Whistleblowers would get rewards for tax fraud recoveries under proposed legislation

June 19, 2004 -- The Internal Revenue Service would reward whistleblowers for reporting large cases of tax fraud under a bill that has passed the U.S. Senate and now is being considered by a Senate-House conference committee.

Sen. Chuck Grassley (R-Iowa), head of the Senate Finance Committee, modeled the tax fraud provisions of the proposed legislation after the qui tam (whistleblower) provisions of the False Claims Act.

Whistleblowers could report tax frauds that cost the Treasury $20,000 or more to a newly established IRS whistleblower office. The individuals and corporations committing the tax fraud would have to have income greater than $200,000.

If a recovery is obtained, the whistleblower could receive a reward of 10 percent to 30 percent of the recovered taxes and penalties. The amount of the whistleblower reward would depend upon the whistleblower’s contributions to the tax fraud case.

Whistleblower provisions similar to those in False Claims Act

The False Claims Act allows private citizens to sue individuals and companies defrauding the federal government and recover funds on the government’s behalf. But it doesn’t allow qui tam cases involving tax fraud.

“Taking advantage of whistleblowers has saved the taxpayers billions of dollars in defense and health care fraud,” Sen. Charles Grassley (R-IA) told the Associated Press (AP). “The potential is even greater with tax fraud, given the estimated hundreds of billions of dollars of taxes due that go uncollected each year.”

AP quoted Phillips & Cohen attorney Mary Louise Cohen of Washington, DC, in a June 18 story about the proposed tax fraud legislation:

“Mary Louise Cohen, who represents whistleblowers as a partner at Phillips & Cohen in Washington, DC, said people need the [reward] money for practical reasons. Many who come to her have tried to work within their jobs to end fraud, risked their careers and often were fired.

‘They have families and mortgages and kids who have to go to school,” she said. ‘They’re motivated by trying to correct situations that they see are wrong, but the money makes it possible for them to do that and still take care of themselves.’ ”