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IRS gives first whistleblower award for tax fraud tip, P.2

While whistleblower rewards are often associated with things like health care, occupational safety/health, and equal employment opportunity, rewards for tax fraud have been, until now, nonexistent.

In our previous article, we mentioned that last Friday the IRS Whistleblower Office issued its first reward to a Pennsylvania accountant who reported that his employer underpaid on taxes.

Prior to the establishment of the Whistleblower Office in 2006, the IRS could choose whether to reward tipsters from the taxes recovered, but had no obligation to do so.

The IRS Whistleblower Office, which was authorized back in 2006, has been rather slow to start up. One of the Senators who was instrumental in getting the office authorized says the delay in implementing the program may be because of the IRS' uncertainty or discomfort with tipsters receiving large rewards, or because large underpayments of taxes is seen as an embarrassment to IRS employees.

Annual reports to Congress show that, in 2008 and 2009, the IRS Whistleblower Office received almost 1,000 tips concerning over 3,000 taxpayers. Sources say "hundreds" involved underpayments of over $10 million and "dozens" involved underpayment of at least $100 million. Many tips reportedly involve "mom-and-pop" organizations or, interestingly, ex-spouses.

Patrick Burns, president of a D.C. based non-profit Taxpayers Against Fraud, says the IRS Whistleblower program "is not designed to snag the guppies, but to harpoon the whales," since it only promises awards for returns of at least $2 million.

According to annual reports, the IRS Whistleblower Office's policy of waiting to pay rewards until a two-year window for appeal has passed is due to expire soon. Sources speculate that more whistleblower awards may soon be reaped.

Source: Daily Mail, "'Encourage others to squeal': IRS awards $4.5m to accountant after tip off in first ever whistleblower award," 8 April 2011.

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