If you suspect that a company is failing to properly pay taxes, you can blow the whistle on the practice by filing a claim with the IRS Whistleblower Program. We find the following steps are helpful in evaluating and preparing an IRS whistleblower claim.
Identify the type of fraud: You need to be able to explain how the company is cheating the IRS. Tax fraud can take on many forms including underreporting income, claiming false tax credits, hiding assets or income, transfer pricing, abusive tax shelters, and circular transactions.
Identify the specifics: The IRS Whistleblower Program requires specifics. In other words, the whistleblower should be able to tell a story about how the alleged fraud occurred. Depending on the type of fraud, a whistleblower should be able to detail which years of tax returns are in question, how the scheme was carried out, which transfers are suspect, how much in underpayment occurred, and who at the company was involved in making the tax decisions.
Gather documents and evidence: The IRS also wants credible evidence. This means providing evidence beyond the whistleblower’s word. In many cases, company executives will discuss the fraud in emails or memorandums. There may be also be communications with accountants or auditors warning of a particular tax practice. Any document or piece of evidence that a whistleblower might have will add credibility to his or her claim that the company is not properly paying its taxes.
Hire an experienced IRS whistleblower attorney: The IRS Whistleblower Program is unique and it’s important to hire a lawyer that understands how it works. An attorney who has handled successful IRS whistleblower claims in the past can help you put together a compelling package that will get the IRS’s attention and maximize your award. Prior to filing a claim, your attorney will also likely reach out to the right people at the IRS Whistleblower Office to let them know to pay particular attention to your claim.
Submit your claim to the IRS: The next step is to file an IRS Form 211. This sounds simple, but in reality, you need to attach a thorough and organized explanation along with supporting documentation detailing the fraud in order to grab the IRS’s attention. If you fail to do so, your claim will likely be tossed aside even if it would otherwise be a good case. This is why it is critical to have an experienced IRS whistleblower attorney who will make sure that your claim is properly prepared and submitted.
Assist in the IRS Investigation: After submitting the IRS Form 211, the IRS may request additional information from you. It is important that you do everything that you can to assist the IRS as the level of your assistance could impact 1) whether the IRS pursues your case, and 2) the amount of the award you will receive once your case has been settled.
Collect your award: The IRS’s investigation can take several years or more to complete. Once the IRS has collected its share from the offending company, the IRS Whistleblower Office will begin to determine the percentage of the award that you should receive. As discussed in a previous section above, your attorney should provide the IRS with a detailed memorandum explaining why you are entitled to the highest percentage possible. If the IRS Whistleblower Office determines that the whistleblower’s information substantially contributed to the case, the whistleblower will be paid between 15% and 30% of the amount recovered by the government. Many IRS whistleblower awards are significant due to the $2,000,000 eligibility minimum. In 2012, for example, a whistleblower who filed a claim against Swiss bank UBS was awarded $104 million for his efforts. One exception is if the whistleblower planned and initiated the actions that led to the underpayment of taxes. In such a case, the IRS can reduce the award below 15%.