Tax Fraud / IRS Whistleblower Law
The federal False Claims Act pertains to a wide variety of fraudulent activity against the federal government, but it does not apply to tax fraud. Prior to 2006, the Internal Revenue Code’s whistleblower provision allowed, but did not require, the IRS to pay financial awards to whistleblowers for information leading to collections by the IRS from tax cheats. In December of 2006, Congress amended Section 7623 of the Internal Revenue Code to provide financial incentives for individuals to report tax fraud in much the same way that the False Claims Act promotes the disclosure of fraud against the government by its contractors.
The 2006 tax legislation provides for larger whistleblower rewards: before the new legislation, the IRS paid only 1 to 15 percent of any recovery; under current law, if he or she qualifies, a whistleblower can expect to receive 15 to 30 percent of the total amount collected, including taxes, interest, and penalties. Under the 2006 legislation, whistleblowers unhappy with the size of their rewards are permitted to challenge the amount in federal Tax Court. In addition, the legislation required the IRS to establish a whistleblower office to handle whistleblower claims.
The 2006 legislation applies solely to companies or individuals that have defrauded or underpaid the IRS by more than $2 million, and for individuals, is limited to those whose annual income is at least $200,000. Congress intended to encourage, with financial incentives and promises of confidentiality, the employees of such individuals and corporations—including multinational corporations—to step forward and end the fraud, allowing the government to collect the taxes it is owed, together with penalties and interest. Congress enacted the IRS Whistleblower Law to enable private-public partnerships to assist it in recovering wrongfully withheld and much needed revenue.
Tax fraud, especially by big corporations, costs the federal government enormous amounts every year. The Internal Revenue Service has estimated that the U.S. government loses in excess of $385 billion every year in unpaid taxes—a loss born by all of us. It has been reported that over 1,300 whistleblower claims regarding almost 10,000 companies and individuals, representing over $20 billion in possible recoveries, are now backlogged at the IRS. Since the IRS Whistleblower Office is relatively small, this brings up two important issues: (1) it is important to carefully screen cases, bringing only the most serious and likely to result in recovery, and preparing them extremely well so that the fraud is clear to that office; and (2) these cases are moving slowly, and no recoveries should be expected for a number of years, probably on the order of five to seven years. The IRS Whistleblower Office recently reported that during the first five years after the 2006 legislation, only three awards have been paid. To learn more, see the IRS Whistleblower Office’s Fiscal Year 2011 Report to Congress.
With the help of former Commissioner of Internal Revenue Margaret (Peggy) Milner Richardson, the Law Offices of Patrick J. O’Connell is committed to pursuing the country’s biggest tax evaders and lessening the burden on U.S. taxpayers. The Law Offices of Patrick J. O’Connell and Peggy Richardson have established an ongoing case-specific co-counsel relationship to represent persons who blow the whistle on federal tax fraud. Clients who choose to take advantage of this alliance will have the benefit of Peggy’s expertise and experience in federal tax law and tax fraud as well as the resources and extensive legal experience provided by the Law Offices of Patrick J. O’Conell. Click here to learn more about Peggy’s background and experience.
“I’ve been impressed with the Law Offices of Patrick J. O’Connell’s commitment to fighting corporate fraud and wrongdoing in a number of arenas, and I’m excited about working with the firm to fight fraud in an area I know so well and have devoted my career to,” says Peggy.
The Law Offices of Patrick J. O’Connell and Peggy Richardson, through the co-counsel agreement, work with tax whistleblowers to bring claims under the IRS Whistleblower Law to recover the money owed to the federal government by major tax evaders. As with our FCA cases, we carefully screen the cases brought to us, only accepting a small number, and we work solely on a contingent fee basis – our clients do not pay us unless they recover, at which point we share in the recovery in an agreed percentage. Peggy’s expertise in federal tax law and experience as an IRS Commissioner, as well as Pat’s MBA and financial background, are valuable to our clients in these matters.