New law rewards whistleblowers up to 30 percent of recovery for information about tax fraud

Dec. 22, 2006 -- Private citizens who know of federal tax fraud or tax underpayments by a company or an individual may now be eligible for a reward of up to 30 percent of what the Internal Revenue Service collects as a result of their information about tax fraud.

The reward provision under the new tax fraud whistleblower law applies to informants who provide information about tax fraud or tax underpayments by a company or an individual, but the individual tax cheat’s annual income has to exceed $200,000. To qualify for the reward, the whistleblower would have to provide information about tax fraud that exceeds $2 million, includes taxes, penalties and interest.

Phillips & Cohen LLP represented a secret tax fraud informant, referred to as “Mr. ABC,” whose testimony before the Senate Finance Committee in 2004 helped convince Congress of the need for a law that would increase the existing reward for whistleblowers to encourage whistleblowers to report tax fraud. Mr. ABC, who worked for a Wall Street investment bank, blew the whistle on tax shelters set up to cheat the federal government out of millions of dollars.

Mr. ABC testified that the IRS is “resistant to and suspicious of” informants. With the help of Phillips & Cohen attorneys, he received a reward for his information about the tax shelters fraud.

The new incentives "will give a lot of encouragement for people to step forward who otherwise wouldn't," attorney John Phillips of Phillips & Cohen said in a Wall Street Journal article about the new whistleblower law.

Attorney Erika Kelton of Phillips & Cohen, in an interview with “Marketplace” broadcast on National Pubic Radio, said the new tax fraud whistleblower law “should pay whistleblowers handsomely, too.” She noted that, “Under the new law they can take home up to 30 percent of what the government recovers. The law gives them ways to be sure they get their share, too. Chasing the government for payment has been a complaint.”

If you have information about tax fraud that exceeds $2 million, please contact Phillips & Cohen for a free consultation about how this new law might affect you.