IRS "Finder's Fee" for Turning In Delinquent Taxpayers

Jimmy T. from Philly said he heard that you can get money for turning in someone to the IRS who didn't pay their taxes. Is this true?

Yes it is Jimmy. The IRS Compliance and Enforcement Division has its informants just like the law enforcement officers you see on TV. And the IRS does pay them. . . sometimes.

Here's how it works:

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30% of the additional tax, penalty and other amounts it collects.

Who can get an award?

The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.

The IRS is looking for solid information, not an “educated guess” or unsupported speculation. They are also looking for a significant Federal tax issue - this is not a program for resolving personal problems or disputes about a business relationship.

What are the rules for getting an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15% to 30% of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court.

The IRS also has an award program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15% up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. Some of the rules are different from those that apply to cases involving more than $2 million.

If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.

Attorney Jack Manhire is an 11-year veteran tax attorney who has helped individual, corporate, and government clients save over $127,000,000 in back IRS taxes. You can contact him by posting a comment on his blog at http://taxhelpirs.blogspot.com/.