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Blowing the Whistle on Tax Fraud

Blowing the Whistle on Tax Fraud

by | Oct 16, 2020 | Whistleblower Claims

As the end of the year approaches, many companies proactively work to minimize their tax obligations. However, some companies take tax avoidance too far and move into tax fraud.

In 2019, Congress passed a law protecting employees who blow the whistle on tax fraud.

In Section 1405(b) of the Taxpayer First Act, Congress created a private cause of action for people who report violations of IRS rules or tax fraud and suffer retaliation after doing so. 

This statute protects a broad array of disclosures. It protects not just disclosures to the IRS but also internal disclosures of potential violations of IRS rules or tax fraud. The employee can report any action that the employee reasonably believes violates the internal revenue laws or any federal law related to tax fraud to the IRS and a variety of entities.  The employee gets protection even if the employee merely reports the potential tax fraud to a supervisor or someone at the company with the authority to investigate misconduct.

Any employee who does this is protected from a wide range of retaliatory acts, including discharge, demotion, suspension, threats, harassment, or any other acts that would discriminate against the whistleblower in the terms and conditions of employment.  This law also protects the whistleblower from non-tangible employment actions, such as ostracism or hostility from co-workers.

To pursue a claim under this statute, the whistleblower must establish that the protected conduct was a contributing factor in the employer’s adverse action. As in all retaliation cases, the whistleblower can establish causation by using direct or circumstantial evidence.

An employee pursuing this claim can seek “make whole relief” such as reinstatement, double back pay with interest, special damages (which can include emotional distress and damages to reputation), attorney’s fees, and costs.

But the statute of limitations for filing this claim is short.  It must be filed with OSHA within 180 days of the adverse action.

This law filled a gaping hole.  Before this law, there was really no protection available to whistleblowers who reported tax fraud or violating IRS regulations.  Instead, the only option available to a person was to report the tax fraud and to recover a bounty under the IRS Bounty program.  However, the person fired had no private cause of action available for the retaliation.

This game-changing law has gotten little publicity.  Many employers may not yet know of the broad protections it grants.   

However, employees who blow the whistle on tax fraud need to know that protection exists when they do so.  If they blow the whistle and get retaliated against, we are here to help.

Taxpayer First Act Aims To Protect Tax Fraud Whistleblowers

Taxpayer First Act Aims To Protect Tax Fraud Whistleblowers

by | Feb 15, 2020 | Tips, Whistleblower Claims

Not Everything is Protected

A common misperception about employment law is that the law will protect any employees who does the right thing and reports wrongdoing. Unfortunately, this is not always true. When an employee reports wrongdoing or possible fraud, only certain kinds of reports are protected.

Each situation is different and the law leaves many gaps in protection. For example, if an employee suspects securities fraud and reports it, whether that report is protected by law depends on whether the company is a publicly traded company.

Taxpayer First Act Now Protects Tax Fraud Whistleblowers

Before July 1, 2019, if an employee reported tax fraud and got fired for it, that was not illegal. The fired employee had no remedy for being fired except to report the company to the IRS and to hope for a bounty claim.

Last year, Congress passed a new law, the Taxpayer First Act, that finally closed this gap in protection. Effective July 1, 2019, federal law now provides extensive protection to an employee who reports possible tax fraud or violations of the internal revenue code, including a whistleblower cause of action.

To get protection, the employee must have a reasonable belief that the employee is reporting tax fraud or a violation of the internal revenue code. The employee can make this report either internally or externally. While some whistleblower laws require an employee to make a report to an actual law enforcement authority, this law does not — it is enough for the employee to report it to a supervisor.

Whistleblower Damages for Tax Fraud

If an employee makes this kind of report and gets fired for it, this new law gives the employee a claim with real teeth. The remedies an employee can seek include 200% of the back pay and 100% of any lost benefits. The employee can also recover “special damages” as well as attorney’s fees and costs.

 

180 Days to File Claim

If an employee has been fired for making this kind of tax fraud report, the employee must file a claim with the Department of Labor’s OSHA division within 180 days. So, an employee has no time to waste.

As tax season approaches, employees who see their employers violate the internal revenue code can at least know that some legal protection now exists if they decide to report it.

 Getting Help

if you believe you have experienced retaliation for reporting tax fraud or violations of the internal revenue code, we can help. Click the Tell Us About Your Problem button to start.