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.