What Incentive? IRS Wants To Shrink Payments To Tax Fraud Whistleblowers. Politicians Not Amused.

Under currently existing rules, a whistleblower tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip.  The case must involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.

While over 1,960 claims have been presented since 2006, the IRS made its first payment only in 2011.  In total, it has paid only three claims; the biggest being a $104 million payment to convicted felon Bradley Birkenfeld, the former UBS AG private banker who kick-started the investigation of Swiss banks.

Now the IRS is proposing restrictions that will likely shrink payouts, including restrictions making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.  These fines, levied on offshore tax evaders, are often dozens and even hundreds of times the amount of actual back-tax an evader must pay.

These restrictions come at a time when, by the IRS’s own estimate, the difference between what U.S. taxpayers should have paid and what they actually paid stands at $345 billion each year.

In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over this recent proposal, writing that it established that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”

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