Whistleblower rewards--I have a tax question. I know of someone who sold property in either 2007 or 2008 and then moved to Puerto Rico. “Peter” has bragged to me that he never paid, as best as I can determine, between 1.8 to 2.3 million dollars in capital gains. Peter’s not filed income tax since probably 2006 and believes by hiding in Puerto Rico for three years the statue of limitations has run out and he is free and clear. After much consideration, I am contemplating reporting Peter to the IRS, especially with the reward inducement. Would I remain anonymous?
Puerto Rico is a United States Commonwealth and has its own system of income tax. There are many special arrangements for those who earn income in Puerto Rico and for Puerto Ricans who earn income in the mainland U.S. Over the years, a lot of people have tried to take improper advantage of these loopholes.
First of all, “Peter” is in for a rude awakening. It’s true that the general statute of limitations is three years after your return is due. So, if you filed your 2007 return on April 15, 2008, you wouldn’t have to worry about it after April 15, 2011. But if you don’t file a tax return, or the government proves that you committed fraud, there is an unlimited statute of limitations! Also, if you do file, and you omit 25 percent of your income, the statute of limitations goes from three years to six. If they find out that Peter omitted millions of dollars worth of income, the IRS will be waiting for him.
Over the years, the IRS has had various “whistleblower” programs, encouraging those with information about tax cheating to come forward. The latest version established the Whistleblower Office at the IRS in 2006. The IRS is looking for specific, original information and facts that an informant knows about a noncompliant taxpayer rather than unsubstantiated allegations. General hunches, educated guesses, and information that’s readily available from other sources will not be compensated.
There are two different programs; the first applies to cases where the amount of tax is $2 million or more. Generally, these statutory rewards amount to 15-30 percent of the tax, penalties, and interest collected as a result of the information furnished to the government. Awards may be appealed to the United States Tax Court.
In the second program, used for smaller amounts, the IRS is authorized, but not required to provide rewards to informants. Any awards under this program are not appealable.
To participate in either program, the informant should start by completing Form 211, Application for Award for Original Information. This form is filed with the IRS Whistleblower Office in Washington, DC.
To receive a reward, applicants must provide identifying information for both the informant and taxpayer. The informant must provide facts supporting the alleged tax law violation, how the informant learned of the violation, the relationship of the informant to the taxpayer, and a description of the amount owed by the taxpayer. Finally the taxpayer must sign Form 211 under oath, stating that the information is true to the best of the informant’s knowledge.
In either program, the name of the whistleblower is confidential. Sometimes the IRS might need the informant to testify in a proceeding against the tax evader, in which case the informant’s identity would be exposed. The informant is notified and consent is obtained before the government can proceed in those cases. If that happens, you have to decide whether remaining anonymous is worth foregoing the reward.
Awards are made as soon as practical after the missing taxes are collected. No reward will be paid unless collection is actually made. And the rewards are subject to both federal and state income taxes.
Sometimes, particularly in the case of divorcing couples, a party will attempt to cause an opponent trouble by making unfounded claims to the IRS. Because the statement on Form 211 must be signed under penalty of perjury, making a knowingly false claim is not wise and can result in a severe punishment.
