How to Report Tax Fraud Under the IRS Whistleblower Program
According to the Internal Revenue System (IRS), the United States loses more than $450 billion every year due to tax fraud and evasion.
And a little-known provision of the False Claims Act known as the “FCA Tax Bar” prevents whistleblowers from pursuing claims in cases involving Internal Revenue Code.
Still, there is a way that you can help hold tax frauds accountable.
The IRS Whistleblower Reward Program
In 2006 Congress enacted legislation to incentivize whistleblowers to report information concerning tax-related fraud to the IRS.
When whistleblowers provide information that the IRS uses to collect back taxes and associated penalties from tax cheats, they are eligible to be awarded as much as 30% of the recovered funds.
According to USA Today, in 2015, the IRS awarded more than $103 million to 99 whistleblowers.
Questions Answered Here:
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Who is eligible for a reward under the IRS Whistleblower Program?
According to IRS.gov, in order to be eligible for an award, the information reported to the IRS must be, “specific and credible” and actually help the IRS collect back taxes and penalties from a noncompliant taxpayer. The IRS is looking for solid information about tax evasion and not unsupported speculation.
Evidence of tax evasion is not easy to come by. So many whistleblower reports often involve employees who expose their employers in cases where they have access to documents like bank statements, invoices, emails or a set of books.
How are IRS Whistleblower rewards calculated?
Under the Whistleblower program, there are two types of rewards. The first involves the largest potential payout for reporting tax fraud. When the IRS receives detailed information on significant tax fraud or other tax violations, and they use the tip to catch the fraudster, the whistleblower reward totals up to 30% of all funds collected in the case. In this instance, the following rules apply.
- The suspected tax fraud or underpayments, including tax, penalties, and interest must exceed $2 million.
- The gross annual income of the “tax cheat” must exceed $200,000 for at least one of the tax years in question.
- If IRS does not recognize the contribution of the whistleblower, they have 30 days to appeal the decision in US Tax Court.
Also, a reward can be denied or reduced by up to 10% in cases where:
- The whistleblower was in any way involved in the fraud or underpayment.
- The allegations made by the whistleblower were previously disclosed based on information from a judicial or administrative hearing, government report, audit, investigation or the news media.
The second award applies in cases where the $2 million dispute threshold is not met, or the involved individual’s income is under $200,000. In these cases, a whistleblower may be due a maximum reward of 15%, capped at $10 million. Also, awards under this provision are discretionary, not mandatory and the informant cannot dispute outcomes in tax court.
Rewards may be slow in coming, most cases take five to seven years and even after a judgment against an alleged cheater, they still have the right to the appeals process. And payment to the whistleblower only comes after the IRS actually collects its money.
How can an IRS whistleblower attorney help you report tax fraud?
1. An attorney can help get your report noticed
IRS examiners work on a huge number of whistleblower cases at one time, so having an attorney on your side can help your report get noticed. Reports prepared by a professional will communicate the issues using the correct language and terminology.
2. An attorney can help if you are “outed”
Also, know there is potential for you to get outed. Whistleblower forms cannot be filed anonymously, and the IRS may even call you as a witness in the case. If you are afraid of having your identity revealed, an attorney can advise you if filing a whistleblower report is a good idea.
3. An attorney can research possible protections.
No federal protections exist for workplace retaliation against an IRS whistleblower, however, some protections may exist at the state level. If you are blowing the whistle on your employer, it is also possible you may find yourself fired from your job. There is also no immunity granted for whistleblowers. If the IRS finds you participated in the scheme in any way, awards may be reduced or eliminated, or worse, they may come after you.
Previously, legislation capped whistleblower awards at $10 million. Congress passed the 2006 legislation with hopes larger potential rewards would result in more viable tips to the IRS. In 2016, the IRS reported that in the past 10 years, whistleblowers helped collect more than $3.4 billion, and the IRS approved more than $465 million in awards to the whistleblowers. In fact, in 2015, one anonymous tax fraud whistleblower received an $11.6 million reward for his help in a corporate tax fraud case where the IRS recovered tens of millions of dollars
Are you considering blowing the whistle on tax fraud? Sonn Law Group can help.
IRS whistleblower attorneys represent whistleblowers for claims relating to the FCA and IRS Whistleblower program. At Sonn Law Group, our experienced team of lawyers can help you determine your proper course of action for reporting tax-related fraud. Contact us today for a free case review.
Disclaimer: This article contains opinions and NOT statements of fact in any way whatsoever. The information here is general information that should not be taken as legal advice. NO attorney-client relationship is established between you and our attorneys by reading this article. This article is attorney advertising and should not be used as a substitute for legal advice from a qualified lawyer.