Although the Treasury loses billions each year to abuses and what accountants quaintly call “aggressive tax planning,” The False Claims Act does not apply to tax cheats. Simply put, Congress thinks it’s probably not the best idea for individuals to be able to bring cases in the name of the Infernal Revenue Service, and we tend to agree. The IRS has long had its own program under which if it wanted to pay a reward to someone who provided information about tax fraud, it could–but, as we understand it, usually didn’t.
However, in 2006, Congress breathed new life into the IRS’s whistleblower-reward program by creating a qui tam-like reward structure and, just as important, committed additional resources to the IRS so it could investigate the cases it got.
The reward section of the Tax Relief and Health Act of 2006 is similar to that of the False Claims Act. It works like this:
- It only applies to reports of fraud or underpayments which, including penalties and interest, exceed $2 million ($2,000,000). (Interest and penalties can add up pretty quickly, so if you know about a significant tax fraud, don’t worry too much about the math.)
- If the report pertains to an individual tax cheat, his or her annual income has to exceed $200,000.
- Whistleblowers can be awarded between 15% and 30% of the amount the IRS collects as a result of the information the whistleblower provided.
- A court can get involved if the IRS underpays the reward.
- If the whistleblower planned the fraud, the IRS can reduce the reward or pay nothing.
- If the information has already been disclosed, then the IRS can reduce the reward or deny it altogether.
Morgan Verkamp is handling several of these cases in conjunction with a nationally-recognized tax expert, Relph Minto of the Minto Law Group in Pittsburgh.