February 25, 2014 Tax Fraud
The IRC’s Whistleblower Provisions: How the Internal Revenue Service Catches Tax Fraud
The False Claims Act has been in existence since the Civil War era; however, it wasn’t until recently that other government agencies began to catch on to its effectiveness in catching and correcting fraud. In 2006, the Internal Revenue Service began implementing its own version of a whistleblower protection program after receiving authorization under the Tax Relief and Health Care Act of 2006. There are certain requirements and thresholds included in the statute to make sure that it is not used to punish smaller, less significant instances of fraud. However, if you are aware of big-budget, major tax fraud and have original information to prove your claim, you may be able to recover up to 30 percent of any amount recouped by the IRS.
General Provisions of the Internal Revenue Code Whistleblower Rules
The Internal Revenue Code contains a whistleblower section much like that found in the federal False Claims Act. First and foremost, it allows for a recovery between ten and 30 percent for the whistleblower provided certain factors are present. For one, the amount in dispute must exceed $2 million. This threshold includes the fraudulent tax amount as well as any penalties, fines, or interest that may be piled on top of the principal. If the case involves an individual taxpayer, as opposed to a corporate taxpayer, the individual must have earned at least $200,000 in all tax years at issue. For example, if a whistleblower wishes to pursue a tax fraud lawsuit against an individual for fraud occurring between 2005 and 2010, the individual must have earned at least $200,000 in each of those years. If the taxpayer did not reach the $200,000 mark in a particular year, the whistleblower provisions do not apply.
Upon a filing that meets the above requirements, the IRS’s whistleblower office is required to conduct a preliminary investigation. Much like the Department of Justice or the Securities and Exchange Commission reviews each filing, the IRS must assess the facts of the case and make an early determination of eligibility. The IRS may request additional information from the whistleblower or his attorney if necessary.
One aspect of the IRS whistleblower provisions that differs from those of the False Claims Act is that the IRS may still offer an award to a claimant who is reporting information that is not necessarily “original” in nature. Under the Rules, a claimant who makes a report of fraud may still receive up to ten percent of the recovery even if the information has already been revealed in a judicial hearing, audit, investigation, or by the news media.
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