Tax Whistleblowers 2017-02-03T14:14:30+00:00

Tax Whistleblowers

Tax-Whistleblowers-qui-tam-attorney

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:

  1. where “the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000” or
  2. 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

2012 2013
Collection Actions over $2 million 12 6
Amounts Collected $592,498,2945 $367,042,420
Number of Awards Paid 128 122
Total Amount of Awards Paid $125,355,799 $53,054,302
Average whistleblower award $979,342 $434,871

IRS whistleblowers are required to fill out IRS Form 211, Application for Award for Original Information. The form is submitted under penalty of perjury. In a 2008 publication, the tax agency specified the types of information that it is seeking from the whistleblower (referred to as the “claimant”). Several points are of particular importance.

The IRS is looking for:

  • “Specific and credible information concerning the person(s) that the claimant believes have failed to comply with tax laws and which will lead to the collection of unpaid taxes;
  •  “Documentation to substantiate the claim (e.g., financial data; the location of bank accounts, assets, books, and records; transaction documents or analyses relevant to the claim);
  • “An explanation of how the information that forms the basis of the claim came to the attention of the claimant, including the date(s) on which this information was acquired, and a complete description of the claimant’s present or former relationship (if any)” to the person or persons they believe have violated tax laws.

A whistleblower who is aware of supporting documents but not able to get them, is instructed to describe these documents and identify their location to the best of his or her ability.

“The IRS is looking for solid information, not an “educated guess” or unsupported speculation. We are also looking for a significant Federal tax issue – this is not a program for resolving personal problems or disputes about a business relationship.”
IRS Whistleblower Office