The Profile of the New Tax Whistleblower

When the Tax Relief and Healthcare Act of 2006 was signed into law on December 20, 2006, Congress hoped to encourage businessmen and women to come forward with information concerning tax cheats. The new IRS Whistleblower Program (found at 26 U.S.C. § 7623) purposely focuses on large claims. To qualify for whistleblower rewards, a minimum of $2 million in taxes, penalties and interest must be involved. Given this amount of money, the primary targets of the new legislation are businesses whose employees and/or former employees are willing to report them for tax violations.

Under the old IRS Whistleblower Program, the typical whistleblower tipster was an ex-boyfriend, girlfriend, and/or ex-spouse. In spite of information from these sources, over the years the IRS was unable to collect very much by way of back taxes. Indeed, between the fiscal years 2001 and 2005, nationwide the IRS collected a grand total of $27.3 million based on such tips. With the new law now in place, the profile of the tipster has changed. Those coming forward now typically are former Controllers, Chief Financial Officers, and other high ranking executives.

Here at our firm, our experience has been exactly that which Congress attempted to encourage. We have received calls from former CFOs and controllers of companies, accountants and other high ranking executives who are turning in their present or former employers for alleged tax violations. Thus, the kinds of cases that we see now reflect a new profile of the average whistleblower. Unlike the old days where the typical tipster was the ex-boyfriend, girlfriend or spouse, the new whistleblower informant is typically a businessman or woman with significant and verifiable insider information concerning the under reporting of significant amounts of income. This is exactly what Congress intended when it enacted into law the new Tax Whistleblower provisions.

Under the old “Form 211” Program run by the IRS, the rewards to a whistleblower were small. Under the new program, the rewards are high. The informant is now entitled to as much as 30% of the recovery of back taxes, penalty and interest. Because the minimum amount of money involved in these cases must exceed $2 million, simple math indicates that very large rewards are forthcoming for those individuals who are willing to step forward and report income tax evasion. Moreover, if a reward from the IRS fails to recognize the whistleblower’s contribution to the collection of such back taxes, under the new law, the whistleblower/informant may even appeal the reward amount to the U.S. Tax Court.

In virtually every case that we have filed thus far with the Internal Revenue Service under the new program, we have dealt with executives as clients. We are no longer receiving calls from ex-spouses or girlfriends but rather from high ranking company executives. While the forms of fraud are always different depending on the case, the objective of the schemes reported to us are always the same: to cheat the United States out of lawfully owed tax dollars. As former federal prosecutors, we are proud to represent those willing to come forward to expose those who would attempt to evade their lawful tax obligations. We pay our fair share of taxes just as our whistleblower/clients do, others should do the same – and, if they don’t, they should be penalized. This is exactly what Congress envisioned when the new law was passed.