A guest post from Dean Zerbe, senior policy analyst for the National Whistleblower Center and former tax counsel for the Senate Finance Committee.

Many people considering blowing the whistle on tax evasion ask themselves the most basic question: Do I have a case that will interest the Internal Revenue Service (IRS)?

I have represented whistleblowers who have received over $300 million dollars in award payments from the IRS and during that time have found that there are a few key tests that may increase the possibility the IRS will take action on a whistleblower submission.

  • Federal Tax v. State Tax

The IRS whistleblower award program is focused on federal tax. If your case involves state taxes– then the answer is no. However, some states do have a whistleblower program that you may wish to explore filing with the appropriate state. Also, if the federal tax at issue is payroll tax, be cautious. These are highly fact intensive cases – and commonly the IRS will tell the taxpayer to simply “get right” going forward – with no back taxes owed (and therefore no award).

  • Know v. Speculation

The IRS whistleblower office has continually beaten the drums that they are looking for submissions from whistleblowers who have good, informed knowledge about tax evasion – as opposed to speculation. Speculation for the IRS means that the whistleblower doesn’t have first-hand knowledge, but may be familiar with the industry and believes or expects that there is evasion of tax. Particularly problematic submissions are those cases where the whistleblower cannot even name the specific taxpayer evading tax. While the IRS is open to a submission where the whistleblower doesn’t know every step of the transaction – the more the whistleblower can color it all in – the better.

  • Recent/Current v. Yesterday

The IRS is focused on open years – basically the last three to four years for an individual and six to seven years for a major company. All that means is the IRS is interested in whistleblowers with information about tax evasion that is recent – and even better if the behavior is current and ongoing. The big exception is cases where the whistleblower has never filed a tax return or has not filed about their offshore account, as the limitations period doesn’t run until the filing is made.

  • Integral Documentation

The IRS sure loves documents. Often whistleblowers I talk to will say – “well the IRS can just go get the documents.” This is easier said than done. The IRS has limited resources, and the agency is trying to determine whether there is enough information and material in the whistleblower submission to justify opening an examination. The more the whistleblower can substantiate and support the claims of tax evasion in the initial submission the better.

  • First-Hand Knowledge

As touched on earlier, the IRS is happy when the whistleblower comes in with first-hand knowledge. Think of it from the IRS perspective – they are allocating limited resources to begin an examination. IRS management needs to answer the question:  how much confidence can we have in the whistleblower.

I have found as well that the IRS is particularly happy when the whistleblower works in the financial/tax part of the business. In short, the IRS wants to see that the whistleblower has a good, detailed understanding of the tax evasion.

  • Real Dollars

The IRS is particularly interested in those whistleblower submissions that involve significant dollars.  Significant, however, is within context. A whistleblower claim of $4 million dollars regarding tax evasion at a major corporation is not likely to get the dance music going for the IRS. However, $4 million dollars for a small business or an individual would possibly be of interest. For a Fortune 100 company, tax evasion north of $100 million dollars would be a good benchmark. On the low end – below $2 million dollars of tax, penalties and interest all in – may be a hard sell.

Profile of a Good Whistleblower

As you can see above – the common profile of a good whistleblower is someone blowing the whistle on current tax evasion by a specific taxpayer that involves significant tax dollars. The whistleblower ideally will have documents that support her claim – and the whistleblower has first-hand background/knowledge of the tax evasion. Certainly not every whistleblower is going to meet all six tests – and can still be a good submission. Further, meeting all six facts is not a guarantee of success.   However, weighing these factors will give the whistleblower a realistic understanding of the strengths and weaknesses of the submission to best evaluate making a decision.