What can be done to report tax fraud to the IRS?
The Tax Relief and Health Care Act of 2006 made significant changes to the Informants Reward Program under the False Claims Act in favor of the informant (also known as a whistleblower). A whistleblower can receive a financial reward of 15% to 30% of the monies recovered under the updated IRS whistleblower rewards statute. The potential amount owed to the IRS for taxes, penalties and interest must be greater than $2 million in order to be eligible to receive an incentive award. In cases of individuals who defraud the government, the taxpayer's gross annual income must exceed $200,000.
A whistleblower will be rewarded for bringing information about tax law violations to the attention of the IRS that results in the actual collection of money by the IRS. The IRS investigation that results in the recovery of tax revenues may be either an administrative or judicial action. However, getting the attention of the IRS takes a clear presentation of the information you possess that gives rise to tax code violations.
Any person with information about tax fraud can be the source of information to file a report. Former and current CEOs, CFOs and other corporate executives are uniquely privileged with information to report tax fraud and file for substantial IRS rewards under the law (IRC § 7623). Whether an employee continues to be employed or has left the company, he or she may report tax fraud. IRS rewards may be in the millions or tens of millions of dollars, depending on the facts of the individual matter and the amount of back taxes, penalties and interest ultimately collected by the IRS. However, timing does matter. Only the first person reporting specific tax fraud can be paid this reward.
Whistleblowers can be located anywhere in the world. The informants’ claims will be processed in the IRS area and the service center having jurisdiction of the returns of the taxpayer or in the area and service center to which the returns have been transferred for examination.
Claims filed by a corporation or partnership must be signed by an officer or employee who has the authority to legally bind the entity, and the most knowledgeable employee of the entity will be required to provide testimony in any judicial or administrative proceeding that may arise as a result of the information provided.
If the whistleblower came into possession of information relating to violations of the Internal Revenue laws while serving as an officer or employee of the Department of the Treasury, that person is ineligible for a reward under the law.
Congress requires the IRS to conduct an examination and to collect any taxes within 3 to 6 years from the date when a tax return was filed. However, in some cases there is no statute of limitations, such as in those situations where a taxpayer did not file a tax return or if the fraud was intentional.
Some examples of income tax fraud against the government that have gained IRS rewards for those who reported them include:
- General Tax Fraud is committed by individual taxpayers who willfully do not file income tax returns or who fail to pay the correct amount of income, employment or excise taxes. Tax fraud may involve deliberately under-reporting or omitting income, overstating the amount of deductions, keeping two sets of books, making false entries in books and records, claiming personal expenses as business expenses, claiming false deductions, and hiding or transferring assets or income.
- Corporate Fraud is committed by corporate officers who falsify information about securities and shareholder investments or who do not properly report or pay corporate taxes.
- Abusive Return Preparers knowingly overstate deductions or understate income for their clients in exchange for exorbitant fees or a percentage of the under-reported tax liability.
- Money Laundering involves hiding money or income earned from both legal and illegal activities.
- Tax Shelters take advantage of the financial secrecy laws of some foreign jurisdictions and the availability of credit and debit cards issued from offshore financial institutions.
- Non-filers argue that taxes are voluntary or unconstitutional. The courts have repeatedly rejected their arguments as frivolous and routinely imposed financial penalties for raising such frivolous arguments. The IRS places a high priority on identifying such tax cheats.
- Employment Tax Evasion involves pyramiding (withholding taxes from employees but intentionally failing to remit them to the IRS), off-shore employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns.
- Fuel Excise Tax Evasion involves schemes to avoid paying federal and state motor tax needed to maintain and improve our national transportation systems.
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