Although you’re not inclined to poke your nose into other people’s affairs, you may have become aware of serious tax violations committed by someone else. Previously, the IRS didn’t offer much incentive to report these activities. But now, Uncle Sam is taking steps to encourage well-intentioned citizens to come forward.
Alert: The IRS has outlined new procedures for reporting violations. (IRS Notice 2008-4) Doing so could result in awards under the revamped whistleblower program. The program was created by the Pension Protection Act of 2006.
To make a claim, you must file new Form 211, Application for Award for Original Information. Form 211 requires an informant to provide an estimate of the tax owed, the pertinent facts in the case and an explanation of how the information was obtained.
The IRS Whistleblower Office will make the final determination on the payment of awards and the amounts for any claims it processes. Awards will be paid in proportion to the value of the information furnished voluntarily with respect to the proceeds collected.
What’s at stake? Under the new procedures, the award must be at least 15%, but no more than 30%, of the collected proceeds in cases where the IRS determines that the information submitted by the informant “substantially contributed” to collecting the tax. The new guidance from the IRS also covers situations where the award percentage may be reduced.
To be eligible for an award under the new whistleblower procedures, the full amount—including tax, penalties, interest, additions to tax and additional amounts in dispute—must exceed $2 million for any taxable year. If the offender is an individual, his or her gross income must exceed $200,000 for the tax year in question.
Tip: This isn’t a free lunch. If someone receives an award under the whistle-blower program, it is subject to the regular reporting and withholding requirements that apply to taxable income.
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