The U.S. tax system relies on the truthful self-reporting of income by taxpayers, reinforced by IRS auditing and ever-expanding computer matching programs. In addition, significant tax revenues (together with interest and penalties) have been recovered as the result of whistleblowers who have reported instances of tax non-compliance to the IRS. Section 7623 of the Internal Revenue Code provides for monetary awards to whistleblowers who provide information to the IRS that leads to the detection and recovery of underpayments of tax.
To be eligible for an award as a whistleblower, Section 7623(b) requires that the sum of the tax, penalties, interest and additions to tax must exceed $2 million and, if the allegedly noncompliant taxpayer is an individual, the individual’s gross income must exceed $200,000 for any taxable year at issue. If the thresholds contained in Section 7623(b) are not met, the IRS is authorized pursuant to Section 7623(a), but not required, to pay awards for information relating to tax violations that result in the government’s recovery of tax.
