Tax Fraud Whistleblower

IRS researchers estimate the "tax gap"- i.e. the U.S. government's loss of tax revenue due to non-filing, under-reporting, and non-payment at more than $300 Billion per year, an amount comparable to the annual federal budget deficit. The statistic is striking and disturbing because of the net effect on the federal debt, year-after-year.

The biggest reason why these taxes go uncollected is because the IRS lacks effective means to ferret out tax fraud, which by its very nature is self-concealing. That is where whistleblower enforcement comes into play.

Since Congress overhauled the False Claims Act in 1986, it has been clear that providing incentives to whistleblowers is the most cost effective and efficient way for the government to recover for fraud and to discourage would be defrauders. Yet, for two decades, there was no method to enforce the tax laws under the False Claims Act. While whistleblowers have been able to approach the IRS and seek a reward for exposing tax fraud, the IRS paid these rewards on a more or less voluntary basis only. In other words, tax fraud whistleblowers had none of the hard and fast legal protections enjoyed by qui tam whistleblowers under the FCA.

Last year, Congress took a step towards protecting the interests of tax whistleblowers in the Tax Relief and Health Care Act of 2006. Similar to the FCA, the Tax Relief Act provides for bounties for tax whistleblowers of between 15%-30% of the recovery by the government, subject to reduction in certain circumstances (such as when the fraud has already been publicly disclosed). The bounty applies to all sums recovered by the IRS including taxes, penalties, interest, additions to tax, and other monies owed by the person or entity committing the fraud. The whistleblower has the right to appeal the IRS' decision on the bounty percentage in the event that the IRS has not awarded a fair or accurate amount to the whistleblower.

There are several pre-requisites for a whistleblower claim. Among these are that the total amount owing to the IRS (i.e., tax, penalties, interest, and additions to tax) must exceed $2 million. The following examples of tax fraud schemes shows the type of activities for which whistleblowers can claim a bounty under the IRS whistleblower law:

• Backdating/postdating earnings or losses to move income into a different tax year;
• Altering grant and/or exercise dates on stock options;
• Questionable tax shelter schemes and false deductions;
• Parent corporation manipulation of subsidiary relationships to conceal profits or create improper losses;
• Under-reporting revenue (especially cash transactions) or over-claiming losses;
• Foreign companies that fail to pay U.S. taxes for domestic operations;
• U.S. companies and wealthy individual citizens who conceal earnings made from transactions on foreign stock and commodity exchanges, and from other foreign transactions;
• Non-filing of a federal tax return;

Other forms of tax fraud

If you are aware of any of the foregoing types of misconduct or other forms of tax fraud by a corporation or wealthy individual tax payer, you may be able to recover significant rewards through the IRS whistleblower laws. As experienced whistleblower attorneys, Loevy & Loevy can help. We always maintain the strictest confidentiality for our clients (including written non-disclosure agreements upon request) and never use client information for any purpose other than to pursue the client's case. We also understand the serious career concerns for many of our clients who are considering blowing the whistle, and we can advise you throughout the process.

If you have any questions or wish to consult about a case, please contact us at (312) 243-5900 or email us at Whistleblower@Loevy.com. We treat all inquiries as privileged and confidential attorney-client communications.