Noting the success of the federal False Claims Act, Congress enacted a similar IRS whistleblower program in 2007 under the Tax Relief and Healthcare Act, which allows individuals to report tax fraud and evasion in exchange for a possible cut of the eventual recovery. The program has maintained some success over the years; however, recent data reveals that the number of whistleblower rewards seems to pale in comparison to the actual number of tips received – based in large part on the fact that IRS whistleblower cases generally must involve allegations of fraud involving $2 million or more in tax liability, including fines and penalties, for a tipster to receive a whistleblower award.
A Closer Look at the 2012 Data
The IRS recently released some of its data related to the number of complaints it received and the amount in payouts extended to whistleblowers under the IRS whistleblower program. In 2012 alone, the IRS received 8,362 tips regarding tax fraud and evasion. Out of that number, 332 were considered to have potential merit, which is determined after an initial review by IRS whistleblower authorities. From there, the IRS conducted 12 collections in excess of $2 million each from defendants and overall collected $592.5 million from wayward taxpayers pursuant to complaints raised by private whistleblowers.
Problems With the IRS Whistleblower Program
However, not all are singing the praises of this program and some are beginning to question its actual effectiveness in bringing fraud claims to light. Several U.S. lawmakers and attorneys are are questioning whether the IRS was ready and willing to delve into the world of qui tam litigation when the new whistleblower laws were implemented just over seven years ago. For example, Congressman Charles Grassley (R-Iowa) commented, “There’s a lot of pending cases that they are not zeroing in on….It’s taking them forever to make decisions, and whistleblowers in the meantime don’t get adequate updates or any information whatsoever.”
The Silver Lining
If you are aware of tax fraud, you should not feel discouraged by the apparent disparity between the number of complaints received each year and resulting whistleblower rewards. For one thing, some cases take a number of years to resolve due to intricate forensic accounting requirements. Second, IRS whistleblower cases must meet certain general criteria before advancing to the investigatory stage, which could be why it appears so many tips are deemed without merit to continue. For example, the IRS implements an amount-in-dispute threshold of $2 million for many cases, as well as several other eligibility requirements. Cases not meeting the threshold may still be pursued; however, the whistleblower may earn a significantly lower reward amount (as low as 10 percent) and does not have access to the U.S. Tax Court in order to dispute the reward amount.
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