Tax fraud by individuals and businesses has been estimated to cost the government nearly $400 billion annually. It can be carried out by filing false or deceptive tax returns, hiding assets and income in offshore bank accounts, concealing business ownership or other financial activities, or through outright identify theft.
Since the False Claims Act (FCA) specifically excludes “claims, records, or statements made under the Internal Revenue Code,” there was, for many years, no law that harnessed the power of whistleblowers to address tax fraud. That changed with the passage of the Tax Relief and Health Care Act of 2006. Under this law, the IRS is required to offer rewards to whistleblowers that provide them with information that exposes significant “underpayments of tax” or permits the agency to bring to trial and punish “persons guilty of violating the internal revenue laws or conniving at the same time.”
To maximize the return on the IRS’s resources, the 2006 law was targeted to instances of major underpayment and fraud. The IRS is required to pay awards only in whistleblower cases:
- where “the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000” or
- where an individual taxpayer has a gross income that exceeds $200,000 for any taxable year at issue.
For amounts exceeding these limits, tax fraud whistleblowers are entitled to receive at least 15%, but not more than 30% of the amount recovered by the IRS. If the whistleblower “planned or initiated the actions” that led to the underpayment or fraud, the IRS may reduce or, in certain cases, deny the award.
In a 2013 report to Congress on its whistleblower program, the IRS presented data showing that in 2012 and 2013 the agency engaged in 18 collection actions of over $2 million. Nearly $960 million was recovered and over $178 million was paid to 250 tax whistleblowers, an average of $712,000 per whistleblower.
Amounts Collected and Awards Paid to IRS Whistleblowers