Internal Controls - The Whistleblower Tax Act - What you Need to Know

by Mark Wander

With little fanfare, Congress has amended IRC (Internal Revenue Code) Section 7623 in 2006. What is Section 7623? Well it's known as the "whistleblower" section. That's right, the tax code, with Congress's direction and approval has created an office within the IRS that handles "whistleblower" cases exclusively.

Armed with rewards for enforcement, the IRS has been encouraged by the activity the program has created. The Whistleblower Office has indicated that individuals who are submitting information on a taxpayer have inside knowledge of the tax transaction, often with the necessary documentation to support the claim.

Awards issued to informants have been made ever more favorable. Under this new program, the maximum reward is 30% of the collected proceeds and the minimum is 15% for an eligible case.

The whistleblower concept is not a new program activity; it's been in the law since 1867! But the new office and new legislation has created heightened activity. Clearly, with the need to raise revenues, the IRS is aware that this program can help its tax collection efforts.

Important facts to keep in mind are that informants have specific rights and certain protections under the Law. It's interesting that many of the whistleblowers are blowing the whistle on their own employers, based on the inside knowledge they have observed and obtained.

There are a myriad of regulations in this area, but what one needs to take away from this article is that Congress has legislated incentives for whistleblowers. By being tax compliant, and maintaining the appropriate documentation, one can help protect against disgruntled employees from raising issues with the IRS. Also limiting employees access to sensitive documents should be part of a Company's overall Internal Control Policy. In fact, the Company should have an Internal Control Policy for all aspects of its finances.

Internal controls throughout the Company can also help limit employee theft and safeguard Company assets. Our firm can arrange to meet with you to evaluate your Company's internal controls, after all, your Company may be your largest single asset and it should be internally safeguarded and protected.