Businesses and individuals are legally bound by voluntary compliance to file a tax return in order to pay the correct amount of income tax, employment tax and excise taxes. Tax fraud, also called tax evasion or IRS fraud, occurs when a person or business deliberately falsifies information or data on a tax return.
Tax fraud is committed for the purpose of limiting tax liability. Perpetrators most commonly try to do this by overstating deductions or declaring less profits, income or gains than were actually earned in a fiscal year. Tax fraud can also involve failing to file a return at all. When businesses commit tax fraud, they pose a threat to both the tax administration and our nation’s economy.
IRS whistleblowers play an important role in exposing corporate tax fraud, and the Tax Relief and Health Care Act offers IRS whistleblowers significant rewards for bringing original information concerning tax fraud to the government’s attention.
Under the Tax Relief and Health Care Act, tax fraud whistleblowers may be entitled to receive between 15 and 30 percent of the amount recovered by the IRS in a successful enforcement action, as long as the tax, penalties, interest, and additional amounts in dispute exceed $2 million. If the tax, penalty and interest is less than $2,000.000 the reward will be limited to a maximum of 15% and will be at the discretion of the IRS.
The IRS whistleblower program gives any individual with original information concerning large-scale tax underpayments, fraud, or evasion—including accounting errors—significant financial incentive to file a whistleblower lawsuit against the perpetrator(s). Since 2007, whistleblowers have helped the IRS collect billions in lost revenue, and whistleblowers have been rewarded hundreds of millions for their assistance.
Types of Tax Fraud
Hiding Income Offshore – Occurs when individuals or businesses attempt to hide income in offshore banks, brokerage firms or by using nominee entities in an attempt to limit their tax liability. Those who attempt this scheme typically do so through the use of offshore credit or debit cards, foreign trusts, employee-leasing schemes, private annuities or wire transfers. In one landmark case, Swiss banking group UBS agreed to resolve criminal charges that it conspired to defraud the United States by promoting tax evasion through secret offshore accounts. The bank was forced to pay a fine of $780 million and turn over the names of over 4,000 account holders. The IRS whistleblower who exposed the tax evasion scheme was awarded $104 million.
Filing False or Misleading Returns – Occurs when individuals or businesses fraudulently file returns in order to reduce their tax bill or claim refunds or tax credits they are not entitled to receive. False tax returns may also be filed in order to cover up other illegal activities. In 2005, KMPG, a firm that provides audit, tax, and advisory services, agreed to pay $456 million in fines, restitution and penalties to settle charges that it designed, marketed and implemented fraudulent tax shelters. The defendants allegedly filed false tax returns in support of the scheme.
Transfer Pricing – Transfer pricing schemes involve multinational corporations doing business in several countries attempting to avoid taxes by making it appear that its operations in a high-taxed country produced relatively little profit, while its operations in a low-taxed country did well. The practice is widespread and the IRS has an entire team devoted to pursuing transfer pricing fraud. The GlaxoSmithKline scandal in 2006 is a good example of a transfer pricing scheme. GSK paid $3.4 billion to settle IRS charges that it engaged in transfer pricing by assigning too little of its worldwide drug sales to its U.S. subsidiary. In 2011, Western Union paid $1.2 billion to settle transfer pricing charges.
Abuse of Charitable Organizations and/or Deductions – Occurs when individuals or businesses highly overvalue or overstate donations to a charitable organization in order to fraudulently reduce their taxable income.
Disguising Business Ownership or Financial Activity – Occurs when corporations or businesses operate using a third party to disguise the true owners. These third parties can be used to underreport assets, create fictitious deductions, and launder money or a variety of other financial crimes.
Misstating Wages – Occurs when businesses file false statements about wages or income in order to limit the amount of taxes owed at the end of a fiscal year.
Abuse of “Independent Contractor” Rules for Actual Employees – Occurs when employees are designated as contractors and given 1099s at the end of the year, therefore avoiding the employer’s share of taxes. It has been estimated that employers misclassify millions of workers as independent contractors every year in order to avoid the payment of employment taxes.
Whistleblower Attorneys for Tax Fraud Claims
If you are thinking about becoming a tax fraud whistleblower, it is in your best interest to hire an attorney with experience in preparing and filing these types of cases. Thousands of tax whistleblower claims get filed each year, but some are rejected because they are not properly prepared and submitted.
The IRS whistleblower attorneys at Baum, Hedlund, Aristei & Goldman work with you to evaluate and prepare all of the evidence necessary for your claim. As your advocate, our attorneys work with the IRS and provide whatever additional assistance and evidence the government requests in order to present the best possible case.
Contact a whistleblower attorney to find out how Baum, Hedlund, Aristei & Goldman can assist you with your IRS whistleblower case.