Tax fraud is one of, if not the most common form, of fraud against the government. From individual tax cheats to large corporations cooking their books, federal, state, and local governments lose out on millions of dollars in revenue from fraudulent tax underpayments.
As prevalent as tax fraud is, whistleblowers looking to report such fraud to the government have fairly limited options. The federal False Claims Act (“FCA”)—the statute that allows private citizens to file claims on behalf of the Government alleging that the Government has been defrauded—does not apply to tax matters. 29 U.S.C. § 3729(d).
Since 2006, the Internal Revenue Service (“IRS”) has had its own whistleblower program, which provides incentives for individuals to come forward with information on tax fraud of $2,000,000 or more (or in some cases less, if the fraud involves an individual taxpayer making at least $200,000 a year). But there are limits to this program. As compared to a False Claims Act action, IRS whistleblowers do not file a case in court, and have no right to pursue their claims if the IRS declines to intervene.
The IRS program is also relatively small. In fiscal year 2016, the agency collected $368,907,298 in additional tax revenue, of which $61,390,910 was paid out in rewards to whistleblowers (about 16.6% of the amount collected). While this amount may appear large, it is only a fraction of what False Claims Act cases recover each year.
On the state level, the landscape is mixed. A few states, such as New York, have their own False Claims Act statutes that specifically cover tax fraud. In fact, New York has been very aggressive in pursuing state tax cheats, and just last month announced the largest tax fraud settlement in the state’s history—a $40 million settlement with investment firm Harbert Management Corp. But New York is far more the exception than the rule right now.
Over the next few years, as more and more big settlements are announced, it is likely that more states will follow New York’s example, and there is also reason to think that the IRS may soon scale up its own whistleblower program.
Given this shifting landscape, it is all the more important that whistleblowers consult with experienced lawyers before pushing ahead in reporting fraud.
To learn more about our Whistleblower & Qui Tam practice click here. Our firm is located in Nashville, Tennessee, but we represent whistleblowers all around the country.