Berger Montague’s Whistleblower, Qui Tam & False Claims Act Group represents Whistleblowers alleging tax fraud.
The Internal Revenue Service (“IRS”) has had a reward program for whistleblowers since 2006. Several individuals have received rewards of millions dollars. While claims involving corporate income taxes are most common, a whistleblower is eligible for an award for information on any kind of federal tax underpayment. The process is simpler than filing a False Claims Act (“FCA”) complaint, and typically, very little is required from the whistleblower after the initial filing and interview. All information provided to the IRS is treated as confidential.
IRS Whistleblower Rewards: Is There a Reward for Reporting Tax Fraud?
A whistleblower is entitled to an award if the IRS brings a successful administrative or criminal case “based on information brought to the [IRS] attention” by the whistleblower. If the IRS was previously aware of the information known to the whistleblower, there is no award. Individuals either required by law to report information to the IRS, such as tax preparation professionals, or forbidden by law from providing information, such as lawyers who receive information from their own clients, in some situations, are ineligible for awards.
A whistleblower is eligible for an award of a portion of the government’s recovery only if the “amount in dispute” is greater than $2 million. However, the amount in controversy includes interest and penalties that may be due to the IRS, and many tax frauds affect more than one year’s return, so even relatively modest underpayments may reach this level. Cases against individual taxpayers are eligible only if the taxpayer’s gross income exceeds $200,000.
How to Report Tax Fraud
All that is required is filing a Form 211 with the Internal Revenue Service. Depending on the nature of the alleged underpayment, the whistleblower may be interviewed on this form. In addition, the Petitioner must explain the basis for finding an underpayment, the tax fraud, that explains the tax underpayment and names the perpetrator. Since the goal of the Form 211 is to entice the IRS to take action, it is best to submit underlying documents demonstrating that a tax was underpaid. For example, if the claim is that real estate was undervalued for purposes of estate tax calculation, the Petitioner could include appraisals and documentation of sale prices of the same or comparable properties.
The IRS may interview the whistleblower, often several months after the filing, but the whistleblower is not required to grant an interview more than once. The whistleblower may even be asked to participate in an investigation, for example to explain the significance of documents that the IRS has obtained, but this is rare. The IRS has complete discretion on to whether to initiate an investigation and whether to take any action on the basis of the investigation. Because tax returns and investigations are confidential, a whistleblower may not be informed of an ongoing investigation until the IRS collects the settlement or judgment.
How are IRS Whistleblower Awards Calculated?
If the IRS chooses to move forward, and ultimately recovers money through either judgment or settlement, the whistleblower is usually entitled to an award of fifteen to thirty percent of the amount recovered. In practice, the awards have almost always been at the lower of that range. The award may be further reduced if the whistleblower’s contribution was less substantial, for example if the IRS had previously opened an audit of the same taxpayer. A decision by the IRS to deny an award, or award less than 15% of the amount collected, is appealable to the Tax Court.
Unfortunately, these actions typically stretch on for many years, and may not result in an award. Nevertheless, an individual aware of a substantial tax underpayment has little to lose, and much to gain, by participating in the IRS whistleblower program. Whistleblower actions also deter tax avoidance by high income individuals and corporations. Since a fraud on the IRS is a fraud on all taxpayers, in many situations blowing the whistle is the right thing to do!
Do you need a Whistleblower Lawyer or want to know more information about Qui Tam Law and your rights under the False Claims Act?
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