Tax Cheat Whistleblowers Get Their Rewards Trimmed

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The IRS still wants your help reporting tax cheats, and they're willing to pay you for it. Now, though, you won't find it quite as rewarding.

Because of the automatic spending cuts that took effect earlier this month, the IRS has had to reduce the amount that it pays under its whistleblower program. With the cuts, whistleblowers who report tax abuse in cases where the IRS successfully collects taxes from violators will see their awards reduced by 8.7 percent.

Bounty Program Catching On

The idea behind the IRS whistleblower program was to give people a financial incentive to help produce information that helps the agency catch people with unpaid tax liability. Under the program, the person who reports the tax abuse can get as much as 30 percent of what the IRS collects in taxes, interest, and penalties.

The whistleblower program was slow to get off the ground, but activity picked up considerably last year.

For the fiscal years from 2008 to 2011, the program received more than 24,000 cases and made more than 500 awards to whistleblowers, but the amounts paid were relatively modest, totaling less than $55 million.

During fiscal 2012, however, 128 awards totaling more than $125 million were paid, though that includes one high-profile case that paid $104 million to whistleblower Bradley Birkenfeld for helping the IRS catch violators who had put money in Swiss bank accounts to try to escape taxation.

Big Cheats = Bigger Payouts

Before you get too excited about your chances of collecting a payout, though, understand that the rules governing awards are designed to reward citizen-snitches only if the cases involve high-enough dollar amounts to justify the IRS trying to catch the crooks.

Tax cases involving $2 million or more are eligible for payouts between 15 percent and 30 percent, but smaller cases have a maximum of 15 percent and are made at the IRS's discretion.

You can read more about the IRS Whistleblower program at its website.

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