Since President George W. Bush signed the Tax Relief and Health Care Act of 2006, the IRS has had a program that rewards Americans who inform the agency on tax dodgers. In its first decade, the program has helped the IRS recover $3.4 billion, and resulted in payouts of $465 million to whistleblowers.

Here’s how it works. Someone files an IRS Form 211, an “Application for Original Information” that’s one page long, with the IRS. It contains information about the taxpayer (or tax avoider) and the nature of the violation to the extent that they know it, and there’s a place to describe how you know the individual or company.

Then you wait for the 37-employee IRS Whistleblower office to look into the matter.

The wait can be long, and it generally takes 5 to 7 years before the person or company being investigated exhausts all the appeals that need to happen before a collection can happen—if the IRS decides to proceed at all. They don’t have to take the case.

But it might be worth it to try. If the amount of tax avoided—plus interest and penalties—exceeds $2 million and the person under investigation has made more than $200,000 in one of the years in question, the reward is 15% to 30% of the amount recovered. If the amounts don’t meet that standard, there may still be rewards, but they max out at 15% and are given at the IRS’s discretion (which could nothing).

View photos Source: IRS More

Recent cases include a former JPMorgan (JPM) employee who blew a whistle on hundreds of millions of alleged tax violations dealing with retirement accounts. Public-private partnerships also provide plenty of opportunity for tax issues where a whistleblower can collect. For the IRS, whistleblowers and assisting lawyers, the higher the bounty the better, so people blowing a whistle on corporations are more common. However, it does happen for individuals, too.



“Most of our cases are against corporations,” said Eric Young, a whistleblower attorney in Philadelphia who secured the first payout from the Whistleblower Program in 2011 for $4.5 million. “Occasionally, we will represent someone [with information on] a high-net-worth individual, like offshore tax-evasion issues if it’s really substantial.” For his first case, the client, who remained anonymous (as most whistleblowers choose to be), had been an accountant at one of the country’s largest financial firms.

High bar to clear

“We only take a small fraction of the cases that people come to us with,” Young told Yahoo Finance. Not all the cases they turn away are bad, but they have strict criteria because of the volume they can take.

“One of the problems with the program is the payouts are pretty infrequent compared to the number of cases,” said Young. “There’s a number of lawyers I know in the whistleblower space that have made a business decision not to do IRS whistleblower cases.”

View photos Source: IRS More

Whether the IRS even decides to take the case is a big question, and someone who wants to inform on their neighbor needs actual information, not just speculation because they have a fleet of Ferraris and a teacher’s salary. For this reason, and the sheer complexity of the process, many whistleblowers hire an attorney like Young to help them make the best case possible before it gets to the IRS, especially if they fall in the big fish category.

So far, Young’s firm has seen three large payouts. Around 20 claims are still active, representing anywhere between $10 million to $1 billion in tax evasion.