While the False Claims Act covers a broad variety of fraud on the government, it does not cover tax fraud. Tax fraud is actually covered by a separate law, called the Tax Relief And Health Act of 2006. This law established the Internal Revenue Service (IRS) Whistleblower Office, and created a system for blowing the whistle on violations of tax laws that is similar to the federal False Claims Act. Tax whistleblowers that provide information to the IRS Whistleblower Office about the underpayment of taxes, totaling $2 million or more, are entitled to a reward of anywhere between 15% and 30% of the total amount recovered by the IRS.

The Tax Relief and Health Act is not limited to intentional fraud. It applies to any underpayment of federal taxes, even if the underpayment was unintentional; for example, if the underpayment was the result of negligence, or even innocent calculation error. Many different situations exist in which tax fraud or tax underpayment can occur. Some of the issues of interest to the IRS include the following:

• The omission of income from foreign transactions, by either companies or individuals.

• The transferring of assets outside of the United States by either a company or an individual, and the use of “offshore accounts,” to avoid reporting to the IRS.

• The use of “tax shelter” schemes, promoted by accountants, tax preparers, or attorneys.

• The overstatement of the amount of tax deductions.

• The falsification of financial documents or ledgers, or keeping two sets of financial records.

• The claiming of false tax deductions.

• The under-reporting of employee income, or paying employees in cash.

Our firm has handled whistleblower matters before the IRS Whistleblower Office, which is located here in Washington, D.C. In complicated tax matters, we have the opportunity to associate with tax specialists, so that the client gets a combination of our whistleblower law experience, alongside the substantive expertise of the tax specialist.

Some states also have procedures for blowing the whistle on underpayment of state taxes. Most notably, the New York False Claims Act authorizes whistleblowers to bring qui tam lawsuits against companies or individuals who engaged in fraud on New York state or local taxing authorities.