IRS Withholding Taxes from Whitleblower Rewards
Changes to the law in 2006 guaranteed whistleblowers between 15 and 30 percent of any IRS recovery based upon information provided by a whistleblower. More recent changes guarantee that the IRS receives its cut of these whistleblower payouts. The IRS has announced that it intends to withhold taxes from the whistleblower award payments that it makes. While the awards are taxable, some are questioning whether the IRS has the authority to do this, noting that these are not wage payments or other types of payments that require withholding. The IRS defends against its critics, noting that there is no prohibition against withholding taxes from these payments, and the fact that some payments are large and may go to foreigners.
For more information see: http://blogs.forbes.com/robertwood/2011/05/19/irs-to-whistleblowers-thanks-but-were-withholding/