What is Tax Fraud?
Tax fraud is defined as any noncompliance with United States tax laws. The range of offenses spans from an individual neglecting to fill out his or her annual tax form, to a wealthy company intentionally falsifying tax forms. The Internal Revenue Service is the regulatory body for this crime. The reason why tax fraud is especially egregious is that everyone hurts every time tax fraud is committed. Tax fraud can be committed with a number of different taxes including sales and use tax, business tax, tobacco tax, corporate taxes, individual income tax and motor fuel taxes.
The tax fraud whistleblower law was introduced to the United States in 2006. It was aimed at getting numerous people involved in the fight against fraud. The bounty for such a whistleblower is up to 30% of the IRS collection as a penalty for the tax fraud, but only if the fraud’s income is over $200,000. Likewise the informant must have information on a tax fraud that is above $2 million including penalties, taxes and interest.
The inspiration for the tax fraud whistleblower law was a case in 2004. The informant in the case, represented by the Phillips & Cohen LLP firm, refused to identify himself outright. His lawyers referred to him by the moniker Mr. ABC. Mr. ABC persuaded congress that a law was necessary to make whistleblowing more lucrative in order to convince potential whistleblowers to come forward and report tax fraud. Mr. ABC had information as an employee for an investment bank on Wall Street. Through the veil of secrecy, Mr. ABC reported the several tax shelters arranged to steal millions of dollars from the federal government. Mr. ABC claimed that the IRS is “resistant to and suspicious of” whistleblowers. Still veiled in secrecy, Mr. ABC received his reward through his lawyers. The lawyers were pleased with the tax fraud whistleblower law, predicting that the law would encourage informants to step forward with valuable information.
The nature of tax fraud is concealment, which is why the whistleblower law is imperative for the identification of tax fraud. Since the False Claims Act was revamped in 1986, the whistleblowers have been the most effective means of catching fraud. However, there was no provision for tax laws under the False Claims Act. Before the 2006 law, the IRS paid rewards at their own discretion. Under the 2006 law, the relator is entitled to 15% – 30% of the damages. If the amount of damages paid is not reasonable to the whistleblower, he or she can then appeal the final reward. If the plaintiff had a hand in committing the fraud in question, blowing the whistle does not provide amnesty for that individual.
The following types of tax fraud are applicable to the whistleblower law: delaying the marking of losses or earnings in order to shift them into a different tax year, changing the a stock options’ grant dates, false deductions and dubious tax shelter designs, parent corporation altering of subsidiary financial relationships in order to manufacture profits or hide losses, not reporting all revenue or exaggerating losses, failing to pay US taxes, concealing earnings made in foreign markets, and the classic neglecting to file the annual United States federal tax return. Any of these examples of tax fraud are ample cause to blow the whistle.