Whistleblowers get new protection when they expose tax cheats
In response to public comments by Ferraro and others, on October 3rd, Rule 340 was issued to update the processes and procedures with the goal of enhancing confidentiality. The new rules allow a taxpayer to file a complaint using only his or her state of legal residence (or the District of Columbia, or any commonwealth, territory, or U.S. possession) in order to establish venue, on a petition for additional disclosure, petition to restrain disclosure, or petition to disclose identity.
As Ferraro pointed out, anonymity is vital, both for the informant as well as for the targeted taxpayer.
Here's a rundown of how the informant program works
The Whistleblower Office was created as the result of the Tax Relief and Health Care Act of 2006. The purpose is to ferret out tax evasion based on credible evidence regarding significant tax issues. The IRS is firm in stating that is it not interested in hearsay and is not in the business of personal and business grudges.
Persons who supply credible evidence that leads to the collection of taxes owed may be eligible for a reward of 15 to 30 percent of the total collected. However, the amount in dispute must exceed $2 million, and the adjusted gross income of the targeted taxpayer must be at least $200,000. If the whistleblower is not satisfied with the amount of the award, he or she is entitled to appeal.
In cases that do not meet the dollar threshold, there are lesser awards available, with a maximum of 15 percent on up to $10 million of underpaid taxes. This type of award is at the discretion of the IRS and not subject to appeal.
The IRS Web site states that the new Whistleblower Office "will process tips received from individuals who spot tax problems in their workplace, while conducting day-to-day personal business or anywhere else they may be encountered."
Before the passage of the 2006 law, there were whistleblower awards available, but only up to 15 percent. The IRS hopes that larger rewards will draw out more information, though as noted above, the agency is only interested in credible tips, not grudges. As an additional enticement, the 2006 law gave whistleblowers the ability to deduct the court costs and attorney fees they paid in connection with the getting the reward.
For more information on the October 2008 changes see the
U.S. Tax Court press release. 
And for more information about the Whistleblower program in general, take a look at the IRS Web site.