Tax Fraud

Reporting Tax Fraud | Whistleblower Protection

With a revised IRS law, whistleblowers will be acknowledged and rewarded for their courge in bringing an end to tax fraud.

In December 2006, the IRS amended its whistleblower statute to encourage the reporting of tax fraud perpetrated by corporations and individuals. Like the False Claims Act, the new and improved statute requires the IRS to pay to whistleblowers a minimum of 15% and a maximum of 30% of the proceeds collected from the whistleblower's information. 26 U.S.C § 7623(b)(1).

If the IRS fails to acknowledge a whistleblower's contribution, the whistleblower may appeal the reward amount to the U.S. Tax Court. A whistleblower's identity will be kept confidential by the IRS throughout the investigation and case.

The law has a few limitations: the total amount of tax fraud, including interest and penalties, must exceed $2 million. In the case of a fraudulent individual taxpayer, the taxpayer's gross income must exceed $200,000. 26 U.S.C. § 7623 (b)(5).

The whistleblower's information must be submitted under penalty of perjury. 26 U.S.C. § 7623(b)(6)(C). Disqualification may occur if the whistleblower, called an "informant" under the IRS statute, "planned and initiated the action that led to the underpayment of tax." 26 U.S.C. § 7623 (b)(3).

COMPARISON OF SOME OF THE PROVISIONS OF THE IRS WHISTLEBLOWER STATUTE AND THE FALSE CLAIMS ACT

I. Similarities

a. Enforceable right to reward - both laws grant the whistleblower an enforceable right to receive a reward with defined percentage ranges

b. Scope of reward - both laws define the reward to cover the costs of related actions and all penalties, interests and other related amounts

c. First to file - both laws grant the reward to the first whistleblower who provides relevant information to the government

d. Consequences of involvement - both laws may reduce the reward if the whistleblower was involved in the fraudulent misconduct and may give no reward if the whistleblower is criminally charged

II. Differences

a. Threshold dollar requirements - the IRS whistleblower statute requires a minimum amount of $2 million in tax fraud, and an additional $200,000 in gross income for action against individuals

b. Sworn submission - the IRS statute requires the whistleblower to submit his or her information under penalty of perjury

c. Not a qui tam case - the IRS statute does not allow the whistleblower to carry out an action on behalf of the government, just to provide the information to government officials

d. No continued involvement- the IRS statute does not require the whistleblower to continue to be involved in the case, although the percent of the whistleblower reward may be diminished by a lack of participation by the whistleblower in the investigation and case

e. Public Disclosure not a jurisdictional bar - the IRS statute may reduce the reward, but may not disqualify the whistleblower if he or she is not the original source of the information

f. No treble damages- the IRS statute does not directly provide for treble damages, but allows the reward to be based on all penalties, interest and additional amounts

The information in this website is not intended to be legal advice. We recommend that anyone not currently represented by an attorney who is reading this page to understand the law involved in False Claims Act or other cases seek experienced counsel to evaluate, file and pursue, if appropriate, any potential case on your behalf.

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