Tax Whistleblower Blog

The Standard of Acceptance for Tax Whistlebower Cases

The legislation, which creates the Tax Whistleblower Reward Program, IRC section 7623 states that the IRS will NOT accept a referral into the Whistleblower Program unless the Whistleblower provides “specific and credible information” regarding the underreporting of tax of at least $2,000,000.  No further explanation of what is required to meet the “specific and credible” standard is available.  Although the former IRS attorneys of RewardTax.com believe that the standard will be further defined by the IRS through regulations, notice, or revenue procedures; they provide the following tips to use in the meantime:

(1) “Specific and credible information” is something more than suspicious facts that would otherwise trigger an audit.  For example, information showing that a taxpayer’s taxable income was offset by a large tax deduction does not meet the standard;

(2) Nor is the standard met when the Whistleblower “assumes” or “believes” that the the large tax deduction is fraudulent;

(3) The standard is met when the Whistleblower has direct or indirect knowledge that a taxpayer is NOT entitled to the large tax deduction; and

(4) The Whistleblower’s knowledge can be first-hand, such as having heard the taxpayer admit that the large tax deduction isn’t meritorious; or the knowledge can be hearsay, such as having heard from an accountant with first-hand knowledge that the large tax deduction isn’t meritorious.  

A typical profile for a Whistleblower is a disgruntled ex-employee or ex-spouse of a taxpayer.  On many occassions, I have seen Whistleblowers assume facts of which they do not have direct or indirect knowledge.  For example, many potential Whistleblowers have approach me with cases wherein they assume that the large tax deduction is fraudulent because the facts are suspicious, and the taxpayer is an unscrupulous individual.  However, I do not believe that these types of cases will be accepted by the IRS for processing.  Nor do I believe that a Whistleblower should turn those assumptions into affirmative statements for purpose of causing the IRS to accept a case for processing.  A Whistleblower must sign Form 211 under penalties of perjury, and I believe that a Whistleblower has a duty to disclose when facts are assumed vs. from direct or indirect knowledge.