The IRS Is Paying More If You Turn in Tax Cheaters

And he may be in the cubicle next to you.

Under a newly amended rule from the Internal Revenue Service, ordinary citizens can help the tax man cometh, or at least collect. The new Whistleblower Office is the IRS's attempt to give incentives for you to rat out the tax cheats you know.

That's right. If your employer, co-worker, landlord, neighbor or father-in-law is raking in fistfuls of cash and bypassing Uncle Sam, you can anonymously report the abuse to the IRS and snag a windfall from their dishonesty. As long as the total amount of tax fraud comes out to at least $2 million (including penalties, interest, and whatever else the government ultimately collects based on your report), you can get a 15% to 30% cut.

The IRS modeled the new program on the Department of Justice's successful False Claims Act, which has been in place since the Civil War era and attracts tips about fraudulent claims against federal government programs. In 2006 alone, the government recovered more than $1.4 billion through that law.

Ratting on your boss or ex-husband might sound sleazy, but whistleblowers have taken on a more venerable image in recent years. That's especially true since the Enron era, when the few employees who spoke up about the company's misconduct were seen as turned from Cassandras to folk heroes after the full extent of wrongdoing came to light.

Snitching on tax cheats wasn't always so lucrative. The previous incarnation of the Whistleblower Office was called Form 211, with the less-than-snazzy title of "Application for Reward for Original Information." But the program was criticized for offering inadequate incentive and protection for would-be whistleblowers to come forward with information.

"It was ineffective by almost anyone's description," says Michael Sullivan, an attorney with Finch McCranie, an Atlanta law firm, which runs a whistleblower blog. "It produced very little recovery for the IRS."

Under the old rules, whistleblowers could seek rewards up to 15% of the amount recovered by the IRS. But it was deemed a failure, mostly because the IRS was under no real obligation to compensate people who came to them with information of underpayments. Under the new law, however, a whistleblower can make an appeal in court if the IRS decides not to issue a reward.

"If people are concerned about the consequences, and if there's no guarantee of what they recover, they're much more hesitant about doing it," says Paul Scott, a San Francisco-based trial attorney, formerly with the Department of Justice who sponsors taxwhistleblowers.org. "This gives people more security, to be able to assert that claim in court."