WHAT IS A WHISTLEBLOWER?

A person who provides information regarding tax law violations under the IRS Whistleblower Law is known as a whistleblower.

HOW OLD IS THE IRS WHISTLEBLOWER REFORM LAW?

The Whistleblower Reform legislation passed on or about December 13, 2006. It is brand new, and applies to information provided to the IRS on or after the date of the enactment. (Under the prior regulations, the IRS had too much discretion to deny rewards to whistleblowers where they made recoveries based upon whistleblower assistance)

WHAT TYPES OF ACTS ARE COVERED BY THE IRS WHISTLEBLOWER REFORM LAW?

Acts that can constitute tax fraud/underpayment under the Internal Revenue Code, include:
1. Offshore Tax haven abuses, including:
- undisclosed third party transaction;
- shifting/siphoning pre-tax income offshore;
- Fake billing/process reported in off-shore jurisdiction (headquarters shifted off-shore in paper transactions)
- Lending money to parent company by off-shore subsidiaries;
- Relocating intellectual property off-shore and charging US headquarters or other divisions of the company royalty payments;
- Special Purpose Entities (SPEs - Made famous by Enron - the structuring of financial instruments so the profits can be moved overseas to a lower tax jurisdiction in/or from income accounting category to another).

2. Abusive Tax Shelters, using:
- Certain tax-exempt bond transactions
- Yield burning
- Transactions involving the distributions of encumbered property in which losses claimed for capital outlays have been recovered (aka BOSS transactions)
- Debt straddles
- Inflated Partnership Basis Transactions (Son of Boss)
- §351 Contingent Liability
- §302 Basis-Shifting Transactions
- Inflated Basis CARDS Transactions
- National Principal Contracts
- Partnerships Straddle Tax Shelter
- Lease in / Lease out or LILO Transactions
- Abuses Associated with S Corp ESOPs
- Accounting for Lease Strips and Other Stripping Transactions
- Abusive Foreign Tax Credit Transactions
- S Corp. Tax Shelter Involving Shifting Income to Tax Exempt Org.
- Intercompany Financing Through Partnerships
- Losses Claimed and Income to be Reported from Sale In/Lease Out (SILO)

WHAT IS THE LIABILITY FOR VIOLATING THE INTERNAL REVENUE LAWS?

The defendant can be liable for the underpaid amount plus additional fines, penalties and interest for tax deficiencies.

HOW AND WHEN CAN A WHISTLEBLOWER BE REWARDED FOR BLOWING THE WHISTLE UNDER THE IRS WHISTLEBLOWER REFORM LAW?

First: In order to be eligible to recover compensation from the IRS, a person must bring information to the Internal Revenue Service’s attention.
Second: A whistleblower may receive compensation only from monies actually collected based on the information provided. In short, it is only the bringing of information to the IRS and a subsequent administrative or judicial action resulting in a recovery based on the information provided that enables a person to receive a reward under the IRS Whistleblower Reform Law.

HOW MUCH MONEY CAN A PERSON RECEIVE FOR BRINGING AN IRS WHISTLEBLOWER CLAIM?

Under the IRS Whistleblower Reform Law a person can receive a reward of between 15% and 30% of the total collected proceeds (including penalties, interest, additions to tax and additional amounts).

If the IRS moves forward with an administrative or judicial action based on information brought by a whistleblower, the whistleblower is eligible to receive at least 15% and up to a cap of 30% of the recovery, depending on the whistleblower’s contribution to the prosecution of the action.

The provision does allow the IRS to give awards of lesser amounts under certain circumstances, (i.e. when the fraud has already been publicly disclosed and the whistleblower fails to be an original source).

IS THERE A DEADLINE OR STATUTE OF LIMITATIONS FOR FILING AN IRS WHISTLEBLOWER CLAIM?

The statute of limitations limits the time frame during which an action can be brought by the IRS for an audit and/or tax collection activities. Generally they are as follows:

1. No proceeding for the collection of any tax can proceed after the expiration of three years.(See 26 U.S.C. §6501(a) of the Internal Revenue Code)
2. However, the statute of limitations is 6 years if the tax payer omits additional gross income in excess of 25% of the amount of gross income stated in the tax return filed with the IRS. (26 U.S.C. § 6501(e) of the Internal Revenue Code).
3. The statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. (See 26 U.S.C. §6501(c)(1) of the Internal Revenue Code.)

WHAT IF SOMEONE ELSE HAS ALREADY BROUGHT AN IRS WHISTLEBLOWER CLAIM AGAINST THE SAME COMPANY THAT I WANT TO MAKE A CLAIM AGAINST?

If another person has already filed an IRS Whistleblower claim based on the same allegation(s) you are aware of, it is highly unlikely you will be able to claim a reward unless the IRS moves forward with an action based on your underlying information. This provision in the law is as a practical matter a  first to file provision. It is therefore important to file an IRS whistleblower claim as soon as reasonably possible.

HAVE I LOST MY RIGHT TO BRING AN IRS WHISTLEBLOWER ACTION IF I HAVE ALREADY INFORMED THE GOVERNMENT OF THE FRAUD?

No. You cannot give up your right to bring an IRS whistleblower action by going to the IRS before filing an IRS whistleblower claim. However, as this legislation passed on or about December 13, 2006, it applies only to information provided to the IRS on or after that date. However it should be noted that under the former whistleblower provisions the regulations do authorize the IRS to afford rewards up to $2 Million for information leading to IRS recoveries based upon tax fraud. Those rewards can vary from 0% to 15% and historically have been quite discretionary.

CAN I KEEP MY IDENTITY A SECRET IF I FILE AN IRS WHISTLEBLOWER ACTION?

During the investigation, your identity should be kept a secret to all but the IRS. It is possible that your identity can be kept a secret even after the investigation has been completed. However, in the event of a civil complaint or criminal indictment leading to a trial, it is possible that if the case goes forward under those circumstances, your identity could be revealed. However this point is usually years later. In other words, during the initial filing of the claim with the IRS, neither the defendant nor anyone else except the government will be made aware that you have filed a claim under the IRS Whistleblower Reform Law. If no action is taken by the IRS or there is a settlement prior to trial by the taxpayer and the IRS, it is possible that your name will never be revealed.

DO I HAVE ANY PROTECTION AGAINST MY EMPLOYER FIRING OR OTHERWISE DISCRIMINATING AGAINST ME FOR BLOWING THE WHISTLE UNDER THE IRS WHISTLEBLOWER REFORM LAW?

At this time, the IRS Whistleblower Reform Law itself does not contain a whistleblower protection provision. However, there might be separate federal laws that could be applicable. (See Sarbanes - Oxley Act of 2002 §806 - protecting employees of Publicly Traded Companies who Provide Evidence of Fraud-18 U.S.C. § 1514 A). In addition, other federal and state statutes may apply.

No Tags