California Can Reward Tax Informants Just As The IRS Does

The California Franchise Tax Board (FTB) had an informant reward program to encourage and reward informants who provide insightful information to identify and curtail abusive tax shelters and other abuses of the California tax code. Evidently, that statute has not been used because the complexity and sophistication of abusive tax shelters and other abusive tax schemes requires a greater degree of FTB discretion and clarity of the amount to pay informants and the funding mechanism used to pay informants. Since the California FTB lacks the flexibility to encourage and reward informants, the reward program is dormant.

The Internal Revenue Service (IRS) pays rewards! It has the discretion to pay rewards to informers for information about tax law violations. Except for Treasury and certain other federal employees, any informant is eligible for a reward. The amount of the reward normally will not be more than 15% of the additional taxes, penalties, and fines collected as a result of the informant’s information. The IRS will pay claims for reward applied for on Form 211 related to the value of the information given voluntarily and upon the informant’s own initiative with respect to taxes, fines, and penalties (but not interest) AFTER the Service collects.

The IRS may pay rewards it deems necessary for information that leads to detection or bringing to trial and punishment tax law violators and the actual underpayment of tax. The IRS may pay rewards whether the information relates to civil or criminal violations.

The Service will not pay any reward if it is less than $100.

Some of the grounds for rejecting claims include:

Information furnished by the informant was of no value.

The IRS already knew the information or it was available in public records.

Information furnished by the informant was of no value.

Payment would be contrary to State or local law.

Where payment of a reward would be inappropriate; for example, when the informant participated in the evasion scheme or prepared the return for the taxpayer with knowledge that taxes were being evaded.

Information on violations of tax laws may be submitted in person at an IRS office or by mail.

Information on violations of tax laws may be submitted in person at an IRS office or by mail.

You may also want to discuss this with a California tax attorney. Mitchell A. Port can be reached at 310.559.5259.