IRS Tax Fraud Cases

Part 4 of the “National Whistleblower Litigation” Video Series

In December 2006, Congress passed the Extension of Tax Relief Act of 2006 (“Tax Relief Act of 2006”), which contained a whistleblower reform provision (Section 406) amending Title 26 U.S.C. Section 7623 to include whistleblowers1. These amendments authorize the IRS to create a Whistleblower Office to 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.”2 The IRS whistleblower program enables the IRS to detect underpayments of tax and bring violators of tax laws to justice, with the help of whistleblowers.3

The Tax Relief Act of 2006 significantly increased incentives for whistleblowers since Section 406 now provides for a recovery of at least 15%, but not more than 30%, of the collected proceeds.4 Whistleblowers who submit claims through the IRS whistleblower program can earn a substantial whistleblower reward, though public disclosures can reduce their share to no more than 10% unless they are the original source5. Unlike the definition of original source in the False Claims Act (FCA), Section 406 states that the reduction based on public disclosure will not apply if the information was originally provided by the whistleblower.6

A whistleblower’s share will also be reduced if the whistleblower planned and initiated the violations. Furthermore, if the whistleblower is convicted of criminal conduct arising from planning and initiating the violations, they are not entitled to any share of the recovery.7 A whistleblower may appeal an award determination to the Tax Court within thirty days of such determination.8

Seeking legal counsel is crucial for navigating this process. An experienced IRS whistleblower lawyer can help whistleblowers understand their rights and protections, ensuring their whistleblower claim is handled correctly. Legal guidance is especially important in cases where whistleblower retaliation is a concern, as it can help protect the whistleblower’s rights while maximizing their potential whistleblower reward.

Critics of the tax whistleblower statute argue that it infringes on the rights of taxpayers by allowing informants to allege wrongdoing with little or no evidence9. These critics also suggest that the statute raises serious privacy concerns10. The most significant of these concerns is that “allowing private citizens to profit by disclosing taxpayer information would result in those individuals recklessly exposing information to persons not authorized by statute to receive such information.”11 However, under existing law, informants and qui tam plaintiffs must turn their information over to the government agencies that are authorized to receive tax-related information.12 Furthermore, any privacy concerns should probably be balanced against public policies that encourage private persons to expose tax-related fraud.13

In return, the IRS whistleblower program ensures that whistleblowers are compensated fairly for their role in uncovering tax fraud. Every year, the IRS Whistleblower Office receives numerous tips from tax whistleblowers, helping to expose tax fraud schemes such as underreporting income or hiding assets in offshore accounts.

By working with an experienced IRS whistleblower attorney, individuals can ensure that their claims are thoroughly investigated and that they receive the highest possible reward. The IRS whistleblower program plays a crucial role in ensuring that tax fraud is exposed, while legal protections ensure that whistleblowers’ rights are safeguarded throughout the process.

ENDNOTES

  1. Extension of Tax Relief Act of 2006, Pub. L. No. 109–432 §406, 120 Stat. 2922 (Dec. 20, 2006). Section 406 applies to actions against any taxpayer except individuals whose gross income is $200,000 or less for any taxable year subject to the action, “if the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000.” Campbell v. Regents of University of California, 35 Cal.4th 311, 332, 25 Cal. Rptr.3d 320 (2005).
    For a discussion on the Tax Relief Act and the Service Whistleblower Office, see Ventry, “Whistleblowers and Qui Tamfor Tax,” 61 Tax Lawyer 357, 358-359 (2008) (advocating for permitting private individuals to bring qui tam suits against taxpayers for violations of the internal revenue laws).
  2. Ventry, “Whistleblowers and Qui Tam for Tax,” 61 Tax Law. 357, 361 (2008) (quoting IR–News Rel. 2007–25).
  3. Extension of Tax Relief Act of 2006, Pub. L. No. 109-432 § 406, 120 Stat. 2922 (Dec. 20, 2006).
  4. Id. Under the previous law, payment of awards was discretionary, depending on what was deemed “adequate compensation” in a particular case. This amount typically did not exceed 15%, and all awards were capped at $2 million. Ventry, “Whistleblowers and Qui Tam for Tax,” 61 Tax Lawyer 357, 362 (2008) (quoting IR-News Rel. 2007-25). Currently, the Whistleblower Office makes the final determination of whether an award will be paid and the amount of any such award. Awards are paid in proportion to the value of information voluntarily given. See Styles, “Claims Submitted to the IRS Whistleblower Office Under Section 7623,” TAF Q.Rev. (April 2008).
  5. Extension of Tax Relief Act of 2006, Pub. L. No. 109-432 § 406, 120 Stat. 2922 (Dec. 20, 2006).
  6. Id.
  7. Id.
  8. Id.
  9. Ventry, “Whistleblowers and Qui Tam for Tax,” 61 Tax Lawyer 357, 384 (2008) (quoting IR-News Rel. 2007-25).
  10. Id. at 372.
  11. Id.
  12. Id. (Service informants are required to disclose their information to the Treasury Department, whereas qui tam plaintiffs must over their information to the Department of Justice. Both of these agencies are authorized under Section 6103 of the Internal Revenue Code to receive such information.)
  13. Id. at 373.

For more information, email quitam@bafirm.com

Notice

This website is designed to provide general information only. This information is not and should not be construed to be legal advice. The transmission of the information found on this website also does not result in the formation of a lawyer-client relationship.

You should be aware that qui tam claims are subject to a Statute of Limitations. The area of limitations periods is complex. There are also first to file rules, public disclosure bars, original source issues, and varying limitations in pursuing retaliation claims. If you wish to pursue your claims, you should promptly seek the opinion of an attorney regarding the merits of your qui tam claim and the applicable statute of limitations.