IRS Tax Fraud Whistleblower Frequently Asked Questions
Here are some answers to frequently asked questions about the IRS Whistleblower program:
Examples of IRS tax fraud – includes non-criminal underpayment of taxes
The whistleblower program covers tax fraud, but it can also cover simple underpayment of taxes. Potential tax compliance issues to report include:
Financial transaction fraud: Balance sheet fraud, hiding assets offshore and using multiple sets of books.
False reporting: Incorrect information on tax returns such as underreporting revenue or taxable income.
Improper employee classification: Classifying employees as independent contractors to avoid paying taxes.
Moving profits overseas: Concealing ownership of patents, transferring ownership of logos or intellectual property, processes and other intangible property rights to foreign entities.
Offshore tax haven: Knowingly moving money to a foreign bank to avoid reporting taxable income.
Falsely operating as tax-exempt: Claiming a tax-exempt status to receive tax credits or deductions when you do not qualify.
Money laundering: Masking or concealing the source of illegally-obtained money. This can be accomplished by moving the money to legitimate businesses or abroad to foreign banks.
Pyramiding: Withholding employee taxes and intentionally not remitting taxes to the IRS, only to then file bankruptcy and starting another company. This is an attempt to transfer unpaid taxes between entities.
False payroll tax returns: Preparing false payroll tax returns understating the number of wages or payroll taxes owed. Can include failure to pay payroll taxes by failing to file employment tax returns.
Shell accounts: Using multiple bank accounts and circulating money across these accounts to transfer tax benefits.
Claiming bogus deductions: Claiming deductions for which you do not qualify.
Improper Use of Funds: COVID-19 relief funds have resulted in additional tax frauds, as some have made improper use of pandemic review funds.
Many forms of tax evasion, tax fraud and tax noncompliance exist. Other forms include avoiding taxes by putting assets in another person’s name or paying cash to avoid records and avoid reporting transactions.
What are the ways to report fraud?
To report tax fraud to the IRS Whistleblower office, you must file forms with the IRS. You cannot submit a whistleblower claim over the phone. Schneider Wallace is available for a free and private confidential legal review of your claim. You can reach Schneider Wallace at 1-800-689-0024 or info@schneiderwallace.com.
Can I report using the IRS hotline?
The IRS hotline is available to call for helpful guidance. Reporting tax fraud or tax evasion with the hope of a whistleblower reward however, requires the completion of IRS forms. You cannot submit a whistleblower claim over the phone via the IRS hotline. Whistleblower claims must be submitted to the IRS Whistleblower Office.
How do I file an IRS whistleblower claim?
If you have a potential whistleblower claim, you may wish to seek out professional advice from an attorney who can assist in your claim and obtaining an award.
To file a claim with the IRS Whistleblower office, IRS forms include:
Form 3949-A: To report a business or individual.
Form 14157: To report a tax preparer whom you suspect of fraud, or an abusive tax scheme by a tax return preparer or tax preparation company.
Form 14242: To report someone is promoting or engaging in an abusive tax-avoidance scheme.
Form 13909: To report a tax-exempt organization such as a church, charity or trade association.
How much tax fraud is there?
The IRS estimates that the “tax gap”, or the difference between taxes owed and taxes paid, is around 16%. A 1% reduction in the tax gap is estimated to bring in $30 billion a year in additional government revenue.
Are there IRS whistleblower protections?
Yes, the law protects against retaliation toward a whistleblower. The law prohibits any “employer, officer, employee, contractor, subcontractor, or agent” of an employer from retaliating against a whistleblower. It protects both disclosures to the IRS and internal disclosures. Protections for a prevailing whistleblower include:
- double back pay, with interest.
- reinstatement to any position.
- uncapped “special damages” including damages for emotional distress and reputational harm.
- attorney fees, litigation costs, and expert witness fees.
Can you report tax fraud anonymously?
The IRS does not disclose the name of whistleblowers and does not reveal their name when giving whistleblower rewards. Neither will any attorney you work with, if you prefer to remain anonymous.
Are IRS whistleblower rewards discretionary?
While there is a discretionary category for awards, there is also a mandatory category requiring the IRS to pay 15 to 30 percent of a claim to eligible claims.
Mandatory awards: The law requires the IRS to give an award of 15% to 30% of the fraud recovery or tax underpayment under 26 USC § 7623(b), if:
- The IRS collects tax underpayments resulting from the action or related actions;
- The amount disputed exceeds $2 million (and if an individual and not an entity, the defendant earned at least $200,000 one year in income); and
- The IRS acts upon the tip from a whistleblower.
Discretionary awards: Discretionary awards are possible for cases that result in “detecting underpayments of tax or bringing to trial and punishment persons guilty of violating the internal revenue laws”. The maximum award for discretionary awards is 15 percent of the tax recovery.
Tax Fraud Lawyers
Schneider Wallace represents whistleblowers. Schedule a consult with our whistleblower law firm for a free and private legal consultation. To speak with a lawyer regarding IRS tax fraud, contact us at 1-800-689-0024 or info@schneiderwallace.com.