $340 million during a five year period from information supplied by informants, not a ton compared to the 1.2 trillion in regular receipts collected each year.
Although people do expose bosses, co-workers, and ex's it appears the informant program was designed with corporate tax fraud in mind. The IRS isn't even required to pay out unless they are able to recover at least two million from the cheat, so we are talking big fish
All the experts we spoke with for this story said the same thing if your looking to make a career out of supplying tax cheat information don't quit your day job. The average pay out takes around eight years and in most cases when people file form 211 they never hear a word back from the IRS.
An interesting case going on now involves former UBS banker Bradley Birkenfeld. The IRS recovered billions from Americans who were hiding money in Swiss Bank accounts thanks to information provided by Birkenfeld.
Things haven't worked out so well for Birkenfeld. He serving time in Federal Prison because investigators said he was involved before he came clean.
Things may end up looking up for Birkenfeld. Despite going to prison he could very well collect from the IRS informant program.