Late on November 16th, the Senate Finance Committee voted to approve its iteration of the Tax Cuts and Jobs Act, passing the measure on a party-line 14-12 vote.  The full version can be found here.  Of particular interest to our readers here is one of the amendments that was added to this in committee.  Senator Grassley submitted a number of amendments to this bill including an amendment that:

modifies section 7623 to define collected proceeds eligible for awards to include: (1) penalties, interest, additions to tax, and additional amounts, and (2) any proceeds under enforcement programs that the Treasury has delegated to the IRS the authority to administer, enforce, or investigate, including criminal fines and civil forfeitures, and violations of reporting requirements.  This definition would also be used to determine eligibility for the enhanced reward program under which proceeds and additional amounts in dispute exceed $2,000,000.  Collected proceeds amounts would be determined without regard to whether such proceeds are available to the Secretary. 

This is the latest step by Senator Grassley to ensure that the IRS Whistleblower Program is administered as he intended when he initially drafted and stewarded the 2006 amendments to section 7623 through Congress.  Senator Grassley has consistently stated that this has been his understanding of the term and the intent of Congress in enacting the amendments to section 7623(b).  In fact, Senator Grassley has gone so far as to file an amicus brief in the appeal of Whistleblower 21276-13W v. Commissioner, in which he makes the case that at the time of the 2006 amendments the term collected proceeds was used broadly and the IRS had been interpreting the base on which it could pay award broadly and the amendments sought to further broaden the amounts on which an award could be paid, not restrict the payments.

The mark up made it out of committee, but there is not guarantee that the Senate will pass the bill, as written or at all.  Then it will have to go to conference due to differences with the version from the House.  So stay tuned because there is a LONG way to go before the law actually changes.  

Caroline Ciraolo, Principle Deputy Assistant Attorney General, Department of Justice Tax Division, made clear the importance of whistleblower counsel while speaking at the American Bar Association’s National Institute on Criminal Tax Fraud and Institute on Tax Controversy in Las Vegas.  Ms. Ciraolo discussed her announcement earlier this year that the Tax Division would be interested in receiving information from whistleblower’s counsel about mandatory award claims under section 7623(b) that have been submitted to the IRS Whistleblower Office if the claim involves a criminal tax matter.  Ms. Ciraolo cautioned that before bringing information to the Department of Justice that whistleblowers and their counsel should have serious discussions if the whistleblower participated in the reported conduct. 

It is important for whistleblowers to fully understand any consequences that they may have prior to providing information to the IRS, be it liability for additional taxes or potential criminal liability for certain actions.  As everyone’s situation is different this is something that should be discussed with an attorney prior to providing information to the government.

Ms. Ciraolo noted that the Tax Division will not be paying a separate award, nor will it be opening its own whistleblower office.  However, the channels that are used to submit information about civil tax underpayments to the IRS can still be used for criminal tax matters.

The Tax Court’s opinion in Whistleblower 21276-13W v. Commissioner, 147 T.C. No. 4 (2016), was a clear and decisive win for whistleblowers.  The IRS has long been improperly trying to limit what should be included in “collected proceeds” and today’s opinion restores Congress’s intention that all proceeds that are collected be included in the amount on which the whistleblower’s award is computed.  By specifically including criminal fines and forfeitures in the collected proceeds amount, this court decision means that a whistleblowers’ award will reflect the full amount that the government collected based on their information.  In this opinion, the Tax Court examined the definition of “collected proceeds” as used in section 7623(b)(1).  The court found that the language of that

Section 7623(b)(1) is straightforward and written in expansive terms, namely, where, using information provided by the whistleblower, the Secretary proceeds with an administrative or judicial action regarding underpayments of tax or any action regarding the violation or, or conniving to violate, the internal revenue laws, the whistleblower is entitled to an award based on a percentage of the collected proceeds resulting from the Secretary’s action (as well as any related actions) or from any settlement in response to such action.

The court refused to follow Respondent’s request to narrow the definition of collected proceeds.  The court stated:

We are leery of arbitrarily limiting the meaning of an expansive and general term such as “collected proceeds”. In drafting section 7623(b)(1), Congress could have provided that the whistleblower’s award is to based on taxes and other amounts assessed and collected by the IRS under title 26. But it did not.

The court explained that this case is not in conflict with Whistleblower 22716-13W v. Commissioner, which had ruled that FBAR penalties were not to be included in the $2 million threshold amount used to determine if section 7623(b) applied.  The court here stated that:

In reaching our holding today, we determined that the wording in the threshold requirement of section 7623(b)(5)(B) … is different from that of section 7623(b)(1), which provides for an award of a percentage of the collected proceeds …

The Tax Court held that the phrase “collected proceeds” is sweeping in scope and is not limited to amounts assessed and collected under Title 26 of the United States Code.  The Tax Court goes on to hold that criminal fines under Title 18 as well as civil forfeitures under Title 31 are both collected proceeds under section 7623(b)(1).

The Tax Court released Whistleblower 21276-13W v. Commissioner of Internal Revenue, 144 T.C. No. 15 today.  While this decision is positive news for some whistleblowers, it is also a reminder of the importance of following best practices when filing a whistleblower case.

The facts of this case are interesting and a read of the full opinion is definitely worth the time, if you are so inclined.  This case arises from the rejection of Husband and Wife’s Forms 211.  Husband had provided information to Government agents, including IRS agents, that a foreign business, referred to as “Targeted Business,” was assisting United States taxpayers in evading Federal income taxes in order to reduce his punishment after Husband was arrested for taking part in a conspiracy to launder money.  Husband did not have the necessary documents, but he knew someone who did.  As the individual with the necessary documents was outside of the United States, Husband and Wife induced the individual to return to the United States.  Upon entering the United States, the individual was arrested.  While in custody, the individual agreed to assist in the Government proceeding against Target Business.  When the individual was released from custody and tried to back out of his agreement, Husband convinced him to follow through.  In part because of that individual’s assistance the Target Business was indicted, pleaded guilty, and ultimately paid the United States approximately $74 million.  However, the IRS Whistleblower Office rejected their Forms 211 because they were not received until after the payment was made by Target Business. 

The Court limited its opinion to whether petitioners are required, as a matter of law, to file Forms 211 with the Whistleblower Office before providing information to the IRS to qualify for an award under section 7623(b).  The Court held they do not.  The Court stated that the statutory text makes clear “that the Whistleblower Office is charged with being the central office for investigating the legitimacy of a whistleblower’s award claim, not necessarily the underlying tax issue.”  The Court looked to the Form 211 itself, which requests information about who the whistleblower first reported the violation to. 

While this case provides good news for whistleblowers who have provided or will provide information directly to the operating divisions of the IRS, we continue to believe that the best way to preserve your award eligibility and to ensure that the information provided to the IRS is given full and complete consideration while is to provide the IRS Whistleblower Office your information as early in the process as practicable, concurrently with an operating division if necessary, and to submit a Form 211 at that time.

Tax shelters are an on-going battle for the IRS and the Department of Justice with large amounts of money at stake for the government, the taxpayer, and possibly for a knowledgeable whistleblower.  Tax shelter cases involve schemes that attempt to manipulate internal revenue laws in order to reduce participants tax liability and are typically marketed to a large number of taxpayers.  Tax shelters tend to involve unnecessarily complicated transactions so that the transaction appears to fit the technical requirements of a beneficial rule, but clearly lack the economic substance.  In these cases, a knowledgeable whistleblower could provide the IRS with information about the scheme allowing the IRS to engage in a promoter audit that would allow the IRS to audit and assess tax, interest, and penalties against the taxpayers that used the tax shelter and the promoter that sold or promoted the tax shelter.  The assistance of a whistleblower in a tax shelter transaction could reduce the time that it takes the IRS to discover and ultimately assess tax on the improperly sheltered income.

For example, Paul M. Daugerdas, a former partner at Jenkens & Gilcrest, was convicted for his role in a tax shelter scheme in which he and his co-conspirators designed, marketed, and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the IRS from 1994 to 2004.  Over the course of a decade, the scheme generated over $7 billion of fraudulent tax losses and netted Daugerdas approximately $95 million in fees. 

Internal Revenue Service, Criminal Investigation Chief Richard Weber described the conviction saying: “Mr. Daugerdas’s use of convoluted mechanisms to conceal income from the IRS is criminal activity.  He designed and marketed tax shelters making him $95 million in illegal profits from the ten-year scheme.  Taxpayers deserve our vigilance in making sure everyone pays their fair share of tax.”  However, the jury acquitted Denis Field, the former CEO of BDO Seidman, on seven counts against him including conspiracy and tax evasion.

According to the Department of Justice, Daugerdas participated in a scheme to defraud the IRS by designing, marketing, implementing, and defending fraudulent tax shelters between 1994 and 2004.  As part of this scheme, Daugerdas and others undertook to prevent the IRS from: (i) detecting their clients’ use of these shelters; (ii) understanding how the transactions operated to produce the tax results reported by the clients; (iii) learning that the shelters were marketed as cookie-cutter products designed to eliminate or reduce large tax liabilities; (iv) learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and (v) learning that, from the outset, all the clients intended to complete a pre-planned series of steps that had been designed to lead to the specific tax benefits sought by the clients. Daugerdas and others created, and assisted in creating, transactional documents and other materials that falsely and fraudulently described their clients’ motivations for entering into the tax shelters and for taking various steps in order to yield the tax benefits.  As a result of the scheme, the defendant and his co-conspirators made millions of dollars in fees and bonuses.  Specifically, Daugerdas made $95 million in profits but used tax shelters to reduce the taxes he paid to less than $8,000; without the shelters, he would have owed over $32 million in taxes.

In addition to Daugerdas and Field, five others were indicted for their roles in this scheme, including David Parse and Donna Guerin.  David Parse, a former broker at Deutsche Bank was convicted of various tax fraud charges in May, 2011 after an 11-week jury trial, and was sentenced in March, 2013 to 46 months in prison.  Donna Guerin, a former lawyer at J&G’s Chicago tax practice pled guilty for her role in the scheme to various tax fraud charges in September, 2012.  She was sentenced in March, 2013 to eight years in prison and ordered to pay $190 million in restitution.  

Proposed Treasury Regulations for the IRS whistleblower program were released on December 14, 2012.  These regulations cover many issues and deserve a complete reading; however, below is a short outline of what each section of the proposed regulations covers.

§301.6103(h)(4)-1, Disclosure of returns and return information in whistleblower administrative proceedings.

This section of the proposed regulations establishes that that a whistleblower administrative proceeding (as described in §301.7623-3) is an administrative proceeding pertaining to tax administration within the meaning of section 6103(h)(4).  Therefore, the Director, officers, and employees of the Whistleblower Office may disclose returns and return information (as defined in section 6103(b)) to the whistleblower (or the whistleblower’s legal representative) to the extent necessary to conduct a whistleblower administrative proceeding.

§301.7623-1, General rules, submitting information on underpayments of tax or violations of the internal revenue laws, and filing claims for award.

This section of the proposed regulations provides the general rules for submitting information and filing claims for an award.  This is the “who, what, when, where, and how” of submitting a claim for an award.  A whistleblower must follow these rules to ensure that their claim for an award is appropriately filed to ensure that the IRS Whistleblower Office will consider their claim for an award.  The proposed regulations in section 301.7623-1(e) states that the IRS will use its best efforts to protect the identity of whistleblowers.

§301.7623-2, Definitions

This section of the proposed regulation defines key terms used in the statute and the regulations.  The proposed regulations build on definitions in the current regulations and define additional key terms for section 7623.  These definitions will affect how the IRS Whistleblower Office interprets section 7623 and ultimately will makes award determinations based on these definitions.  How “proceed based on,” “related action,” and “collected proceeds” are defined will greatly influence the number of awards issued and the amount of those awards. 

Particular attention should be paid to the definition of “proceed based on” and “collected proceeds.”  The definition of “proceed based on” in the proposed regulations seems to be reading the word “only” into the statute and requiring that the IRS take action that it would not have taken but for the information provided to be award eligible.  This reading goes beyond the language of section 7623, which simply requires that the IRS use the whistleblower’s information in an administrative or judicial action in order for the whistleblower to be able to collect an award.  The proposed regulations appear to assume that the IRS would discover an issue simply because the issue was listed generally in an audit plan.  Hopefully, this narrowing of the statute will be addressed in the final regulations after hearing comments from the public.  Either way, we are confident that this regulatory expansion would not survive judicial review.

The definition of “collected proceeds” continues to be an area that should be focused on.  The proposed regulations continue to claim that criminal fines are not part of collected proceeds; however, as discussed at length on this blog and elsewhere, this position goes against the language of the statute and the intent of Congress.  The definition of collected proceeds also touches on the inclusion of tax attributes in collected proceeds.  The preamble to the regulations goes into more detail illustrating that tax attributes that are used as of the date that the award computation is made will be counted as collected proceeds.  There does not appear to be a clear legal theory behind this cut off, but our discussions with various IRS personnel suggests this is an administrative compromise.

§301.7623-3, Whistleblower administrative proceedings and appeal of award determinations.

This section provides outlines of the administrative proceedings and appeal rights for award determinations.  The largest changes here are the creation of administrative proceedings for cases that do not meet the requirements of section 7623(b) (under §301.7623-3(b)) and claims that are denied (under §301.7623-3(c)(7)).  The creation of the administrative procedures for denied cases is likely to reduce the number of whistleblower cases filed in the United States Tax Court that are ultimately dismissed because the IRS did not use the information, did not detect an underpayment of tax based on the information, or collect proceeds based on the information.  The proposed regulations states that, “The Whistleblower Office will send to the claimant a preliminary denial letter that states the basis for the denial of the claim.”  §301.7623-3(c)(7).  This letter and administrative proceeding should provide claimants with a sense of closure as to what happened with the information that was provided. 

§301.7623-4, Amount and payment of award.

This section outlines the procedures that the Whistleblower Office uses to determine the award amount, including what factors are considered in determining the award percentage, what happens when there are multiple independent claimants, and when payment of an award is made.  In particular whistleblowers will want to look at §301.7623-4(c)(3), which discusses the Whistleblower Office’s application of “planned and initiated” for purposes of reduction or denial of an award.  If the Whistleblower Office determines that a claim for award is brought by an individual who planned and initiated the actions, transaction, or events that led to the underpayment of tax, the Whistleblower Office may appropriately reduce the amount of the award percentage that would otherwise result under section 7623.  Section 301.7623-4(c)(3)(ii) of the proposed regulations states when the IRS Whistleblower office is determining whether a whistleblower planned or initiated the scheme that the IRS Whistleblower Office will look at whether the individual “(A) Designed, structured, drafted, arranges, formed the plan leading to, or otherwise planned, an underlying act, (B) Took steps to start, introduce, originate, set into motion, promote or otherwise initiate an underlying act, and (C) Knew or had reason to know that there were tax implications to planning and initiating the underlying act.” 

Tax Analysts recently released a Chief Counsel Memorandum dated April 23, 2012, stating that the IRS cannot pay a section 7623(b) award on recoveries from the failure to report a foreign bank account commonly referred to as “FBAR” penalties.  While we believe Chief Counsel has this one wrong on the law and we will vigorously challenge any award determination for our clients that fails to account for FBAR collections in the collected proceeds base, the memorandum is a validation of the approach we have been taking from day 1 of our practice. 

A submission to the IRS Whistleblower Office should be about putting strong information forward with a full analysis of the law and suggestions for the best strategic manner for audit and collection.  We follow this concept in every submission we make.  Information that an individual has an un-reported offshore account should put you at the very beginning of your inquiry, not its conclusion.  WHY does the individual have an offshore account and HOW did she get it there?  There is a big difference between the grandpa taking several million “post-tax” dollars and stuffing them into a Swiss account hoping to eventually evade estate taxes and a U.S. business owner funneling “pre-tax” dollars offshore by taking fake deductions for costs charged by foreign companies that are ultimately owned by her.  The first case is primarily a failure to report FBAR case and we have consistently declined to represent whistleblowers who only have information about violations of Title 31.  The second case, however, is a great case for the IRS Whistleblower Program.  When people take pre-tax dollars and shift them offshore the highest and best case is the evasion of federal income taxes (a violation of Title 26 and 18) before those dollars even touched St. Somewhere.  Our first part of the submission would be about denying the deductions taken by the legitimate U.S. business.  The next part would involve attributing dividend income to the shareholder or through the unreported income of the CFCs.  After that is all said and done, then, and only then, would we go into possible reporting violations including FBAR.

Admittedly Oversimplified Crib Sheet

Title 18

Crimes and Criminal Procedure

Title 26

Internal Revenue Code

Title 31

Money and Financial Law, including the Bank Secrecy Act

 

Having just said that an un-reported offshore account case should not just be about FBAR violations, we still believe that FBAR collections do in fact fall under the mandatory award of section 7623(b).  Chief Counsel states four legs of its argument that FBAR collections are not award eligible; 1.) Section 7623 only allows an award on violations of Title 26 of the Federal Code; 2.) Section 7623(b) defines collected proceeds as only those proceeds collected under Title 26; 3.) FBAR collections, like criminal fines and penalties, are not available to the IRS and therefore cannot be used to pay an award; and 4.) Because there is already an informant award program for FBAR violations, those collections cannot also be eligible for a section 7623 award.  Each of these reasons are legally deficient and should not withstand judicial scrutiny.

We do not intend to post a hypothetical brief in opposition within a blog posting but will share a couple points.  With respect to the first two points of Chief Counsel we note that every authority cited by Chief Counsel notes that the internal revenue laws are classified GENERALLY to Title 26.  This qualification speaks volumes.  If the internal revenue laws are generally in Title 26 they must then sometimes be found outside of Title 26.  Even the I.R.M. provision cited by Chief Counsel notes that Title 26 contains “most” of the Federal tax law.  Not to dicker, but MOST does not mean ALL. 

As to the availability argument we do not know what to tell Chief Counsel other than reread the statute.  Section 7623 states that proceeds “SHALL be available,” for payments.  Our emphasis is placed on a different word than Chief Counsel’s – shall.  It does not matter where the money goes, Treasury’s General Fund, the Crime Victims Fund, or a lock-box on Commissioner Shulman’s desk.  Congress made the collections explicitly available.  Were that not the case, the statue would say “except Crime Victims Fund, etc.”  This fundamental tenant of statutory construction will be easily handled the first time the IRS is challenged on these grounds as we have stated about criminal fines all along.

Chief Counsel makes an interesting argument that because there is an informant reward program under Title 31 that preempts the award under section 7623(b).  The lean rationale is that section 7623(a) authorizes the Secretary of the Treasury to pay such sums as he deems necessary in cases where such expenses are not otherwise provided for by law.  Because those expenses are “otherwise provided for” under Title 31 the Secretary cannot pay the expense of a section 7623(b) award.  First and foremost, section 7623(b) does not say an award shall be paid only if there is no other reward program applicable.  Section 7623(b) requires the Secretary to pay an award of between 15 and 30 percent of the collected proceeds.  An example may help show the shortcoming of Chief Counsel’s position.  Let us assume that Whistleblower would be eligible for a mandatory award of $10-$20 million under section 7623(b).  Section 7623(a) states that the amount payable shall be paid from the proceeds of amounts collected where not otherwise provided for by law.  Title 31 has a $150,000 maximum award.  At best, Chief Counsel’s argument suggests that our hypothetical whistleblower should be paid $9.85-$19.85 million under section 7623(b).  That is the amount due that is not otherwise provided for by law.

We could go into greater detail on each argument and will do so if and when the time comes.  In the meantime we strongly urge those with information about offshore accounts to seek the advice of qualified tax attorneys before making a section 7623 submission to the IRS.  An FBAR only submission is inherently weak and probably already gobbled up in list disclosures.  Offshore accounts linked to other tax non-compliance are far more likely to be undisclosed by third-parties or through the Voluntary Offshore Disclosure Program

We get questions all the time about situations that appear to involve tax fraud, but often it is unclear to the person asking the question exactly what activities rise to the level of tax fraud or tax evasion.  So here’s a short primer on what tax fraud and tax evasion really mean. 

 

What is Tax Fraud?

 

Tax fraud is a general term which can trigger many different laws found in Title 26 (the Internal Revenue Code) and Title 18 of the United States Code (or “USC”).  The core distinguishing feature of tax fraud is a taxpayer’s intent to defraud the government by not paying taxes that he knows are lawfully due.  Tax fraud can be punishable by both civil (i.e. money) and criminal (i.e. jail time and money) penalties, with the civil violations primarily in Title 26 and the criminal violations principally in Title 18, respectively, of the USC.  For example, a taxpayer can commit tax fraud and be punished with civil penalties under 26 USC § 6663, without being charged with criminal tax evasion.  

 

Tax fraud as a general matter is very difficult for the government to prove because they have the burden to show the court that the taxpayer has intentionally defrauded the government out of tax revenue.  Proving that a taxpayer knowingly violated the highly complicated Internal Revenue Code is a very difficult task, so the government often chooses to pursue the taxpayer civilly for simply underpaying tax, which does not require proving that the taxpayer intentionally underpaid their taxes.  As a practical matter, if the taxpayer has any reasonable legal argument for why they did not pay the tax due they will usually beat an allegation of fraud.

 

What is the difference between Tax Fraud and Tax Evasion? 

 

Tax evasion is a subset of tax fraud.  “Tax evasion” is typically used in the criminal context, as in someone who is charged with the crime of tax evasion in violation of 26 USC § 7201.  Tax evasion usually entails a deliberate act of misrepresentation of taxable income to the IRS.  Common examples of acts which could result in a charge of tax evasion are: not declaring all your income, deliberately overstating expenses or deductions, or failing to file tax returns when you have taxable income in an attempt to avoid detection.

In order for the government to prove that a taxpayer committed the crime of tax evasion, they must prove each of the following three elements of the law beyond a reasonable doubt:

1)  the tax deficiency (i.e. that there is an unpaid tax liability);

2)  the affirmative act constituting evasion or an attempt to evade either: the assessment of a tax, or the payment of a tax (and not merely an omission or failure to act); and

3)  the mental element of willfulness (i.e. that the taxpayer had the specific intent to violate a known legal duty to pay tax).

What are some of the penalties for Tax Fraud and Tax Evasion?

 

Title and Section

Definition

 

Title 26 USC § 7201

Attempt to evade or defeat tax

Any person who willfully attempts to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof:

  • Shall be imprisoned not more than 5 years
  • Or fined not more than $250,000 for individuals ($500,000 for corporations)
  • Or both, together with the costs of prosecution

Title 26 USC § 7202

Willful failure to collect or pay over tax

Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to penalties provide by the law, be guilty of a felony

  • Shall be imprisoned not more than 5 years
  • Or fined not more than $250,000 for individuals ($500,000 for corporations)
  • Or both , together with the costs of prosecution

Title 26 USC § 7203

Willful failure to file return, supply information, or pay tax

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof:

  • Shall be imprisoned not more than 1 years
  • Or fined not more than $100,000 for individuals ($200,000 for corporations)
  • Or both, together with cost of prosecution

Title 26 USC § 7206(1)

Fraud and false statements

Any Person who… (1) Declaration under penalties of perjury – Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; shall be guilty of a felony and, upon conviction thereof;

  • Shall be imprisoned not more than 3 years
  • Or fined not more than $250,000 for individuals ($500,000 for corporations)
  • Or both, together with cost of prosecution

Title 26 USC § 7206(2)

Fraud and false statements

Any person who…(2) Aid or assistance – Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; shall be guilty of a felony and, upon conviction thereof:

  • Shall be imprisoned not more than 3 years
  • Or fined not more than $250,000 for individuals ($500,000 for corporations)
  • Or both, together with cost of prosecution

Title 26 USC § 7212(A)

Attempts to interfere with administration of Internal Revenue laws

Whoever corruptly or by force endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, upon conviction:

  • Shall be imprisoned not more than 3 years
  • Or fined not more than $250,000 for individuals ($500,000 for corporations)
  • Or both

Title 18 USC § 371

Conspiracy to commit offense or to defraud the United States

  
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each:

  • Shall be imprisoned not more than 5 years
  • Or fined not more than $250,000 for individuals ($500,000 for corporations)
  • Or both

This is not an all inclusive list of the tax fraud and tax evasion sections of the USC, and often the government will go after a taxpayer for multiple violations at the same time.

You don’t need to have evidence of Tax Fraud

 

The IRS Whistleblower Program applies to more than just cases involving tax evasion and tax fraud.  Pursuant to 18 USC § 7623, the IRS can pay an award for information about ANY underpayment of tax.  It does not matter if the underpayment is due to evasion, fraud, an aggressive or negligent application of the law, or even an innocent mathematical error or mistake.  Your tax lawyer can maximize your award determination by helping the IRS determine the where/when/why of a tax underpayment and how they can prove it.  Do not limit yourself to thinking that you can claim a reward only if it relates to “Tax Evasion and Tax Fraud.”  Consult with an IRS Whistleblower Attorney to help determine specifically what violations of law your information relates to.

Congratulations to our associate, Erica Brady, for the publishing of her article, Does Tax Crime Pay (Whistleblowers)?, in the February 2012 edition of TAXES–The Tax Magazine published by CCH. She has previously blogged about criminal fines as tax whistleblower proceeds, and also had another article published by the American Bar Association on this topic.