The False Claims Act was designed to encourage whistleblowers to report instances of fraud against the government, providing generous rewards for those who step forward. But the federal FCA does not apply to tax fraud; only the New York State False Claims Act explicitly applies to state tax fraud schemes – and of course, that law only applies to frauds against that State. Rather than include tax fraud as part of the federal False Claims Act, Congress passed the Tax Relief and Health Care Act of 2006, which, among other things, authorized the IRS to launch a separate Whistleblower Office to handle whistleblowers’ reports of tax fraud against the federal government – and to provide financial rewards of 15% to 30% of the proceeds collected as a result of whistleblower information. The response has been overwhelming: The IRS Whistleblower Office has received tens of thousands of tips from whistleblowers, involving more thousands of taxpayers – including many whistleblower submissions alleging tax underpayments of more than $10 million, and even more than $100 million.
According to the IRS, since 2007, whistleblowers have helped the IRS recover more than $5 billion, resulting in over $800 million in financial rewards.
In 2007, an accountant for a large financial services firm in a small town realized his company had underpaid taxes to the IRS – to the tune of $20 million.
He filed a complaint with the newly-established IRS Whistleblower Office, but after he hadn’t heard anything for two years, he secured competent counsel. His attorneys helped him move the case forward, and also helped him keep his identity secret. He was able to prosecute the case fully, and in 2011, the IRS sent him a reward of $4.5 million dollars. The whistleblower has kept his professional reputation intact, and continues to work as a certified accountant.