IRS Whistleblower Program (for Tax Whistleblowers)

Individuals who have knowledge of the fraudulent write-off of bogus business losses are in a position to reap the rewards from such illegal conduct should they report it under the IRS Whistleblower Program. If a business writes off bogus business losses from a transaction and claims a tax refund, for example, such a transaction could constitute fraud and thereby expose the company to a whistleblower action by an insider with knowledge of such fraud. An apparent example of this was reported this week in an article in Information Week describing a federal investigation into the computer services firm, Oracle. According to the article, federal investigators are looking into whether Oracle improperly wrote off a quarter of a billion dollars in losses in the calendar year 2003 for the express purpose of obtaining a massive tax refund. Allegedly, Oracle claimed that it lost $223 million on stock transactions in the calendar year 2003 and applied for a $78 million tax refund. The government’s contention seems to be that the tax write-offs were completely fraudulent because no business losses actually incurred. Allegedly, the stock losses were fraudulently manufactured to support the refund application. If the IRS is correct, Oracle might have to repay to the government $78 million plus penalties and interest on the money.
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The new IRS Whistleblower Rewards Program–and observations by one of the whistleblower lawyer blog attorneys–were featured in an October 15, 2007 article by Nicholas Rummell in Financial Week. Financial Week is a publication geared toward the CFO and other professionals in finance and accounting, with coverage of economics and business markets, regulatory and legislative actions, financing, banking, insurance, real estate, cash management, investment management, benefits and retirement finance, investor relations, accounting and technology.

This article discusses the fast start of the new href=”https://www.whistleblowerlawyerblog.com/new_irs_whistleblower_reward_s_2/”>IRS Whistleblower Program authorized by Congress in December 2007, which our whistleblower attorneys have written about extensively. I had the pleasure of speaking at length with writer Nicolas Rummell about the new IRS program, which is most promising. (The Financial Week article is at http://www.financialweek.com/apps/pbcs.dll/article?AID=/20071015/REG/71012026.)

Of particular interest was how those in the financial services industry, including hedge funds, have utilized the new IRS Whistleblower Program.

I want to clarify some of the comments attributed to this whistleblower lawyer blog author. In particular, based on comments by those in the Whistleblower Program, the statute of limitations is three years for tax noncompliance or tax violations that do not necessarily amount to tax fraud or tax evasion. It increases to six years if there is an open audit or investigation by the IRS. But for tax fraud or tax evasion, there is no statute of limitations as a matter of law. (We have written about the statute of limitations previously.)

Based on our dealings with the IRS, the new Whistleblower Office is operating with extremely professional and capable officials, who are looking to reward individuals who come forward with useful information about tax noncompliance and violations of the tax laws. We are excited to represent clients in the financial services industry and other industries in the new IRS Whistleblower Program. The new IRS regulations to be released by December 2007, should answer many questions that currently exist about the new IRS program.

It is estimated that the annual tax gap between those who owe money to the government as taxes and those who actually pay them (i.e. the annual underpayment of taxes) is $345 billion. Under the new IRS Whistleblower provisions, an insider with information about tax fraud can claim a minimum of 15% up to a maximum of 30% of back taxes collected by the government based on information received from the whistleblower. What this means is that each year if, in fact, the annual tax gap is accurately reported at $345 billion, whistleblowers nationwide could potentially receive 15 to 30 percent of this amount plus interest and penalties should they report tax cheats to the government.
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Tomorrow in Washington, this whistleblowerlawyerblog author is looking forward to participating in a panel discussion with the Director of the new IRS Whistleblower Office, Stephen Whitlock, to explain how the new IRS Whistleblower Rewards Program works.

We will speak at the Taxpayers Against Fraud Annual Conference in Washington at 6 p.m. on September 9. Leading the panel discussion will be Paul Scott. I am also looking forward to the presentations by Erika Kelton and Professor Dennis Ventry of American University’s Washington College of Law.
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Question about the new IRS Whistleblower Rewards Program: if you go to the Internal Revenue Service’s website, the IRS notifies persons that, if they have evidence of suspected tax violations, they should use a Form 3949 and send it to an Internal Revenue Service Office in Fresno, California. While this blog is not legal advice, we have not seen a basis for individuals seeking a reward under the new IRS Whistleblower Program for blowing the whistle to utilize this form. The reason is because this form is not necessarily connected to the new IRS Whistleblower Program which came into being in December of 2006.
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