Much like the whistleblower procedure under the False Claims Act, the Internal Revenue Service maintains a whistleblower program whereby relators can relay information concerning possible tax fraud in exchange for the opportunity to receive a percentage of the ultimate recovery. While it is utilized less than the False Claims Act— due in part to additional requirements—the IRS whistleblower program has gained considerable notoriety for major settlements.
In today’s post, we will examine the process through which a whistleblower claim is initiated, as well as the requisite standards and thresholds for filing a whistleblower action with the IRS.
The Whistleblower Law
The whistleblower laws are found within Section 7623 of the Internal Revenue Code (“IRC”). This lengthy set of statutes, which sets forth the entire American taxation system, allows for individuals to receive up to 30 percent of the overall amount recovered by the U.S. Treasury at the conclusion of the case.
For a case to qualify under the rules, the amount in controversy must exceed $2 million – inclusive of penalties, fines, and costs. If the taxpayer-defendant is an individual, his or her annual income must exceed $200,000 in any taxable year at issue. In addition, the following regulations apply:
- Awards range from 15 percent to 30 percent, and there is no maximum dollar amount assigned to any particular claim.
- If allegations are based principally on judicial or administrative hearings, government reports, or the news media, the maximum award is 10 percent.
- All cases are appealable to the U.S. Tax Court.
Filing a Claim
The first step in filing a claim under the IRS whistleblower laws is to contact an experienced and reputable whistleblower attorney at the outset of the case. These cases tend to take on certain legal and technical complexities, and whistleblowers often do better when they do not try to “go it alone.”
When you meet with your whistleblower attorney, you will confidentially discuss the details of your case. From there, you will file a claim using Form 211 – An Award for Original Information. In addition to the form, it is important to disclose as much documentary evidence as possible in order to give the IRS the most complete picture of the alleged fraud. The form is then forwarded to the IRS Main Office in Washington, D.C., for review by its whistleblower office.
Receiving an Award
Whistleblower awards are given on a discretionary basis, and there is no statutory requirement for the IRS to offer an award. According to the IRS, the process from the initial filing of Form 211 to the final conclusion of the matter may take several years, and only an analyst from the IRS Whistleblower Office can determine if a case is worth pursuing.
If it is determined that the IRS would like to continue with the matter, it will conduct its own series of audits and reviews of the individual’s tax history. From there, a total tax liability will be determined, and the relator will likely receive a portion of this total – assuming all other whistleblower requirements are met.
Other Nuances of the Law
The IRS whistleblower program also contains various other nuances that distinguish it from similar whistleblower programs. For instance, the IRS allows relators in certain circumstances to rely on public data or information as the basis of their claim. Under the rules, a relator may be eligible for a reduced award not to exceed 10 percent if the information provided to the IRS was based on:
- Judicial or administrative hearings;
- A government investigation or subsequent report;
- Media; or
- The relator’s actual involvement in the tax fraud scheme.
Unlike the False Claims Act, a private whistleblower is not permitted to continue with his or her case in the event the IRS declines to prosecute. If the IRS decides the case is without merit or does not wish to intervene on other grounds, the case must conclude.
The law contains several other disqualification factors that work to eliminate certain claims from being filed. For instance, Department of Treasury employees or those who are required by law to report tax fraud are exempt from filing under the IRS program. Also, if the relator files his claim anonymously or derived the information pursuant to federal employment (or contract work), the claim will be denied.
Contact Us to Learn More
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