Whistleblowers could cash in for speaking up

WASHINGTON — Suspect your company’s cheating the IRS out of millions in taxes?

Pass along the inside information to the Internal Revenue Service and you stand to collect up to 30 percent of taxes and penalties recovered under whistleblower legislation aimed at snaring high-dollar tax cheats.

The proposed IRS Whistleblower Office is designed to give tax agents an inside advantage when fighting complicated, often invisible tax shelters developed for and used by wealthy taxpayers and corporations.

It would go after individuals and corporations with more than $200,000 in income who use shelters that hide $20,000 or more.

Informants who blow the whistle on tax evasion stand to win 15 percent to 30 percent of the recovered taxes and penalties if they contribute substantially to the case. Those who make less substantial contributions can win up to 10 percent of recovered money.

The chairman of the Senate Finance Committee, Charles Grassley, R-Iowa, modeled the office after the False Claims Act, which lets people file lawsuits against companies and individuals that defraud the government in arenas other than tax.

The Justice Department reported that lawsuits filed under the False Claims Act recovered $1.5 billion in 2003. Whistleblowers were granted $319 million in rewards. More than $12 billion has been recovered since Congress strengthened the law in 1986.

“Taking advantage of whistleblowers 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.

The IRS currently has a fraud hot line and its own criminal investigation unit. Informants can apply for rewards when taxes are recovered based on their tips, but critics say the program has too many obstacles to lure many informants.

In 2003, the IRS paid out $4 million to informants who helped the IRS pursue 190 cases, which together recouped more than $61 million in taxes owed. IRS statistics show that the agency has paid an average of 2.74 percent of recovered taxes as rewards to informants since 1967.

James Moorman, president and chief executive of Taxpayers Against Fraud, said the better the reward, the more people come in with tips. His organization educates the public and supports whistleblowers who sue under the False Claims Act.

Moorman said he did an unofficial survey of fraud attorneys about the need for a tax informants’ program.

“These people think that this whistle-blower office, if properly implemented by the IRS, would be bigger than the False Claims Act,” he said.

Moorman said the current IRS system suffers because it disqualifies people from getting awards if they have participated in tax evasion or prepared the suspect tax returns. That eliminates from becoming useful whistleblowers people who are either drawn into tax fraud reluctantly or unknowingly or who have a change of heart.