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Tax Fraud & the IRS and New York State Whistleblower Programs

Tax fraud is major problem in the United States. It is estimated that 15% of the amounts owed in taxes each year are unpaid. The sums lost are equivalent to roughly three-quarters of the annual federal budget deficit. Tax evaders are not just cheating the IRS and federal and state governments. They are also in effect stealing from their fellow citizens who comply with tax laws and regulations and honestly pay what they owe.

The IRS Whistleblower Program

The IRS Whistleblower program offers rewards of 15% to 30% of the amount the IRS collects for tips or reports of tax law violations and underpayments. Significantly, the program does not require that the targeted taxpayer underpaid intentionally or willfully. Rather, reporting an underpayment stemming from an innocent mistake or incorrect legal interpretation is sufficient. However, to be eligible for an award, the amount of the underpayment must be greater than $2 million – a threshold that includes interest, penalties, civil forfeitures, and criminal fines, which can quickly run up to significant sums.

Whistleblowers need not be U.S. citizens. In fact, a significant portion of whistleblower submissions to the IRS come from tipsters located in foreign countries.

Tax whistleblower filings are pouring in. In 2019, the IRS Whistleblower Office issued 181 awards to whistleblowers totaling more than $120 million.

Tax Fraud Qui Tam Lawsuits Under the New York’s False Claims Act

Many states have their own versions of the False Claims Act designed to reward qui tam whistleblowers for exposing fraud against the state, its local subdivisions, and public authorities.

New York State’s False Claims Act is unique in that it authorizes whistleblowers to bring claims involving tax fraud. Whistleblowers can receive 15% to 30% of the amounts collected. And the statute applies not just to the nonpayment of New York state and local income taxes, but also, significantly, to sales taxes as well.

In fact, in one of the largest state false claims act settlements in history involved a case by New York State against Sprint Corp. for failure to collect and remit sufficient state and local taxes with respect to its wireless calling plans. Sprint paid $330 million in settlement. The whistleblower who filed the qui tam lawsuit received $62.7 million in reward.

Notably, the New York State False Claims Act requires knowledge on the part of the targeted taxpayer, unlike the IRS Whistleblower program, which applies even if the underpayment was unintentional. Knowledge under the statute, however, is defined broadly to include not just actual knowledge but also recklessness and “deliberate ignorance” of the truth or falsity of the information.

Common Methods of Tax Evasion

Most tax evasion schemes are committed by the self-employed and small businesses. Common evasive practices include:

  • Maintaining multiple sets of books.
  • Filing false returns.
  • Misallocating or mis-apportioning income or receipts of multistate businesses.
  • Falsifying or altering bookkeeping or accounting entries.
  • Diverting corporate funds or income to pay personal expenses.
  • Paying disproportionate levels of income to principal shareholders under the guise of salaries or other compensation.
  • Concealing, hiding, or underreporting income.
  • Overstating deductions
  • The use of offshore or foreign accounts to hide assets, conceal transactions, or commit money laundering.
  • Misclassifying personal expenses as business expenses
  • Concealing or hiding assets or the ownership of property.
  • The diversion of withheld payroll taxes.
  • Failure to report as income funds received in the form of kickbacks, loans without an intent to repay, or the proceeds of embezzlement.

If you know about significant tax underpayment or fraud, reach out to us for a free and confidential consultation.

"I can't say how lucky I feel to have found Mark Strauss to represent me in my whistleblower case. He earned my trust and put me at ease from day one. He guided me through every step, and his work ethic and dedication were amazing..." Mehmet K., Istanbul, Turkey, client
"This is to thank you for the settlement and relator award .... Thank you for all you do to bring more justice in a world where it's needed so badly." David D., Hong Kong, client
"I was referred to Mark Strauss for my whistleblower case by another respected attorney. Mark's professionalism and expertise were apparent from our first meeting and throughout the handling of the case. It was a long process, but he was at my side the entire time, went above and beyond, and got a great result. I recommend him highly." Ken K., Great Neck, N.Y., client
"I enjoyed the argument. This is a well briefed, well argued case, which I don't get all the time. So I express my appreciation to ... counsel ...." Hon. Carla R. Bebault, United States District Court Judge, District of Minnesota
"This has been an extraordinarily well-tried case. I want to thank counsel ...." Hon. Edgardo Ramos, United States District Court Judge, Southern District of New York
"Mark is a zealous advocate for justice. His dogged efforts have led to substantial recoveries for his whistleblower and securities litigation clients. If you are looking for an attorney who is not afraid to face Goliath, Mark is the one." Christopher Studebaker, Esq., former colleague