Money really does talk—or perhaps it just makes it much easier.
The latest annual report to Congress issued by the IRS Whistleblower Office suggests more taxpayers than ever are blowing the whistle on bad tax behavior. The IRS paid whistleblowers 121 awards totaling $88.8 million in 2023—those amounts correspond to information that resulted in tax collections of $338 million. That’s a significant increase from the total whistleblower awards paid in 2022, when just $37.8 million were distributed.
Whistleblower can be a loaded term. According to the National Whistleblower Center, a whistleblower is someone who “reports waste, fraud, abuse, corruption, or dangers to public health and safety” to someone who is in the position to fix it. Often, a whistleblower works inside of the organization where the bad behavior is happening, but you don’t have to be an insider to make a disclosure. The key is making available information that you have access to that would otherwise not be known to those in a position to do something about it.
IRS Whistleblower Office
The IRS Whistleblower Office, established by the Tax Relief and Health Care Act of 2006, pays out awards to eligible individuals who provide information used by the IRS to collect taxes owed. The size of the award depends on several factors but is typically between 15% and 30% of the proceeds collected and attributable to the whistleblower’s information. Since 2007, the Whistleblower Office has awarded $1.2 billion based on total related collections of $6.9 billion in taxes.
Taxpayers can submit a whistleblower claim by filing Form 211, Application for Award for Original Information. The form must include a description of the alleged tax noncompliance, including a written narrative explaining the related issues and information, such as copies of books and records, ledger sheets, receipts, bank records, contracts, emails, and the location of assets. The whistleblower must also explain how and when they became aware of the information for the claim, as well as information about their present or former relationship, if any, to the target of the claim.
What do taxpayers generally disclose? Tops of the list is unreported and under-reported income. Here’s a look—in order—at the most common allegations submitted last year:
Whistleblower Criteria
There are limits on who is eligible to file a whistleblower claim (you’ll find more information in section 7623). For example, employees or former employees of the Department of Treasury, as well as government employees who obtained information as a result of their employment or contract with the federal government, are not allowed to submit a claim for payment.
There are also limits under 7623(b)—the proceeds in dispute must exceed $2,000,000, and if it applies to an individual, the individual’s gross income must also exceed $200,000 for any taxable year subject to such action.
If you meet the eligibility criteria and provide specific and credible information regarding tax underpayments or violations of the tax laws—and information leads to collections—you may qualify for an award. If you don’t meet section 7623(b) criteria, the Whistleblower Office may consider a discretionary award under section 7623(a).
Claims
Last year, 1,234 claims were paid in full (meaning award determinations for awards paid), compared to 396 such claims in 2022. That number—1,234 claims—marks the highest since the current IRS Whistleblower Program started.
The office built 16,932 claim numbers from 6,455 submissions. On average, the new submissions were processed within 15.4 days of the date the Whistleblower Office received the submission.
The Whistleblower Office reported that it closed 14,872 claims in 2023, a 28.2% increase from 2022. Most of those—10,666, or 72% of claims—were denied as having no actionable issue. An additional 1,813 claims were dismissed for falling below the threshold for IRS actions.
Sherron Watkins
While these numbers may sound impressive, coming forward can be challenging. Whistleblower protections are relatively new, explains Sherron Watkins.
Watkins, now a leadership and ethics advocate, would know. She made news in the early 2000s when she alerted Kenneth Lay, Enron’s then-CEO, about accounting irregularities in financial reports. Enron Corporation, based in Houston, Texas, would eventually collapse, declaring bankruptcy in December 2001. The spectacular fall—shares of the company dropped from $90.56 to just 26 cents within a year—was marked by accusations of fraud and corruption. The scandal led to thousands of layoffs and took down then-Big Five accounting firm Arthur Andersen with it.
Watkins, a certified public accountant, began her career at Arthur Andersen and joined Enron in 1993. In August 2001, while serving as an Enron vice president, she sent an anonymous memo to Lay in the summer, warning him that the company’s accounting methods were improper. They were, she said, cooking the books.
Within months of that first memo, Enron reported huge losses and announced it would restate its financial statements from 1997 to 2000. It eventually became clear that Enron had misrepresented transactions on the books—and its auditing firm and other partners went along with the fraud.
Still, the company didn’t take corrective action. Individual executives did, however, act on their own, including Lay, who sold off nearly $2 million in Enron stock.
Eventually, Watkins outed herself as the memo’s author and confronted Lay, who, she says, didn’t take any steps to fix the problem.
Her work exposing the scandal landed her in the spotlight in Congress, where she testified. Watkins eventually found out that Lay had looked into firing her in 2002—that’s because, at the time, there were essentially no whistleblower protections.
(Lay was eventually indicted and found guilty of 10 counts of securities fraud. He faced up to 45 years in prison but died before sentencing—his conviction was thrown out.)
Watkins’ story doesn’t stop there. The Enron scandal—and Watkins’ actions—are largely credited with pushing whistleblower protections forward in the Sarbanes-Oxley Act (SOX). The 2002 law required new levels of transparency and increased reporting. More importantly, it set the stage for Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. Dodd-Frank instituted sweeping changes, including whistleblower payouts and expanded protections.
She lauds those protections, noting that they are very important. She says the advances in the laws, including the awards, have really changed the game.
“When I was blowing the whistle,” she says, “I had a hard time finding legal support.”
“They (lawyers) want money,” she adds, “and it’s expensive.” Now, however, lawyers have an incentive to work on contingency since there’s a potential payment at the end. Having legal counsel is valuable because the key to bringing a successful action is presenting evidence—the more evidence, Watkins says, the better.
Whistleblower Considerations
It can be hard to take the first step as a whistleblower. Sometimes, the question comes down to figuring out, “Is it really reportable?”
Watkins says that, when making that decisions, it’s important to look for signs. For example, she says, “If you’re working at a company where your value system is challenged,” that could be a red flag. And, if you find yourself excusing behavior by saying, “This is just what corporate America does,” that could also be a flag. Finally, she explains, “If you’re always having to justify what is happening, that’s a sign.”
Watkins suggests that if you’re not sure about coming forward when you observe bad behavior, ask yourself three questions:
- Does it pass the 1:1 smell test? Can you justify the issue to a mentor or trusted person?
- Does it pass the media test? Would you be comfortable if the issue was made public?
- And finally, does it pass the mom test? Would you be embarrassed if your mother found out about it?
Sometimes, a fresh perspective can be advantageous. Talking the issue through with a trusted person—including a lawyer—can help you make the decision to come forward. If you choose to blow the whistle, it doesn’t have to be a noisy exit, Watkins says. But, she again stresses that you must protect yourself and get evidence.
She cautions, however, against simply staying quiet and letting the behavior happen. Of the nearly two dozen people convicted in the Enron scandal, Watkins notes, pointedly, “a good half were people who simply went along.”
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