Articles Tagged with IRS whistleblower

The IRS pays awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer. The IRS looks for solid information, not guesses or speculation.

If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court. These rules are found at Internal Revenue Code IRC Section 7623(b) – Whistleblower Rules.

An IRS tax whistleblower claim is independent of other whistleblower claims. Reporting an SEC claim, for example, will not cause the IRS to investigate the tax issues of the company. Likewise, filing a federal or state False Claims Act qui tam action is a separate process from filing an IRS tax whistleblower claim.  Sometimes, for example, where a company is publicly traded and violates tax laws, there may also be a potential claim to file before the Securities and Exchange Commission.

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According to a company filing, the Internal Revenue Service says that Caterpillar Inc. owes the United States Government back taxes and penalties in the amount of about $2.3 billion.  Caterpillar does not agree and says it will continue to vigorously oppose the IRS position. The tax liabilities stem from Caterpillar’s offshore tax strategy and has been steadily increasing while the IRS completes audits of the company’s income tax filings dating back to 2007,  some issues carrying back to 2005. The offshore tax which Caterpillar started in 2000 uses a comprehensive accounting of its structure which was first revealed by a Caterpillar tax specialist who became a whistleblower claiming that the company retaliated against him for insisting the tax strategy had problems. A U.S. Senate subcommittee investigation that labeled the tax maneuver an abusive corporate tax shelter.

The tax strategy involved the company’s  parts business and a Swiss subsidiary. Profits for the parts sales were recorded in Switzerland — and taxed at a lower negotiated rate than in the United States even though nearly all parts operations remained in the United States.  The Swiss subsidiary at the center of the tax strategy also featured prominently in a different investigation that dramatically unveiled itself for the public in the spring of 2017.

The case then went to the U.S. District Court for the Central District of Illinois. In March of last year,  federal agents simultaneously raided Caterpillar’s global headquarters in Peoria and facilities in Morton and East Peoria to seize documents and information regarding parts sales, export controls and money transfers between the parent company and overseas subsidiaries, among other items — all with a particular focus on the Swiss subsidiary.

A successful Hilton Head businessman Skip Hoagland has become the latest IRS whistleblower seeking rewards for helping the government recover significant sums for for tax evasion. Hoagland says that the Hilton Head-Bluffton Chamber of Commerce and others around the nation, are violating U.S. tax laws because although the operate as non-profits, they actually generate sales and are profit making ventures and should be taxed. Hoagland said he filed the IRS whistleblower case within the last month and the IRS is investigating the matter. Last week, the IRS awarded UBS whistleblower Bradley Birkenfeldt $104 Million, the largest whistleblower award in U.S. history. Hoagland hired an accounting firm Sadowski and Co.  to examine the tax fraud allegations before he filed the IRS case. The President of the Hilton head Chamber Bill Miles earns $321,000 as his annual salary. One key aspect of Hoaglands whistleblower case is that he says Chambers that sell advertising compete unfairly with companies because they don’t have to pay taxes on the revenue. The case calls into question when a company can be a 501c3 charity. Stay tuned. Jeffrey Newman represents whistleblowers. His email is jeffrey.newman1@gmail.com

A very common corporate scheme to save taxes and avoid having to pay benefits is when companies classify employees as independent contractors and issue a 1099. This is tax fraud clear and simple and has opened up a potential for whistleblowers with specific information about their company misclassifying full time employees as independent contractors to reveal that tax fraud and receive a large reward for doing so. The tax liability must exceed $2 million dollars and the proof available must be substantial and easy to follow. In addition, the matter must be reported in the right way and not revealed to the media or others. Executives, inside accountants or senior managers should also be aware that the government is now investigating these issues and it is better to report the matter than be the subject of a criminal investigation.

HOW TO KNOW THE DIFFERENCE BETWEEN AN EMPLOYEE AND INDEPENDENT CONTRACTOR

If a person is on an employer’s payroll and receives a steady paycheck, the person is likely an employee. If a person supplies their own tools, equipment and material and the worker controls their own hours they are generally considered independent contractors. The employer’s tax liability is determined by the worker’s employment status. With employees, employers must pay state and federal unemployment tax, social security tax and workers compensation tax. When a person is an independent contractor, the hiring company is not required to make any such payments.

A whistleblower who exposed a tax fraud scheme by Enron Bankers Trust before the company collapse has been awarded $1.1 million under a new tax law whistleblower program allowing for payment of a “bounty” for information about tax fraud. The whistleblower, a Wall Street banker, who has chosen to remain anonymous, revealed that Enrain inflated its book earnings due to abusive tax shelters set up with the help of Wall Street banks. The shelters involved improper duplication of tax deductions so Enron could generate illusory pre-tax income on its financial statements. The tax fraud allowed Enron to evae more than $600 million in taxable income. If you are aware of major tax fraud, contact attorney Newman at Jeff@JeffNewmanLaw.com or call him directly at 617-823-3217.

NOT ALL TAX SHELTERS ARE LEGITIMATE and tax fraud does exist. Here are a few ways in which tax shelters can be fraudulent:

1. Tax shelters that hide money to avoid paying taxes are fraudulent

2. Buying or selling assets, goods or services at far below market value to chelter income in illegal

Congress amended IRC § 7623 in 2006, the IRS’ Whistleblower Office has seen significant interest from potential informants with tips about multimillion-dollar cases of tax evasion. Government fraud via tax evasion is now leading to a major trend in whistleblowing.

Section 7623(a) authorizes payments to private citizens for assistance in detecting underpayments of tax and tax evasion. Rewards are paid as a percentage of the taxes, interest and penalties collected, based on the value of the informant’s information. Rewards can also be paid if the information leads to the denial of a claim for refund that otherwise would have been paid but should not be.

The Tax Relief and Health Care Act of 2006 sought to correct these deficiencies. It added section 7623(b), taking away the Service’s discretion in giving high-dollar rewards. Other important changes to the law in 2006 included: