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Years ago, it used to be very difficult for people to come forward to report illegal activities if they knew that their jobs (or even their lives) were in danger. Slowly, over the years, the government has put various programs in place to help people feel safer about reporting problems, including the Whistleblower Protection Act of 2007.

While whistleblowing is often thought to protect an employee from retaliation by an employer for whistleblowing, there is also provision for taxpayers to blow the whistle on individual or corporate tax cheats.

Before I talk about it further, let me give a balanced viewpoint: On the positive side of the argument, this is a way to bring to justice people who cheat on their taxes. I’m happy about that because, although I believe we should pay less tax, I believe we should do so fairly and ethically. On the negative side of the argument, though, this can be a retaliatory strike by disgruntled people to try and trigger an audit on those with whom they hold a grudge and I can only hope that those who act on whistleblower’s tips do so with caution and respect.

What initially prompted me to blog about this in the first place was an article I read in South Coast Today in which the reporter interviewed IRS official Stephen Whitlock who is in charge of the IRS’ whistleblower’s office. You can read the full interview here but I will summarize and make some additional comments.

What you’ll find when you read this article is that Whitlock says very little. By law, he’s not allowed to give a lot of detail, which is fine, but what he can say comes across a little offensive. When asked about the motivation that people have to blow the whistle, he attributes it to a desire among people to make sure that everyone pays their fair share of taxes. After that, he admits that there is a retaliatory motivation and a financial motivation.

What I found most interesting about the interview was this: There is supposedly hundreds of millions of dollars that the whistle is being blown on. More than one thousand whistleblowers reported people owning more than $2 million each (some more than $100 million each). And the IRS seems to be very generous with the reward money they pay out, claiming that they will pay between 15% and 30% of the collected money.

But don’t miss this: The IRS hasn’t paid out any money yet (really? In spite of having that many whistleblowers?). Their reasoning is: It takes a long time and they can’t tell anybody about it.

So, that leads me to wonder: Will they pay anything out at all? And how would we know anyway? How could anyone know if they were owed money by the IRS for this? (After all, they can’t even tell whistleblowers what the status of the investigation is). You can only get the 15% to 30% reward if the amount collected is over $2 million. If it’s under, you get a much smaller (unstated) amount and, according to the IRS, you cannot dispute the amount.

It sounds exciting to earn money for being honest… but I wonder if you’ll have a better chance of making money in the lottery.

(Photo credit: stevendepolo)

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