IRS Whistleblowers’ Two (2) Biggest Misconceptions

IRS Whistleblowers’ Two (2) Biggest Misconceptions

Many whistleblowers incorrectly believe that (i) there must be fraud, and (ii) that the IRS can go back and audit as many years for which they have specific and credible information.

The first misconception is that fraud is required for the IRS to take action under the whistleblower program.  In fact, the IRS will pay an award for information that leads to an action (administrative or judicial) with respect to any underpayment of tax, including an innocent mistake by a taxpayer.  There does not need to be fraud; only the collection of proceeds as a result of the IRS action. 

The second misconception is that the IRS will go back as many years as necessary to enforce the law and collect the tax.  However, the statute of limitations prevents the IRS from auditing taxpayers after a set number of years have passed.

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IRS Should Be Targeting The Wealthy Taxpayers Through The Use Of The Whistleblower Program.

The IRS spends about 4 cents per dollar collected by utilizing the IRS whistleblower program, and about 10 cents per dollar collected by using its traditional audit methods.  The lower costs should mandate that the IRS start prioritizing whistleblower claims and encourage them to shorten the time processing those claims.  Both of these steps would help the IRS to better attack the tax gap, hopefully negate the need to target the poor and stem the tide of wealthy sophisticated taxpayers cheating the system. 

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