No one likes to pay taxes—no one. If they say they do, they’re probably crossing their fingers behind their back. I’m sure that’s no surprise to you. It’s also probably no surprise that certain strategies allowing some of us to avoid paying taxes make a lot of us mad.
However, what is known as tax avoidance is legal. Avoidance means using legal methods to structure your finances so that you pay a minimal amount of taxes, usually through deductions, credits, and sometimes rather arcane twists of tax law. If you use the mortgage deduction on Schedule A, you are practicing tax avoidance. You may not like the system, but the law—and Supreme Court decisions—say that all of us have the right to pay as little tax as possible, as long as the means are legal.
On the other hand, tax evasion, sometimes known as tax fraud, involves clearly illegal practices. Evasion is intentionally avoiding paying a tax liability through illegal means. Those caught evading taxes are usually charged with stiff penalties, as well as criminal charges that can include jail time.
Tax Fraud Affects All of Us
Tax evasion is rampant. Historically, the U.S. has a 17 percent noncompliance rate when it comes to paying all taxes owed (this figure includes both individuals and corporations). In other words, roughly 1 in 6 is not paying what they legitimately owe. In 2006, this noncompliance rate meant that approximately $450 billion in taxes were underpaid for just that year alone, according to the Treasury Inspector General for Tax Administration (TIGTA).
One of the faces of tax evasion is the individual who underreports (or doesn’t report) income, such as from selling things on the Internet or having a side business that involves being paid in cash. TIGTA estimates that such activity adds up to $63 billion of lost revenue in one year. Another face of tax evasion, according to TIGTA, is the wealthy individual or corporation who employs complex strategies such as illegal offshore tax shelters. Some estimates believe this problem alone amounts to $40 to $70 billion a year in lost tax revenue.
Anyone who isn’t paying what they truly owe places a burden on the rest of us. It’s not fair, it’s not right, and it’s not legal.
What a Whistleblower Needs to Know
A lot of cases that involve defrauding the government come under the False Claims Act. However, interestingly enough, federal tax fraud is not one of them. In 2006, the Internal Revenue Code was amended by Congress to provide greater financial incentives for individuals to report tax fraud. The compensation structure is, however, modeled on the False Claims Act, in that a whistleblower receives 15 to 30 percent of the total amount collected, including taxes, penalties, and interest. Also under the 2006 amendment, if a whistleblower is unhappy with their award, they can challenge the amount they received in Tax Court. >Before 2006, the IRS rarely paid awards, what rewards they paid were small, and the rewards were not appealable.
This 2006 legislation affects only those companies or individuals who have defrauded or underpaid the IRS by more than $2 million. The legislation also limits investigations of individuals to those people whose annual income is at least $200,000.
Be aware that, if you had a hand in initiating or planning the tax fraud you are reporting, the IRS has the option of reducing or outright denying a reward to you. The IRS may also reduce your reward if your allegations were previously disclosed. Note that’s only a “may,” not a “must.” But we caution you: You should always tell the truth. A whistleblower who had proof that his former employer, UBS AG, helped wealthy U.S. citizens hide money offshore tried to conceal his own part in the fraud, and was prosecuted with felony charges for hiding it. The lesson is, if you tell the truth, often you can get the protections you need. By the way, the U.S. government netted $780 million from UBS AG in this particular tax fraud case.
One final thing that’s important to know: The 2006 legislation requires the IRS to protect the whistleblower’s identity.
What You Need to Know About IRS Fraud-Reporting Guidelines
The Internal Revenue System has some fairly stiff requirements for taking on a case of tax evasion reported by individuals. In general, they need documentation of one or more of the following situations:
- False exemptions
- False deductions
- False or altered documentation
- Unreported income
- Failure to pay taxes
- Failure to withhold
- Organized crime.
However, you should know that turning in a tax cheat can be difficult and long-term, with little guarantee of reward. The IRS requires conclusive evidence of fraud: names, dates, paperwork. Experts believe that most of the more than 14,000 submissions in 2014 were rejected by the IRS and subsequently not investigated.
Realize that you likely have a long, hard road ahead of you. The process, from start to finish, usually takes several years. To earn an award, tax money must be collected as a result of an audit or investigation. The taxpayer’s rights to an appeal must be expired, and nothing is paid to the whistleblower until all money is collected. If you believe you have evidence of tax evasion, it can be useful to have experienced legal help on your side to assist you in jumping through the many hoops required to convince the IRS to bring a case. An IRS Whistleblower Attorney at Louthian Law can help.
80 Years of Experience—On Your Side
If you have knowledge about tax fraud of any kind and your case is valid, an experienced whistleblower attorney like the ones at the Louthian Law Firmcan assess your case and help you file the necessary disclosure statement with the government. In some instances, the government will intervene (take part in your lawsuit). A qualified attorney can help you structure your claims in such a way that the government will be persuaded to intervene, possibly increasing the likelihood that you will recover reward money. However, even if governmental parties decide not to intervene, it might still be advisable to pursue your case without their involvement.
For a free, confidential evaluation of your case, call the Louthian Law Firm today at (803) 454-1200 or fill out the online consultation form. Louthian Law Firm. Justice. Delivered.