IRS Whistleblower Program and Tax Fraud

TAX FRAUD

 

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.

WHISTLEBLOWER CASE STUDY: TAX FRAUD EDITION

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.

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Key takeaways:

  • The IRS Whistleblower Office now provides a formal process for whistleblowers who know about significant tax evasion to come forward. If you report fraud involving unpaid taxes, interest and penalties in excess of $2 million, then you may be entitled to an award of at least 15% and up to 30% of the amount collected. If the taxpayer you report is an individual, then his/her annual gross income must exceed $200,000. If you report tax fraud below these thresholds, you may still receive a financial reward, but the government is not required to pay the minimum 15%.
  • You can often remain anonymous as a whistleblower. You can rely on your attorney to keep your case and your identity confidential; the IRS will do all it can to maintain your anonymity as well.
  • You should be prepared to wait to receive your reward. Even after your case has made it through the IRS Whistleblower Office, the IRS will only issue an award after the two-year time period for appeal has passed. It is important that you seek counsel immediately so that your case can move through the process as quickly as possible.
  • For more information on experienced attorneys who can help you with your case, please contact Richard Condit or Cleveland Lawrence III.