Federal Tax Frauds and Violations
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The Internal Revenue Service (IRS) is primarily responsible for pursuing individuals and companies who fail to pay their taxes, whether by fraud or innocent mistake. The IRS also has authority to enforce foreign bank accounts reporting (FBAR) requirements. When tax frauds or FBAR violations are intentional, the Department of Justice (DOJ) can bring criminal charges. The IRS Whistleblower Program pays rewards to whistleblowers reporting any of these violations.
What kinds of tax frauds can whistleblowers report?
Every year, the IRS targets a wide variety of tax frauds by corporations and individuals:
Illegal tax shelters created for the sole purpose of evading taxes. Common examples include fictitious retirement plans, abuse of partnerships and tax-exempt organizations, improper stock and deferred compensation agreements, and many other complex financial arrangements designed to create improper tax results. The IRS maintains an Office of Tax Shelter Analysis focused on combating these abusive tax shelters and transactions.
Hiding income using offshore tax havens and shell companies and trusts.
Failing to report earnings from cryptocurrency transactions, which the IRS treats as income.
Improperly claiming tax credits, particularly tax credits for fuels, renewable energy, and employee retention.
When it comes to enforcement, the IRS frequently targets those who design and promote these schemes. The Service has established an Office of Promoter Investigations focused exclusively on detecting and deterring abusive tax promoters, enablers, and tax return preparers.
In addition to investigating tax underpayments, the IRS also has the authority to penalize taxpayers for failing to file a Report of Foreign Bank and Financial Accounts (FBAR). Under the Bank Secrecy Act, U.S. citizens, residents, corporations and other entities must file FBAR reports if they have a financial interest in or authority over one or more foreign financial accounts whose aggregate value exceeds $10,000 at any time during the calendar year. The penalties for failing to file can be substantial. For willful violations, the penalty can reach up to the higher of $100,000 or 50% of the account balances that the person fails to report. In egregious cases, the Department of Justice can also criminally prosecute the failure to file FBAR reports.
The IRS relies heavily on whistleblowers to shut down these tax schemes. From the outside looking in, it is often impossible to tell when a company is hiding assets overseas or failing to report significant income. As a result, insiders play a critical role in alerting the IRS to otherwise undetectable frauds. But whistleblowers do not have to be insiders. Tax-shelter promoters constantly recruit new taxpayers, and those innocent taxpayers can report the schemes to the IRS. And sometimes, tax experts can detect tax evasion through complex analysis. Whether insider or outsider, whistleblowers play an indispensable role in helping the IRS collect hundreds of millions of dollars in unpaid taxes each year.
Who can be an IRS whistleblower?
Almost anyone with information about a violation of the laws and regulations enforced by the IRS can file a whistleblower tip. You do not need to be an employee of the company engaging in misconduct to qualify as a whistleblower. Read more about the specific requirements of the IRS Whistleblower Program on our IRS Whistleblower Program FAQ page.
How does the IRS protect whistleblowers?
The IRS is generally required to maintain the confidentiality of whistleblowers, and in the vast majority of cases, the IRS keeps the identity of the whistleblower confidential throughout its investigation. The IRS Whistleblower Program also protects whistleblowers from employer retaliation, including firing, demoting, suspending, threatening, harassing, or discriminating against whistleblowers. Whistleblowers who are retaliated against may sue for reinstatement, back pay, and other damages. These protections apply whether or not a whistleblower receives an award, as long as the whistleblower had a reasonable belief that a violation of the tax laws occurred.
Representative cases
$8 Billion Ponzi Scheme - We represent Charlie Rawl and another whistleblower who together exposed one of the largest Ponzi schemes in history, engineered by Allen Stanford. The scheme caused $8 billion in losses to investors, which the government continues to collect. The IRS has recognized our clients are entitled to a reward for their role in revealing the massive fraud, though the final amount has not yet been determined.
These descriptions of federal tax frauds are general in nature and do not constitute legal advice. Tax frauds are complex and ever-evolving. The attorneys at Whistleblower Partners understand the complicated, constantly changing legal landscape and are happy to discuss any potential matter further.
If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.