IRS/Income Tax Fraud

Although the U.S. Treasury loses billions each year to abuses and what accountants quaintly call “aggressive tax planning,” the False Claims Act does not apply to tax cheats. Simply put, Congress thinks it’s probably not the best idea for individuals to be able to bring cases in the name of the Internal Revenue Service, and we tend to agree. The IRS has long had its own program under which if it wanted to pay a reward to someone who provided information about tax fraud, it could – but, as we understand it, usually didn’t.

However, in 2006, Congress breathed new life into the IRS’s whistleblower-reward program by creating a qui tam-like reward structure and, just as important, committed additional resources to the IRS so it could investigate the cases it got. Unlike a qui tam suit, whistleblowers who expose tax fraud do not actively litigate these cases, but they may nevertheless be entitled to a hefty award based on the amount the Government recovers and the quality of the information the whistleblower provided.

The reward section of the Tax Relief and Health Act of 2006 works like this:

  • It only applies to reports of fraud or underpayments which, including penalties and interest, exceed $2 million – though interest and penalties can add up pretty quickly, so if you know about a significant tax fraud, don’t worry too much about the math.
  • If the report pertains to an individual tax cheat, his or her annual income has to exceed $200,000.
  • Whistleblowers can be awarded between 15% and 30% of the amount the IRS collects as a result of the information the whistleblower provided.
  • A court can get involved if the IRS underpays the reward.
  • If the information has already been disclosed, then the IRS can reduce the reward or deny it altogether. If the whistleblower planned the fraud, the IRS can reduce the reward or pay nothing.

Unfortunately, the Tax Relief and Health Act does not protect whistleblowers from retaliatory conduct, as do the False Claims Act or the Dodd-Frank Act. It is therefore all the more important that you contact an experienced attorney to aid you with this process and protect your rights. The team at Morgan Verkamp LLC is ready to take your call.