Employees Encouraged To Report Tax Crimes Under New Whistle-Blower Proposals

by Mike Godfrey, Tax-News.com, Washington

22 June 2004

New ‘whistle-blower’ legislation that will encourage employees to inform the Internal Revenue Service if they suspect that their firm is engaged in illegal tax sheltering activities has been proposed as part of the Senate corporate tax bill, passed last month.

According to reports, the proposed Whistle-Blower Office will pursue individuals or companies that have more than $200,000 in income which are using questionable tax arrangements to shelter $20,000 or more.

Under the scheme, employees who blow the whistle on their employers stand to receive between 15% and 30% of the recovered tax if the information they supply to IRS prosecutors leads to a successful conviction, whilst those who supply less substantial evidence may receive up to 10%.

The new office has been modelled by Charles Grassley, the Chairman of the tax writing Senate Finance Committee, along the lines of the False Claims Act, which allows prosecutions to be brought against firms that are suspected of defrauding the government in other non-tax areas.

The Act is said to have recovered $1.5 billion last year, of which $319 million was awarded to whistle blowers.

"Taking advantage of whistle-blowers has saved the taxpayers billions of dollars in defense and health care fraud. The potential is even greater with tax fraud, given the estimated hundreds of billions of dollars of taxes due that go uncollected each year," Grassley said according to an AP report.

The current IRS fraud hotline also allows informants to apply for rewards from recovered tax, although it paid out just $4 million last year, and has been criticised for its complex application process.

The Whistle-Blower Office proposal has been included in the Senate version of the corporate tax bill that will replace FSC-ETI legislation. However, it is not included in the recently passed House version.

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