Aggressive, or worse yet, blatantly cheating taxpayers, have always been wary of an audit or criminal investigation by the IRS, but dishonest taxpayers may have even more cause for concern. Owners and management of companies with disgruntled accounting or finance employees or co-owners, should be especially worried. Under a provision added to the Internal Revenue Code (IRC) in 2005, the Internal Revenue Service (IRS) now grants large monetary rewards to whistleblowers who submit tax-related information that would subject the noncompliant taxpayer to serious civil and criminal penalties. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it ultimately collects.
Unbeknownst to many companies around the country, this IRC provision has inspired law firms to dedicate themselves to recruiting whistleblowers. Current and former employees now have a substantial incentive to report their company’s fraudulent tax practices to the IRS. If you find yourself in danger of a whistleblower attack, it’s essential to act quickly as you must take action before the IRS opens up an audit or criminal investigation on the supplied information. Fortunately for California residents, the dedicated Criminal Defense Tax Attorneys, CPAs and EAs of the Tax Law Offices of David W. Klasing can help concerned taxpayers understand their options for defending themselves against threatened or actual whistleblower claims. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 today, or contact us online for a reduced-rate consultation.
Who Could Potentially Be a Whistleblower in California?
Section 7623(b) of the IRC lays out the criteria for who can qualify as a whistleblower and be eligible for payment in the award program. In order to potentially receive a whistleblowing reward from the IRS, all of the following conditions must be met:
- (1) the whistleblower must submit the confidential information under penalties of perjury to the IRS’s Whistleblower Office;
- (2) the information must relate to a tax issue for which the taxpayer (if the IRS found out) would be liable for tax, penalties and/or interest of more than $2 million; and
- (3) the information must involve a taxpayer whose gross income exceeds $200,000 for the tax year at issue.
Individuals are eligible for awards based on additions to tax, penalties, interest, and other amounts collected as a result of any administrative or judicial action resulting from the information provided. If the information contributes substantially to the investigation, the IRS will pay an award of at least 15 percent, but not greater than 30 percent. If the thresholds in IRC 7623(b) are not met, section 7623(a) authorizes but does not require, the IRS to pay the whistleblower for information relating to violations of tax laws that result in some tax recovery.
How Can I Protect Myself or My California Company from Whistleblowers?
There are several effective ways to protect yourself from whistleblowers hoping to cash in on your less than perfect tax practices. Being proactive and beating whistleblowers to the punch will typically yield you the best results. protecting yourself from potential whistleblowing employees, ex-wife’s and co-owners can be as simple as communicating more clearly and frequently with employees, reviewing internal procedures for complaints and being vigilant about maintaining confidentiality procedures. It’s important to limit your employee’s access to sensitive company tax paperwork and even use nondisclosure agreements when necessary.
Voluntary Disclosure Agreements: Domestic and Offshore
The above actions are all useful as preventatives, but when you find yourself in real tax trouble, retaining a criminal defense tax attorney to help you make a voluntary disclosure is likely your simplest and most effective option. In the U.S., a domestic voluntary disclosure agreement is a program whereby taxpayers can receive a pass on criminal prosecution and other civil tax benefits by proactively disclosing prior period criminal tax acts in accordance with the IRS’s Domestic or Foreign Voluntary Disclosure Policy.
The benefits of making a domestic, foreign voluntary disclosure typically include:
- limitations of the prior civil and criminal look-back period to five or six tax years
- abatement of penalties or downward adjustment to civil penalties
- protecting potential buyers from prior ownership’s tax liabilities
While state taxing authorities may or may not have a complimentary foreign or domestic voluntary disclosure program and ordinarily reserve the right to audit taxpayers who come forward pursuant to a federal or state voluntary disclosure agreement, any such audit is typically limited to a reduced look-back period. Additionally, the IRS will focus more on understanding and confirming the reasonableness of the taxpayer’s liability quantification approach, rather than on uncovering additional tax liabilities.
If you hold foreign accounts or assets in excess of $10,000, it is highly likely that you are required to file an FBAR (Foreign Bank Account Report). The rules surrounding foreign assets are complicated and constantly changing, so it is no surprise that taxpayers frequently make errors in this area of tax law. The failure to make any foreign information disclosure is a potentially serious error and all steps should be taken to avoid even accidental non-compliance especially where foreign sources of income simultaneously go unreported for income tax purposes. Civil and potential criminal tax penalties can be severe, with fines potentially exceeding $100,000. If you have been noncompliant with regards to your foreign accounts, it is crucial to talk to an International Criminal Defense Tax Attorney to assist you with the process of making an offshore voluntary disclosure. Occasionally it may even be necessary to simultaneously make a domestic and international voluntary disclosure where both foreign and domestic income tax and information reporting noncompliance exists.
Talk to a California Tax Attorney about Making a Voluntary Disclosure
Whether you have been deliberately understating your tax filings or innocently failing to file properly, you may want to consider making a voluntary disclosure. The U.S. Tax Code is complex, but unfortunately this does not relieve taxpayers of personal liability for their reporting errors. The experienced and dedicated Tax Attorneys, CPAs and EAs of the Tax Law Offices of David W. Klasing have several years of sophisticated experience working with domestic and foreign taxpayers on a wide variety of international and domestic tax topics. If you need help making a voluntary disclosure or with any other tax-related needs, our advocates are here to resolve your matter efficiently and successfully. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 today, or contact us online for a reduced-rate consultation.
