The IRS Whistleblower Program: What CPAs Should Know

Now that the IRS whistleblower program has been enhanced with greater rewards and more clearly defined administration, CPAs may be approached by individuals who might want to blow the whistle on a tax cheat.

August 2009
by Brian Mahany/Journal of Accountancy

Since Congress amended IRC § 7623 in 2006, the IRS' new Whistleblower Office has seen significant interest from potential informants with tips about multimillion-dollar cases of tax noncompliance.

In the first 12 months after it was established in February 2007, the Whistleblower Office received 116 reports of underpayments of more than $2 million each. Moreover, 24 of those tips involved more than $10 million each in unpaid taxes. The quality of the information appeared promising, the Whistleblower Office's director, Stephen A. Whitlock, told Congress in his 2008 annual report. "The individuals submitting this information claim to have inside knowledge of the transactions they are reporting, often with extensive documentation to support their claims," Whitlock wrote.

With so much potentially at stake, some lawyers have specialized in representing whistleblowers. Often, a CPA approached by someone with information might automatically refer that person to an attorney, but the CPA may be better suited than most lawyers to perform much of the groundwork that such a claim entails, starting with helping potential whistleblowers determine whether they have a valid claim and then helping them document and submit it. Furthermore, while the new law has focused attention on high-dollar claims, those under the old law, which still governs tips on underpayments of less than $2 million, may also be on the rise as a result of the renewed attention. To that end, this article outlines provisions of the program and recent guidance, along with observations about roles CPAs might play.

Whistleblowing 101

Section 7623(a) authorizes payments to private citizens for assistance in detecting underpayments of tax and tax evasion. Rewards are paid as a percentage of the taxes, interest and penalties collected, based on the value of the informant's information. Rewards can also be paid if the information leads to the denial of a claim for refund that otherwise would have been paid but should not be. Historically, rewards were limited to 15 percent of the amount of the underpayment, with a maximum reward of $2 million.

This article has been excerpted from the Journal of Accountancy. View the full article here.