My feed was abuzz this morning, with readers asking and commenting on a post by a TikTok influencer who claimed that she got revenge by turning in her ex to the IRS for not paying his taxes.
In the clip, she posted, “When my ex confided in me he never paid his taxes, then cheated on me a few months later I reported him to the IRS and collected over 100k in reward money. I’m spending his money daily while he’s facing years in jail. The female rage is a powerful thing.” So far, it’s attracted 3.8 million views, racking up 2,317 comments and nearly 620,000 likes.
But can you actually make money by turning in your ex? It’s doubtful.
The IRS isn’t looking to reward folks to report instances of minimal or incidental fraud. They’re looking for high-dollar fraud.
Whistleblower Fraud
By statute, the fraud must be significant. Specifically, to qualify for the section 7623(b) award program, a whistleblower must provide a tip where the tax, penalties, interest, additions to tax, and additional proceeds in dispute exceed $2,000,000. (Moreover, if the whistle is being blown on an individual taxpayer, his or her gross income must exceed $200,000 for at least one of the tax years in question.)
But blowing the whistle isn’t enough. The IRS must act on the tip and collect the underpayment resulting from the tip. That means that the information must be specific and credible.
As for the payoff? Typically, the IRS will pay an award of between 15% and 30% of the proceeds collected that are attributable to the whistleblower tip. The IRS may opt not to pay—or to reduce the amount—if the tip is brought by an individual who “planned and initiated” the actions that led to the underpayment of tax or if the tip was based on information derived from a judicial or administrative hearing, a governmental report, hearing, audit, or investigation, or the news media.
If your tip does not meet the criteria under section 7623(b), the IRS can consider it for a discretionary program under section 7623(a).
Background
Whistleblower laws keep evolving, but at least one version of section 7623(b) has been on the books since 1867. Under the original statute, the Secretary of the Treasury was empowered to pay such amounts as he deems necessary “for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same.” That language more or less remained the same for over 100 years.
In 1996, a clause was added allowing payments “for detecting underpayments of tax” as another basis for an informant award and making the payments from proceeds collected rather than appropriated funds.
Congress made significant changes in 2006 as part of the Tax Relief and Health Care Act of 2006. On August 12, 2014, the Treasury Department published final regulations providing guidance on submitting information, filing claims for awards, and the administrative proceedings applicable to claims for awards. The regulations also provided guidance on the determination and payment of awards and defined key terms.
The Bipartisan Budget Act of 2018 added a new subsection, which further defined proceeds as penalties, interest, additions to tax, and additional amounts provided under the law, as well as any proceeds arising from laws for which the IRS is authorized to administer, enforce, or investigate, including criminal fines and civil forfeiture, and violations of reporting requirements. The BBA 2018 also limited section 7623(b) to cases where the dispute proceeds exceed $2,000,000.
In 2019, the whistleblower law was further amended, including creating protections for whistleblowers against retaliation.
Success Rates
So, how much is the IRS paying?
In fiscal year 2022, the IRS paid whistleblowers 132 awards totaling $37.8 million from $172.7 million in proceeds collected. That’s slightly above the amount paid in fiscal year 2021—$36.1 million—although the total number of awards paid decreased from 179. Awards paid as a percentage of proceeds collected increased from 14.7% in fiscal year 2021 to 21.9% in fiscal year 2022. The lion’s share of those awards were section 7623(b) awards with 26 awards paid totaling $34.5 million attributable to $152.7 million of proceeds collected.
The average claim processing time—the time from the date a claim is received to the date an award is paid—for section 7623(b) award payments made during fiscal year 2022 increased by 1.3% from the prior year, while average claim processing time for section 7623(a) award payments increased by 14.9%.
Since 2007, the Whistleblower Office made awards of $1.1 billion based on the collection of $6.6 billion. The largest was the $104 million paid in 2012 to Bradley Birkenfeld for his role in blowing the whistle on Swiss bank UBS AG’s role enabling tax evasion by rich Americans. (Birkenfeld got his money after serving 30 months in prison for his role helping billionaire real estate developer Igor Olenicoff hide $200 million offshore and evade $7.2 million in tax, even though Olenicoff himself got off on probation. )
Timing
According to the IRS, on average, in the last fiscal year, new submissions were processed within 21.3 days of receipt. But that doesn’t mean that taxpayers will get paid quickly.
The time for paying a claim to the whistleblower depends on compliance actions taken, the affected taxpayer’s exercise of rights to request assistance from the Independent Office of Appeals or to litigate disagreements with the IRS, the time it takes to collect any proceeds attributable to the whistleblower, and the time for a final determination of tax.
In fiscal year 2022, the IRS issued 4,115 notices to whistleblowers as required by the Taxpayer First Act (TFA). Although the Whistleblower Office created a new team and hired four additional employees to focus on the new TFA notices, the notice process has been more time-intensive than expected.
On average, section 7623(b) awards were paid within 68 days of the date when all regulatory requirements were met—that includes initiating claims, delivering notices, pursuing investigations, and getting paid. Since the IRS pays awards from proceeds they collect, award payments aren’t made until the taxpayer has exhausted all appeal rights and can no longer file a claim for refund or otherwise seek to recover the proceeds from the government.
Realistically, that means that the IRS generally cannot make award payments for several years after the whistleblower has filed a claim.
Jailtime
As for the notion that you can send your ex to jail for cheating on his or her taxes? That’s likely a stretch, too.
Most taxpayers don’t go to jail for failing to pay taxes—civil enforcement tends to result in collections activities like liens and levies. The IRS does have a criminal investigation division and does make referrals for criminal prosecution, but that’s not as common as you might think and typically involves additional acts or criminal activity.
Throwing Someone Under The Bus
The point of the program is to encourage compliance and help the IRS get paid—not to get revenge on your ex. Clearly, that can be a perk. But be smart. Making a bogus claim is not only a waste of resources, it could land you in trouble. And making a claim potentially related to you (like information involving a spouse or business partner) could cause the IRS to take interest in your own taxes—and result in non-payment of any otherwise valid claim, depending on the circumstances.
Your best bet? If you have actual information that could give rise to a valid claim, reach out to a tax or legal professional.
