False claims actions, or “qui tam” actions, are well known actions by a “whistleblower,” or relator, who has discovered fraud against the Government, pursuant to the False Claims Act (FCA), 31 U.S.C. § 3729. If the Government decides to intervene in their case, the whistleblower can share in any recovery by the Government.
In addition to the FCA, other government agencies have their own incentives for whistleblowers. The most notable example is the Department of Treasury and Internal Revenue Service, which have long had a whistleblower program in place. However, on December 20, 2006, President George W. Bush signed the Tax Relief and Health Care Act of 2006 into law, which dramatically increased incentives under the IRS’s whistleblower program. Section 406 of the Act, codified at Section 7623 of Title 26 of the United States Code/ Section 7623 of the Internal Revenue Code, entitled “Expenses of detection of underpayments and fraud, etc.” provides in part that:
1. The Secretary of Treasury is authorized, in cases where such expenses are not otherwise provided for by law, to make awards for (1) the detection of underpayments of taxes, or (2) the detection and bringing to trial and punishment persons guilty of violating, or conspiring to violate, the internal revenue laws. 26 U.S.C. § 7623(a).
2. If the Secretary proceeds with any administrative or judicial action based upon information brought to the Secretary’s attention by an individual, the individual shall receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts resulting from the action), or from any settlement in response to such action, subject to the exception in 26 U.S.C. § 7623(b)(2)(A), discussed below. The amount of the award shall be determined by the Whistleblower Office and shall depend on “upon the extent to which the individual substantially contributed to such action.” 26 U.S.C. § 7623(b). NOTE: All of Section 7623’s award provisions apply only if there is an action against a taxpayer (1) whose gross income exceeds $200,000 for any taxable year subject to the action, and (2) the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000. 26 U.S.C. § 7623(b)(5). NOTE: No awards can be made under Section 7623 unless the information submitted to the Secretary is submitted under penalty of perjury. 26 U.S.C. § 7623(c).
Gillen Withers & Lake LLC, is headed by civil and criminal defense attorneys who are among the most distinguished in the Southeast, with a national reputation and excellent track record, who vigorously represent and make every effort on behalf of their clients. Contact us today by calling or e-mailing Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com or Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com.
3. If the Whistleblower Office determines that the administrative or judicial action was “principally” based on disclosures other than those provided by the individual, including from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation or from the news media, the Whistleblower Office may still award the informant an award of not more than 10 percent of the collected proceeds from such action or any settlement resulting from such action, “taking into account the significance of the informant's information and the role of such individual and any legal representative of such individual in contributing to such action.” 26 U.S.C. § 7623(b)(2)(A). However, this provision does not apply where the information resulting in the initiation of the action was originally provided by the informant. 26 U.S.C. § 7623(b)(2)(B).
4. Naturally, if the Whistleblower Office determines that the informant was responsible for actions which led to the underpayment of tax, or if the informant is convicted for crimes relating to the underpayment of tax, the Whistleblower Office may reduce or deny any award. 26 U.S.C. § 7623(b)(3).
5. An informant may appeal any determination relating to an award to the U.S. Tax Court within 30 days of the determination. 26 U.S.C. § 7623(b)(4).
The IRS has also issued Section 301.7623-1 of Title 26 of the Code of Federal Regulations, entitled “Rewards for information relating to violations of internal revenue laws,” expands upon Section 7623 and provides that an award includes amounts collected prior to the time that the informant provided the information if the information leads to the denial of a claim for refund that otherwise would have been paid. 26 C.F.R. § 301.7623-1(a). Individuals who are federal employees at the time they provide information are not eligible to file a claim for a reward. 26 C.F.R. § 301.7623-1(b). However, claims for reward may be filed on behalf of deceased persons by an executor, administrator, or other legal representative, along with certified copies of documents showing authority of the representative to file the claim. 26 C.F.R. § 301.7623-1(b)(3). Payment of a reward will only be made after all taxes, penalties or fines have been collected, unless the informant waives any claim for reward with respect to an uncollected portion of the taxes, penalties, or fines involved. 26 C.F.R. § 301.7623-1(c).
Most importantly, Section 301.7623-1 provides additional restrictions for making an award and the amount of the award:
All relevant factors, including the value of the information furnished in relation to the facts developed by the investigation of the violation, will be taken into account by a district or service center director in determining whether a reward will be paid, and, if so, the amount of the reward. The amount of a reward will represent what the district or service center director deems to be adequate compensation in the particular case, generally not to exceed fifteen percent of the amounts (other than interest) collected by reason of the information.
26 C.F.R. § 301.7623-1(c). Information under Section 7623 may be submitted in person to the office of a district director, preferably to a representative of the Criminal Investigation Division, or may be submitted in writing to the Commissioner of Internal Revenue, Attention: Assistant Commissioner (Criminal Investigation), 1111 Constitution Avenue, NW., Washington, DC 20224, to any district director, Attention: Chief, Criminal Investigation Division, or to any service center director. 26 C.F.R. § 301.7623-1(d). An informant intending to file a claim for reward under Section 7623, as soon as practicable after the submission of the information, should notify the individual to whom he or she submitted his or her information, and the informant must file a formal claim on Form 211, Application for Reward for Original Information, signed by the informant in the informant's true name.
Persons who are not current federal employees and who possess information concerning nonpayment or underpayment of large amounts of taxes or violations of internal revenue laws by other taxpayers should submit this information to the Department of Treasury and IRS according to the procedure set out in Section 301.7623-1 and should consider submitting a claim under these procedures. The submission of information and filing and enforcement of a claim under Section 7623 may be a detailed and complex process, and persons are advised to consult with an attorney.
Gillen Withers & Lake LLC, is headed by civil and criminal defense attorneys who are among the most distinguished in the Southeast, with a national reputation and excellent track record, who vigorously represent and make every effort on behalf of their clients. Contact us today by calling or e-mailing Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com or Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com.
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