For the last 144 years, the IRS has been providing tax whistleblowers with compensation for information leading to the recovery of additional taxes paid by the identified defrauding taxpayer.There were two major flaws to the IRS program that served to deter individual whistleblower from reporting the fraud: 1) the rewards were discretionary with no basis of appeal and 2) the information provided by the whistleblower had to lead to “additional taxes paid.”These flaws caused numerous whistleblowers to reconsider bringing allegations of fraud to the IRS’ attention.To most, the uncertainty of a reward did not outweigh the risks associated with blowing the whistle.
In late 2006, the landscape concerning tax whistleblower cases changed dramatically.Under the direction of Sen. Grassley, the IRS strengthened the existing program to provide for mandatory rewards with a right to appeal.This was a victory for whistleblowers nationwide.The new program has served to foster more submissions regarding alleged tax cheats.However, under the new program, the whistleblower could still only recover “additional taxes paid” as a result of the information provided by the whistleblower.This was very problematic as information received from a whistleblower which directly led to a denial of a refund or a reduction in deductible losses was not eligible for reward.To no surprise of the legal community handling these cases, the IRS Whistleblower Program establish in 2006 has yet to pay a single reward.
The proposed regulations are a major step in the right direction.If approved, the regulations will provide tax whistleblowers with the right to recover from the “denial of refunds” as well as a “deduction in losses” that can be attributed to the information provided by the whistleblower.These proposed regulations are more in line with the spirit of the law when it was drafted in 2006.
Brandon J. Lauria, Esquire, represents tax whistleblowers nationwide. If you feel you may have information concerning individual or corporate tax fraud, please call (215) 367-5151 for a FREE attorney consultation.