Fighting for Tax Whistleblowers:
Kirby McInerney represents clients in tax whistleblower matters before the IRS and under state False Claims Acts that provide for tax qui tam cases.
The IRS Whistleblower Program & State Tax False Claims Act Cases
The IRS program relates to any violation of federal tax laws, whether it was done fraudulently or by mistake.
A small and growing number of states allow for whistleblower tax claims under their state False Claims Acts. These include New York, Washington DC, Illinois, Indiana, Rhode Island, Delaware, Hawaii, Nevada, and New Hampshire. Claims under these programs are about knowing violations of state, and in some instances local, taxes.
Kirby McInerney has one of the most active tax whistleblower practices in the nation. Our team has represented whistleblowers in several groundbreaking cases, including the largest income tax settlement ($105 million) under the New York False Claims Act and the largest settlement in a tax case that was declined by the government and pursued in post-declination litigation.
Kirby McInerney’s Tax Whistleblower Practice
Our team includes Randall Fox, who before joining the firm was the founding Bureau Chief of New York’s Taxpayer Protection Bureau, which handles tax whistleblower claims under New York’s highly successful program.
About the Tax Whistleblower Programs
Who Can Be a Tax Whistleblower?The best tax whistleblowers have reliable information about clear tax law violations. They can be company insiders or outsiders, or high-level or junior employees. What matters most is that they have a window into non-public, credible information about the violations and are able to report it.
It depends on the program. The IRS program for federal taxes welcomes whistleblowers who have information about any federal tax violations, regardless of whether they are fraudulent violations. When a whistleblower reports on a violation, it is most important to lay out the facts showing what was violated and how.
Must the Tax Violations Be Fraudulent?
The state False Claims Act programs are only about knowing tax violations at the state and, sometimes, local level. Knowing violations are ones where the misconduct was done with either actual knowledge, reckless disregard of the truth, or deliberate ignorance of the truth. Unlike the IRS program, where the IRS seeks to recover the amount of taxes underpaid plus penalties and interest, the False Claims Acts provide for recoveries of three times the damages from the knowingly false misconduct.
Making a claim about federal tax law violations in the IRS whistleblower program requires submitting materials to the IRS’ Whistleblower Office. Those materials should lay out all of the information the whistleblower has about the violations and any related information the whistleblower may know that would be useful to the IRS auditors in investigating the claims.
Blowing the Whistle on Federal Tax Violations
For the states that allow tax qui tams, the cases are started by filing a lawsuit against the defendant under the state’s False Claims Act. The lawsuits are filed under seal, which means that initially they are not disclosed to the defendant and are not made public. Instead, the case is disclosed to the state Attorney General who can investigate the claims and decide whether to pursue or decline them. The whistleblower should spell out for the government all of the relevant facts and information that supports the claim of knowing tax violations.
Blowing the Whistle on Knowing State or Local Tax Violations
There is good reason for tax whistleblowers to act quickly as soon as they learn about tax violations.
Tax Whistleblowers Should Act Quickly
For the IRS program, a whistleblower submission does not stop the running of the statute of limitations, which is typically 3 years. The sooner a whistleblower can submit information, the sooner the IRS can evaluate the claim and act to stop the limitations period. In addition, if there are multiple whistleblowers, the first one to submit a claim may have an advantage.
For the state tax qui tam programs, there is generally a first-to-file rule, where the first whistleblower to file a claim may have a significant advantage over any later-filed claims. Unlike the IRS program, however, the filing of the case generally stops the statute of limitations period from running.
When their claims are successful, tax whistleblowers can receive a percentage of the government’s recovery.
Awards for Tax Whistleblowers
The IRS has discretion about whether to give awards when it recovers less than $2 million in the matter, and it must award a whistleblower in most instances when it recovers $2 million or more. The whistleblower awards are between 15% and 30% of the proceeds the IRS collects.
The state False Claims Act awards to whistleblowers are generally between 15% to 25% where the government intervenes in (or takes over) the case, and between 25% and 30% where the government declines the case and the whistleblower takes it forward to a successful resolution.
The IRS and False Claims Act programs provide for different levels of confidentiality for whistleblowers. The IRS program promises to protect the identity of the whistleblower to the fullest extent of the law, but there remain some limited circumstances where the identity may be disclosed. The whistleblower must disclose his or her identity to the IRS.
Confidentiality for Tax Whistleblowers
Under the False Claims Act, there is no guaranty that the whistleblower can remain anonymous. The cases are initially filed under seal and not shared with the defendants, but the identity of the whistleblower might be disclosed later in the case.