Businesses can legitimately maximize their profits by minimizing their tax liability. When they violate the law by paying less than their fair share, however, other taxpayers have to pick cover the shortfall, and all taxpayers suffer. The Internal Revenue Service (“IRS”) has instituted a strong whistleblower reward program to help ensure that wealthy taxpayers pay the amounts they owe. Under this program, a person who reports serious tax underpayments to the IRS can be eligible to receive a significant percentage of the amount the IRS recovers from the taxpayer.
I. Overview Of The IRS Whistleblower Program
Federal law gives the whistleblower the right to an award of 15% to 30% of the amount the IRS recovers as a result of information the whistleblower provides to the agency. See 26 U.S.C. § 7623. In order to qualify for the program, the total debt to the IRS must exceed $2 million, including interest and penalties. Additionally, if the person who owes taxes is an individual (rather than a business), the taxpayer must have earned at least $200,000 in one of the years for which he or she owes taxes. People who participated in tax fraud who then report it to the IRS may still be eligible for an award if they did not plan and initiate the fraud, and are not convicted in a criminal proceeding related to the underpayment. If you think you may be involved in tax fraud, it is important to stop any potentially illegal actions immediately and seek legal counsel before taking any further action.
II. What Can I Report To The IRS To Receive A Reward Under The Whistleblower Law?
You can blow the whistle on any underpayment of taxes, intentional or not. However, only reports of underpayments of taxes of over $2 million are automatically eligible for the program. For lesser amounts, any reward is at the sole discretion of the IRS. Common methods of illegal tax avoidance include underreporting of income, overstating of deductions, hiding of assets, false recordkeeping, keeping multiple sets of books, misusing trusts, stock fraud, or improperly shifting assets offshore to avoid tax.
III. How Does The Whistleblower Law Work?
The person reporting such illegalities to the IRS is guaranteed at least 15% of the IRS’s proceeds from prosecuting or settling the tax fraud if:
- They provide relevant information to the IRS whistleblower office using IRS Form 211;
- The fraud has not been previously reported;
- The IRS actually uses the information to prosecute or settle the tax fraud; and
- The person makes the report within three years of the filing of the incorrect tax return, or six years if the tax return understates income by at least 25%. There are no time limits on claims if a false tax return was filed with the intent to commit tax evasion.
The information you provide to the IRS should be as specific as possible. Abstract “stories” are usually not enough. In addition, the IRS is more likely to prosecute the tax fraud if you provide actual evidence in the form of documentation, and can show how the unlawful scheme works.
Depending on the value of your contribution to the IRS investigation, you are eligible for up to 30 percent of the IRS’s recovery, though this is at the discretion of the agency.
It is important to note that the IRS whistleblower office will protect your identity to the fullest extent permitted by law, but there are some circumstances in which your identity may become known, such as during a criminal procedure against the fraudulent taxpayer. A lawyer can help you weigh the likelihood that your identity will be revealed, and help you weigh that against other factors.
IV. What Are My Responsibilities Under The Law?
In order to maximize your reward, it’s best to obtain a paper trail of the tax fraud (without breaking the law yourself). If you are partially responsible for the fraud, it’s very important to legally protect yourself when reporting the complaint: the IRS will most likely discover your role, and there are ways to legally protect yourself. Declarations to the whistleblower office are given under penalty of perjury, so accuracy is important as well.
V. What Should I Do If I Have Information On Tax Fraud That Would Be Useful To The IRS?
The decision to report tax fraud to the IRS has many ramifications, and should only be made with competent legal advice. There are legal protections against retaliation and to preserve anonymity, but only a competent attorney who is familiar with the IRS whistleblower program can explain how the law applies to your situation and advise you on what steps to take to preserve your rights. If you have information about tax fraud that you’re considering reporting to the government, contact the experienced lawyers at Katz, Marshall & Banks, LLP for an initial consultation with no further obligation.
