“We don’t pay taxes;
the little people pay taxes.”
– Leona Helmsley
(Multimillionaire Hotel Heiress)
ACTUAL CASE HISTORY*: According to recently published reports, the Internal Revenue Service has made its first-ever award to an employee who “blew the whistle” on his employer’s cheating on taxes. And the award was not “peanuts”: $4.5 million.
The award was paid to an accountant of a financial services firm in the Philadelphia area, whose information netted the government approximately $20 million in collected taxes, interest and penalties. His identity was not disclosed, as the program guarantees anonymity.
In 2006, Iowa Republican Senator Charles Grassley spearheaded efforts to urge the I.R.S. to establish a new IRS Whistleblower Office to help people provide the I.R.S. with information about tax cheats. This followed Congress’s enactment of federal law to provide for such awards.
The I.R.S. program, called the “Informant Award” program, provides for payment to the informant of 15% to 30% of the amount collected by the I.R.S., including all penalties, interest and additional taxes. It is viewed as encouraging corporate taxpayers, in particular, to pay their legally-required taxes. It was inspired by the dramatic success of the nation’s major fraud-fighting whistleblower law, called the False Claims Act, which has recovered more than $25 billion for the government since 1986 – and has paid more than $2.7 billion to whistleblowers.
Employment attorneys who represent “whistleblowers” have recently criticized the I.R.S. for its slow, methodical review of whistleblower claims, which can take years. Even Senator Grassley has recently been quoted as saying, “Quite frankly, I’m shocked [the IRS] finally got around to using it.”
It is anticipated that, as the I.R.S. Whistleblower Award program comes to be more widely known, more and more employees will “do good by doing right.” Or, as Senator Grassley observed, the millions of dollars of rewards available to employees “ought to encourage a lot of other people to squeal.”
The program is viewed by attorneys for employees as a win-win proposition for both our cash-strapped government and for employees, who carry the burden of paying their own fair share of federal taxes. The Informant Award program applies to both corporate and individual tax cheats.
LESSON TO LEARN: The new I.R.S. Informant Award program provides both monetary awards and anonymity to employees who report tax-cheating by their employers. Though steps may need to be carefully taken to file a claim, and to collect rightful awards, all employees should know of the program, its potential awards, and how it works.
WHAT YOU CAN DO: Here are the eight things you need to know about the I.R.S. Informant Award program:
1. Confidentiality is Guaranteed: Federal law requires the I.R.S. to maintain strict confidentiality as to the identity of informants who submit information to the program. One potential exception to this guarantee is if the whistleblower is an essential witness in a trial necessary to collect the unpaid taxes. First, most of these cases are settled out of court. Second, before proceeding to a trial, the I.R.S. will notify the Informant, and only then decide to proceed to trial. Third, most corporate employers have strict anti-retaliation policies in effect that strictly prohibit such retaliation. Still, careful forethought and planning are necessary to avoid potential career damage. Incidentally, anonymous claims are not accepted; thus, claims cannot be filed under an alias. Additionally, only individuals can be Informants; claims by partnerships or corporations will be rejected.
2. The Process is Not Complicated, but Can Take Years: The Informant process begins with the Informant submitting a claim on a required I.R.S. form, and being available over time for interviews. No “legal papers” need to be drafted, and it is not necessary for an Informant to have legal representation. However, an organized presentation and supporting evidence are suggested. That said, the significance of the decision to proceed, legal judgment as to the legality of obtaining company documents, and the need for confidentiality do suggest that legal counsel may be a good idea. The I.R.S. stresses that it can take months and even years to complete the process.
3. The Information Provided must lead to a Collection of Monies by the I.R.S.: The one basic requirement of the Informant Program is that the information provided must be (a) specific, (b) credible, and (c) result in the collection of taxes, penalties, interest, or other amounts. The I.R.S. encourages Informants to submit supporting evidence, but cautions prospective Informants not to violate the law to obtain documents or supporting information. Only “solid information” will be rewarded; no “educated guesses” will be honored.
4. You Can Report both Corporate Tax Cheats and Individual Tax Cheats: It is important to bear in mind that Informants may report on, and receive awards based on, tax cheating by both corporate and individual tax cheats.
5. Informant Awards Range from 15% to 30% of the Amount Collected: There are two types of awards: (a) if the taxes, interest and penalties at issue for a corporate tax cheat exceed $2 million, or an individual tax cheat with an annual gross income over $200,000, the I.R.S. will pay between 15% and 30% of the amount collected; (b) for informants who report tax cheats who do not meet those dollar amounts, the awards to Informants have a maximum of 15% of the amount collected, and a maximum payment to the Informant of $10 million. The I.R.S. decides precisely what percentage is to be awarded; a disappointed Informant can appeal the decision.
6. If the Informant is Responsible for the Tax Cheating, the Informant Award may be Reduced, or Even Denied: Caution must be taken if the Informant is in whole or in part responsible for the tax cheating. Involvement in the tax cheating will likely reduce the Informant Award. If the Informant, himself or herself, is convicted of tax cheating based on his or her role in planning or initiating the reported non-payment, the law requires the I.R.S. to deny any award whatsoever.
7. The Informant cannot be an “On The Job” Government Employee: Claims submitted by employees of the U.S. Department of the Treasury will be denied, as will claims submitted by persons acting within the scope of their duties as employees of any Federal, state or local government.
8. Sorry: Informant Awards are Taxable Income: While it may seem unfair, even these Informant Awards are considered taxable income, upon which taxes must be paid. In fact, the I.R.S. withholds federal income tax before transmitting checks for Informant Awards. Sure enough, “they get you, one way or the other” when the I.R.S. is involved.
If you’re interested in obtaining a completed Model I.R.S. Informant Claim form, along with an outline of supporting evidence, simply [click here].
If you’re interesting in obtaining experienced Legal Counsel to assist you in the process of filing an I.R.S. Informant Claim, simply [click here].
Keep in mind that our military, our roads, and our entire federal government depend on people and corporations paying their fair share of taxes. And keep in mind, too, that while individual employees have their taxes withheld from their paychecks, corporate employers operate more on an “honor system.” Sometimes, however, responsibility does not arise until people feel accountability, and that’s what the I.R.S. Informant Award is all about.
Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do what you can to achieve for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.
*A Note About Our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
Please Note: This Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.
© 2011, Alan L. Sklover All Rights Reserved. Commercial Use Prohibited. [Attorney Advertisement]
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