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Whistleblower awards: Do you have to apply before providing information?

For years, the IRS has had a whistleblower program under which individuals who provide information to the government that leads to the collection of unpaid taxes are eligible to apply for financial awards.

But what if the individual who supplies this information does so before submitting the requisite form to request an award?

In this post, we will inform you about a recent decision of the U.S. Tax Court addressing that question.

The Tax Court was asked to rule in a case in which a whistleblower submitted information to the IRS and other federal agencies about a corporate entity's unpaid taxes. But the whistleblower did not submit an application for an award on Form 211 to the IRS Whistleblower Office before providing this information.

The IRS took the position that the proper procedure for receiving an award had not been followed. The Tax Court ruled, however, that under Section 7623(b) of the Internal Revenue Code, it is not necessary to funnel all of the information about unpaid taxes to the IRS Whistleblower Office before actually applying for an award.

After all, it is not an uncommon practice for a would-be whistleblower to get in touch with an IRS examiner or other federal authorities first, before filing for an award. Besides the IRS, these authorities could include the FBI or federal prosecutors. The most important thing is to put the sensitive information about unpaid taxes into the hands of capable investigators. An actual application for a monetary award can come later.

In other words, the Tax Court has held that the IRS Whistleblower is not a bureaucratic one-stop shop. It is part of a larger tax compliance community. Whistleblowers who engage with other members of that community therefore remain eligible to apply for awards, regardless of their exact timing in sharing their information.

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