Statute of Limitations for a Tax Whistleblower Case Under the IRS Whistleblower Program

From potential clients seeking information about the new IRS Whistleblower Rewards Program that our attorneys have written about extensively, questions have been asked about the statute of limitations for tax whistleblower cases.

If a whistleblower informant possesses information concerning false of fraudulent tax returns filed with the intent to evade taxes, 26 U.S.C. § 6501(c)(1) provides for no statute of limitations. In the case of a willful attempt in any manner to defeat or evade income tax obligations, once again, the IRS may assess such taxes at any time without regard to a specific statute of limitations.

Thus, in cases involving fraud, these provisions provide no statute of limitations. The same is true in the case of a failure to file a return. If the taxpayer fails to file a return and has earned income on which taxes are owed, once again, these provisions provide for no specific statute of limitations.

Practically, of course, the information possessed by the whistleblower informant must be recent enough to allow the IRS to effectively investigate the information that the whistleblower brings forward. Even if a whistleblower has information that is more than 6 years old, the simple fact remains that, while legally the IRS may be able assess taxes for such conduct, it may be difficult to prove the violation if the information is “stale.”

As a general proposition, without evidence of willful or fraudulent intent, other provisions provide for a statute of limitations of 3 years. 26 U.S.C. § 6501(a).

Notwithstanding the legal and practical issues involved in these cases, when a whistleblower possesses reliable and corroborated information, the IRS can assess taxes, penalties and interest on the back taxes owed. The new whistleblower provisions specifically provide that the whistleblower is entitled to receive not only up to 30% of the amount of back taxes owed, but also the same range of percentages of penalties and interest. Thus, in a case where taxes have been evaded for many years, the interest and penalties can be quite significant.

As long as the information provided to the IRS is reliable and credible, and the “taxpayer” has means to pay, a valid claim may be pursued under the IRS Whistleblower Program.

Of course, this blog is not legal advice–please contact an attorney to discuss any questions you have about the IRS Whistleblower Program.